Photo by Leonardo Yip on Unsplash

Of ICO’s we might take heed of the words of Robert Frost

Take care to sell your horse before he dies. The art of life is passing losses on. 

Entertaining quote aside, the Death of ICO’s has been somewhat over-played.  Do I currently invest in ICO’s? Absolutely not (aside from Trybe which is a special case with an actual product – us). Do I spend hours searching for the next great ICO? Nope. Have I  done so in the past – yes and yes. Am I generally out of the market for ICO’s of any make shape or form? Yes, for now. 

At this moment in time, most ICO’s are basically akin to throwing your funds away. The returns just aren’t there. The scam rate is too high, development too slow, the regulatory framework too uncertain and the low-hanging fruit already taken.

None of this means the revolutionary funding opportunities offered by ICO’s are dead and gone.  It simply means that the current model will need to be improved for a return of investor interest. Now think on it, will start-ups the world over simply abandon this form of capital raising? Sure, most will but others will seek to’ reform’ the current ICO model and address its key weaknesses.

To be clear, I’m not talking about Security Token Offerings or STO’s. In fact, I believe most first wave STO’s will utterly fail to deliver long-term returns to retail investors but that’s a whole other post. Even if certain jurisdictions label all ICO’s as securities going forward other jurisdictions are likely to formulate more nuanced judgments allowing ICO’s a place in the market.

Irrespective of the debated legal distinctions between “securities” and “utility tokens,” sales of these digital assets have already proven to be an effective way to bootstrap the development of decentralized networks and the decentralized applications (dapps) that thrive within them.

A BluePrint for Reforming the Crypto Token Market

Reforms That  May Resurrect Investor Interest in ICO’s


Smart Contract Milestone Release of Funds

Initial coin offerings will return to the stage when quite simple changes are made. First and foremost – stepped access to invested capital. At the moment its an all or nothing investment with ICO’s; you pays yer money and hope the team doesn’t simply run away with your funds or grind to a halt at some point in the future. Once in, you relinquish all control. However, what if your investment was drip fed to the developers through the deployment of a smart contract, if and only if, they hit certain pre-defined milestones. As such, your funds would layer into the project as it met it’s goals or simply be proportionally returned to you should the project cease to make any progress.  This, after all, is the very promise of smart contracts – that they partially automate the process of contract business in a trustless fashion. 

 Stakeholder Funding Voting

If automation through oracles etc. isn’t favoured then a model utilizing stakeholder voting could also be effective. Within this system, token holders would periodically vote on the project’s progress with funds only being released after stakeholder majority approval. Obviously,  the outcome of the vote would be subject to the whims of larger stakeholders and therefore, in my opinion, less optimal than a smart contract system. Perhaps a hybrid of the two will emerge – where small portions of funding are released through smart contract executions while major fund allocations would need stake-holder approval.

Lower Capital Targets 

Another key reform and one that’s already underway is the lowering of start-up fund targets. As projects focus on raising much more limited initial funds the possibility of substantial returns for early investors returns. A leaner start-up model also improves the likelihood of an ICO delivering on its promise as the honeypot return for founders lies in the success of the project rather than the initial funding round itself.

Earlybird Fund Raising and Vesting Clarity

 Removing multiple early-bird fundraising rounds will also be a significant piece of the reborn ICO puzzle. How often have we all felt the sting of the launch and the subsequent price tanks due to early investors dumping their tokens acquired at vastly lower prices comparative to later retail investors?  Where there are early funding rounds – a clear declaration of the amounts and vesting periods will be a baseline for retail investor interest.

Regulatory Clarity

Obviously, each jurisdiction will come to its own conclusions in regards to how to regulate ICO’s but the US, the EU, China, and Japan will probably set the global agenda. As each nation or political body settles on a set of laws regarding ICO’s it will be easier to judge the wisdom of investing in a particular project. However, such clarity is likely years away and savvy ICO’s may still successfully launch as long as they fundraise in more permissive jurisdictions such as Switzerland, Singapore, and Malta.

STO’s though likely the next ‘big thing‘ in fundraising initiatives will not in and of themselves eradicate ICO’s. They might, however, prompt the kind of reform that may return ICO’s to some prominence in years to come. Of course, the frenzy of 2017 is unlikely to be repeated but a more measured form of ICO may indeed make a return. Should that come to pass, I may again delve in the magical mystery tour of the ‘ICO’. At a complete guess, the end of 2019 may see the gentle return of ICO’s that meet with interest and that may offer investor value. 

What do you think? As always looking forward to your comments and critiques.

For a dive into US fundraising laws from IPO’s to ICO’s I highly recommend this podcast.

http://offthechain.libsyn.com/ken-nguyen-tokenizing-the-world-one-startup-at-a-time

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Responses

    1. CryptosDecrypted Post author

      Spot on @workin2005..I actually meant to highlight the need for a community-based ICO guideline body that would set minimum criteria for ICO’s to meet and perhaps endorse them as ‘accredited’ in some way but then forgot! Cheers

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  1. Nicky Havey

    I personally thought the first idea about a “tiered release” of investments for hitting milestones would be a safe bet for investors as it’s not “all or nothing” – if they don’t feel the project is being run properly, they can just stop investing and cut losses.

    Also agree with the early bird discounts section – yes it’s ok to give those who invest early a bonus but just do a blanket discount if people purchase coins before a certain date, then take that discount away after the date.

    Great ideas, let’s hope they catch on 🙂

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  2. miti

    Articolo estremamente interessante e del quale condivido tutto. Un’altra soluzione proposta da Fabian Vogelsteller (creatore dello standard ERC-20) è quello delle RICO (Reversible Initial Coin Offering) sul quale ho scritto un articolo il 3 Novembre.

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  3. Jungle Onion

    seat think everything comes in and waves. The first and second wave of icos resultef in a scam and a failed for a big number of projects. But time passes and companies are understanding the power of doing things right so newerr icos are presenting utility value and a minimum viable product when they are proposing a token sale. Most icos that failed , did so because they didnt have a working product , everything was fake promises or a vague clone of another blockchin code. But trybe among other icos this year feel tangible.

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