Creating Stability in the World of ICOs to stop Uncertainty
From bartering basic commodities to high-frequency trading, the world of finance has made giants leaps through history. Before ICOs came to life, start-ups had two possibilities to fund their projects: raise seed capital or borrow money from a financial institution. In both cases, entrepreneurs had to present a solid business plan, as well as credible path to financial success, quarter by quarter. In addition, start-ups needed to show some degree of understanding in financial regulation to ensure stability over the build-up phase and beyond.
Since the introduction of cryptocurrencies, the funding of start-up projects has taken a new meaning. Today’s digital entrepreneurs are able to run a business venture with almost no restrictions. Thanks to their decentralized nature, no government has the monopoly of cryptocurrencies or can determine their value. This alone is an attractive business proposition.
Where trust and regulation meet
In 2013, J. R. Willet launched Mastercoin, the world’s first ICO. He raised half million dollars’ worth of Bitcoin at that time. Five years later, ICOs have become a viable funding alternative in the crypto world.
Today, there are more than 1,500 cryptocurrencies with a combined market cap reaching nearly USD 250 billion. The popularity of ICOs have turned currencies such as Ethereum into mega cryptos. Others such as messaging App Telegram have managed to raise over USD 1.7 billion through two selling rounds from less than 200 private investors. This example underpins that ICO as a tool to raise funds can result in a huge success if the ICO is built on a solid ground and professional skills and knowledge. But for every successful ICO, there at least two dozen ICO scams that continue to tarnish the credibility of the crypto space. The rise in the number of ICO scams is tied to the simplistic nature of running an ICO. With easy access to digital wallets and lack of regulation to protect them, young investors are particularly vulnerable to these scams.
While the mechanics of running an ICO are relatively simple, the environment in which they raise funds has become increasingly complex. The complexity is mainly due to the lack of trust ICO projects face from potential investors and the public. The trust issue drains a great deal of resources from start-ups in legal and marketing expenses.
The regulatory uncertainty is another factor that leads to mistrust and probably one of the reason why the number of ICOs decreased in the third quarter of 2018. Regulatory agencies are constantly changing expanding restrictions, which put numerous projects at risk. These restrictions are in response to crypto and blockchain start-ups that had violated security laws — and in many cases — without even being aware of them. This results in a “cascade of uncertainty” which is associated with confusion about token classification. Investors and start-ups founders are multiplying the calls for clearer ICO definitions and regulations.
As they evolve, ICOs will swing back to their true nature as a legitimate way to raise money. In a recent research paper, BitMEX showed that ICOs as a tool to raise funds have been an impressive success. In fact, even a further fall of the value of Ethereum will hardly have any impact in the crypto space. The research indicated that ICO net profits have reached in 2018 a whooping USD 727 million. In another report, Fast Company stated that 20% of all ICO projects provide solutions to issues that couldn’t be solved without blockchain technology. Showing the concrete benefits of blockchain and cryptocurrencies as a force for good will boost the trust in the technology behind it and its potential.
Stable coins: Hype or game-changers?
Due to the high volatility of cryptocurrency assets, many people stay on the sidelines of the blockchain movement. The emergence of a new player in the crypto space — stablecoins — is about to change that.
Stablecoins are the hottest thing in crypto right now. They are a form of cryptocurrency pegged to another stable asset — such as the U.S dollar or gold — and are mainly used as a liquidity tool for cryptocurrency exchanges. Stable coins are global and have low volatility compared to other forms of cryptocurrencies. This allows practical usage of cryptocurrency such as paying for things every day. And that’s why stablecoins provide a solution to increase trust in cryptocurrencies and among users.
According to a recent Forbes article, the perfect cryptocurrency should have price stability, scalability, privacy and decentralization as attributes, whereas stability is the key factor as short-term stability is important for transactions and long-term stability is important for holding. Stablecoins have the potential to break down the barriers of uncertainty and their adoption can be a catalyst to the new decentralized internet becoming mainstream.
Don’t be shy, ask for help!
Conducting an ICOs needs much expertise and knowledge about the market, about the token economics, the legal framework and marketing. Without deep knowledge in the industry, it is almost impossible to know which business models are feasible and which one are not. Launching an ICOs means also maintaining the project a having a team with the required know-how.
Many founders of ICO start-ups possess a great deal of expertise in the technology and tokenomics but know little about the legal framework. And the marketing strategy is often the last thing entrepreneurs think about. A team of skilled professional in all divisions of a business — from technology to finance to marketing — is nowadays indispensable in order to conduct an ICO, to remove uncertainties and gain trust in this revolutionary technology!
THE RELEVANCE HOUSE is a full-service blockchain marketing consulting agency for startups conducting an ICO. The focus is to guide blockchain startups in building, designing and delivering a relevant brand and story. Because only relevance has impact. We look forward to hearing about your project. Contact us, we don’t bite!
