Is the age of the Initial Coin Offering (ICO) behind us? Are ICOs a dead concept?
That appears to be the case given the year began with a blistering pace, only to cool off by June. In short, it is a question of whether 2017 was all about hype.
At the recently concluded RepubliCon event held in Manhattan, one of the panels labeled “The Death of the Main Sale” seems to summarize the situation.
Analysts have looked at the performance of token sales in the year cryptocurrency experienced a massive price boom and one in which regulation of the industry took center stage.
Even though 2018 saw record amounts raised by April, the subsequent cooling off has the ‘main sale’ landscape dwindling at a speed that many see as a sign of the tough times ahead for the sector.
Regulations dampening ICO industry
Countries have tightened their regulatory approach to ICOs in 2018 following reports of widespread fraud and Ponzi schemes within the industry. Some Asian countries even went further and banned crypto crowdfunding methods.
Other countries like the US, through the Securities and Exchanges Commission (SEC), has tightened its oversight.
And these developments within the regulatory space have contributed to the slow down. Entrepreneurs and projects have progressively felt the weight of regulations.
And the current state of the ICO ecosystem may yet see more declines due to the failures of those seeking to use that very method to raise funds for a project.
According to Nelson Chu, whose company Cadence is in the process of releasing a security token, the big token sale is “dead” because companies have continuously flouted regulations.
Several RepubliCon panelists shared Chu’s opinion, with many holding that the era of just releasing a whitepaper and using it to raise millions of astronomical amounts of money had slowly come to its end.
The huge sums of money raised in 2017 and early 2018 has also been the biggest contributor to the ICO downfall. That was the opinion of Lee Schneider, an attorney to EOS developer Block.One.
He said that some companies raised colossal amounts of money and unfortunately had no idea how to utilize that money.
“If I raised $50 million I’d have no idea what to do with it.”
The statement may have elicited some surprised reactions from the panelists, bearing in mind that EOS developer Block.one raised $4 billion in its coin offering.
However, it helped drive home the point. Poor use of funds, failure of projects and the disappearance of company executives after the ICO might have led to the current apathy against the token sale.
By February, nearly half of all token sale projects of 2017 had failed or its team went off the radar. Another report by tracking site ICORating suggested at the end of Q2 that nearly 55 percent of ICOs had failed.
Most of these ‘fake’ projects are, however, smaller projects that have ultimately failed to measure up to the market. It has led to the belief that the slowing down is just a natural course of adjustment within the sector.
Q1 and Q2 shift to bigger players
Republic COO Caroline Hofmann says that the main token sale is not necessarily dead as such. She believes that what we are seeing is a scenario where investors and participants have become a little more enlightened and are thus cautious.
While there has been a lot of talk about the number of projects that have not made it, a new trend has emerged in the last few months of 2018.
Many of the investors have flocked bigger projects that appear to have stable companies or teams behind them. It means that, though the number of ICOs has reduced, fewer companies are attracting huge amounts of money.
In 2018, Q1 saw companies and projects raised about $3.3 billion compared to $8.3 billion in Q2. That dwarfed the amounts seen last year, which incidentally had the highest number of token sales.
Q3 statistics are gloomy though, with companies failing to reach a billion dollars in crowd sales. It is reinforcing the narrative that while the big token sale experienced an explosion in 2017, the same cannot be said of the second part of this year.
ICO hype is over; industry not dead
The industry’s landscape after Q2 is more of modest as pressure shifts to big companies or small open source projects. The panelists agreed that what these projects need is to establish an identity as well as guarantee the proper use of funds.
The lack of much noise within the sector, it appears, should not be misconstrued to mean the industry is dead.
We can maybe sum it up as more of an end to the period of greater hype to one where accountability for teams and awareness for participants is quickly shaping the industry.
A bigger percentage of attendees agreed that the issue of bigger sums of money should not be used to measure a project’s potential to succeed.
Projects like FOAM and Livepeer are two examples the panelists pointed out as modest ‘below $10 million’ sales that have progressed well.
The participants also pointed out to the resilience of the ICO market in places like Asia as a marker that the industry isn’t dying.