It seemed almost impossible that the ICO market could keep growing with regulatory issues and the potential for intervention from watchdog institutions affecting the space as a whole. The loudest dissenter being the U.S. Securities and Exchange Commission, which has recently cracked down on the sector, while various Chinese governmental entities have sought to ban ICOs outright.
A recent report, though, has found out that the ICO market growth is continuing. Far from stagnating, a report just released by PWC in collaboration with Swiss Crypto Valley Association demonstrates that it is stronger than in 2017, where ICOs raised $3.8 billion. So far this year, also according to CoinSchedule, a website which keeps tracks of the data, start-up companies have raised already more than $17 billion.
The first token sale, later known as an Initial Coin Offering, was held by J.R. Willett’s Mastercoin in July 2013. However, In 2017, ICOs saw an unprecedented surge that brought attention to ICOs as a fundraising method. Initial Coin Offerings are an alternative to the classic VC fundings methods, allowing a start-up to create a digital token via a number of different platforms, for example, Ethereum, which offers a toolkit that enables a start-up company to create a digital coin.
The start-up can then launch a public ICO, where retail investors are invited to contribute to raising funds to develop the project, buying the digital tokens issued by the start-up. Unlike the classic Initial Public Offering (IPO) that ICOs are dubbed after, the contributors don’t get an equity stake in the company, like when buying shares in a public firm. And herein lies one of the key differences that separate ICOs from other types of funding, and the opportunity for both a start-up and the backers of its project: an ICO allows you to issue a coin that can be used in the development of a product that has the potential to grow and become real. There is also a (legitimate) expectation for the digital token to appreciate in value itself, and that’s where speculation can kick in.
However, what should matter most to both serious start-ups as well as serious contributors and investors, is the common goal that lies underneath every well thought-out, legit and solid ICOs: the will to make a project take off, develop and grow, to the advantage of the whole ecosystem and all the parts involved.
It seems such virtuous goals were not the most sought after one lately, as speculations and scams plagued the landscape, making it increasingly more difficult for real, solid start-up projects to emerge within the sky-rocketing numbers of ICOs available.
As Richard Muirhead, founding partner at Fabric Ventures, an investment fund focused on blockchain projects, recently said in an interview to CNBC: “Are there fraudulent projects? Yes. Are there ill-conceived sales that have not thought through potential regulatory issues? Yes. Are there poor projects that will ultimately fail? Naturally. However, amongst these, there are many, many deeply innovative projects amongst which a handful will be gamechangers.”
Some of the findings of the PWC and Crypto Valley Association report represent a confirmation of this positive outlook and, in this sense, are reassuring for start-ups like Elpis Investments, which is about to launch its public ICO. For starters, the report points out that: “Strategically, ICOs continue to crowd out traditional VC funding, especially in technology and Blockchain-related startups. Hybrid models (combining classic VC/PE funding and ICO) are increasingly establishing themselves as a valid funding alternative.”
Contrary to popular thought, “The majority of top funded ICO projects are on track and the product is further being developed — only a few have no product yet.” A fact that brings back the ICOs to their main, if not only, a reason to exist: to help in funding and developing a project with the potential to grow into a real business.
On the regulatory front, the report underlines a positive trend emerging particularly among the more solid and promising projects. Start-ups that are not looking to speculate, but to grow and last are creating better and more secure regulatory set-ups for themselves and the contributors willing to tap in. The report points out how solid ICOs are showing more attention to a “careful evaluation and selection of jurisdiction, where company/ foundation to issue tokens should be set up. Stronger focus on governance and legal entity set-up. Pre-registering requirement for investors combined with KYC/ AML investor identification limits max. purchase by investor solving distribution.”
The positive outlook for solid start-ups successfully using ICOs to fund their projects is summarised by this quote: “After ICOs went through a hype-cycle in 2017, they are becoming more mature and established in 2018.” More “mature and established” means that start-ups that have strong ideas, solid plans and teams to realise them, like Elpis Investments, are looking for and finally finding ways to emerge in a space so far crowded by way too many scammers and speculators.
Real “gamechangers” are going to emerge and overcome: through innovation, radical transparency, revolutionary use of technologies like AI, a vision that encompasses both the success of the project and of all the parties that are involved and contribute to it.