The ICO sector has been the sole form of fundraising for new blockchain based projects. It has been both a gigantic success and a massive failure. Many say that with an increase in regulatory oversight, the days of the ICO are numbered.
The success largely stems from the fact that it is an easy form of fundraising that bypasses the traditional channels. In 2017, ICO’s raised over $5.6 billion in funding. No need to petition angel investors and apply to banks and large institutions for credit. The process would take months and would never be accepted, given that ICO’s are high risk and high reward. In fact, often ICO’s are no more than a whitepaper describing what the projects will attempt to accomplish once they are given funding. In other words, many are not what could be called “creditworthy” by standard financial institutions.
On the other hand, many of them are complete game-changers, and we will never know what they can do if they are not financed. Take Polymath as an example. It is difficult to grasp how big Polymath is regarding what it intends to do. In a nutshell, it aims to tokenize practically all financial securities, including the trillion-dollar derivative market, and it needs to do this in line with existing KYC and legal regulations. The whole financial world, on one blockchain. It’s hard to even imagine. Another blockchain company operating in a similar space is tZERO, who aim to tokenize the capital markets sector.
Both of these companies are focused on bridging the gap between blockchain and existing regulatory requirements. To enter the securities market, regulation and compliance are a necessity, not an oversight. Both of these organizations understand this. The most successful blockchain companies will be the ones that will work hand in hand with regulatory authorities.
The failures are more or less self-explanatory, and in many ways could spell the end of the ICO market when viewed from the outside. Millions of dollars are raised within hours, and the subsequent ICO cannot deliver on its whitepaper. Investors lose everything they invested with no recourse as the market is unregulated. There is no need for detailed analysis – this event happens all too often in the ICO market. Tezos is a prime example of this, among countless others. Nearly 50% of the ICO’s launched in 2017 appear to be struggling. And because it has happened so often, it needs to be addressed.
Governments across the world have outlined concerns about the ICO market, including South Kora, Russia, China and the USA. After an initial ban on all ICO related sites, China is likely going to reevaluate its position in the coming months, and Russia is set to decide on cryptocurrency related legislation by July 1st. It looks like government intervention, but it is more of an optimization and a safety net than a crackdown. The successful companies tend to make the most noise, and investors are not going to advertise how much they are losing in the ICO market. The stereotype that everybody is making a killing off ICO’s is a myth. 2018 and beyond could reveal more scandals and bankruptcies unless safeguards are put in place.
So it seems that the ICO market is not dead, nor dying. In truth, it has just been born and needs some careful guidance to mature. We have had the infant years of ICO investment and mania, and despite the successes, many people got stung. For globe changing blockchain based organizations such as Polymath and tZero to take off, a marriage between regulatory authorities and free market fundraising needs to take place. The ICO market will be better off with a guiding hand, and the ecosystem as a whole will be safer and more successful.
Digital Nomad with an interest in Zen and Blockchain technology.
Law graduate with 3 years experience as a consultant in the capital markets industry and 4 years experience freelancing on UpWork as a Creative Writer.