If the ICO craze is over, what’s next?

Is the ICO craze over? From a recent Token Economy newsletter:

However we are coming across more and more projects avoiding public sales all together, opting instead for phased out private-only rounds structured as traditional equity rounds or SAFTs/private pre-sales, or a combination of both in sequence. Data provided by our friends from Tokendata show that, in January, $180 million worth of capital was raised by projects that had initially planned a public sale, but eventually cancelled it and raised privately. These include Olympus Labs, Nucleus Vision, Coinfi, Shipchain and a bunch of others (not going to lie, we had not heard of most of them). Of the balance, anecdotally 50–75% was possibly raised via private pre-sales.

They speculate it’s due to regulatory fear, influx of institutional money, huge capital due to increase in value of $ETH, and a handful of other factors, including “more sanity” among founders (ha!).

What this means is unknown, though have some well-reasoned predictions including alternative distribution models where real usage is the goal, increased transparency from quality projects, and a boom in the fully compliant tokens.

Fully-compliant is one thing; proving worthy of the funds raised will be a big task this year. Many projects will not survive and that trend will begin to hurt wavering projects, where token holders decide to sell before value goes to zero.

Crush Crypto Core Listed on IDEX – Crush Crypto

Originally, this was introduced on the Iconomi platform, which had a KYC process in place restricting those from countries with potential regulations, like the United States.

The solution? Wait a few months and list on an unregulated exchange, providing conveniently scheduled liquidity periods.

Crush Crypto Core (CCC) is now listed on IDEX. Anyone can now purchase CCC from the exchange.

For those of you who live in countries that are excluded from ICONOMI (US or Canada), or if your deposit limit in ICONOMI is maxed out, you can purchase CCC directly from IDEX.

In order to jump start the liquidity of CCC, we will put up some orders on IDEX every day at 2pm PST (5pm EST or 10pm GMT) so there is guaranteed liquidity at that time. We will put up buy/sell orders for CCC at the market value as quoted on ICONOMI, but will pull the order after 15 minutes since the value of CCC fluctuates continuously.

via Crush Crypto Core Listed on IDEX at Crush Crypto

Ray Dillinger on the Sad State of Blockchain

From Ray Dillinger, who reviewed the blockchain code for the orginal bitcoin source code and began experimenting with virtual currency back in 1995, comes a regretfully toned message on the current state of affairs:

Sadly, many of the people who launched these alternates don’t know what they’re doing. Even more sadly, most of them do know what they’re doing, and at least three quarters know that what they’re doing is ripping people off. They strive to do it as well as they possibly can, usually by means that I can’t really distinguish from blatant stock price manipulation and insider trading.

His lament comes after praise of bitcoin and Satoshi:

Every Trusted role is, by definition, a weakness in security. You can see why security professionals are aghast when people talk about “Trusted Computing Modules” becoming a standard part of computers.

Satoshi had developed, as far as I’m aware, the first digital cash system with no Trusted role at all and thus, no way to abuse a Trusted position.

You know the old saw about being able to get a lot done if you don’t care who gets the credit? Satoshi doesn’t want the credit. Two years later he walked away and left the pseudonym behind. And hard as this may be to believe, it looks like he doesn’t even want to be paid for it. As far as we can tell he mined approximately a million Bitcoins and has never sold a single one of them.

The original selflessness of bitcoin feels a long way from the ICO-craze.

I hate to even imagine how many billions of dollars of scams and failures and thefts have been perpetrated by abusing people’s faith in and enthusiasm for that technology by now. And I have no idea how we could possibly have prevented it.

Yet Another Shady ICO

The latest crypto-related scam is Alex Tapscott’s crypto VC firm. Laura Shin reported:

The company was attempting a $100 million CAD ($78 million USD) raise after having already received $20 million CAD in a private offering.

However, the firm announced it was aborting their plan.

The move comes days after Forbes disclosed that the company had falsely named four crypto stars as advisors in an investor deck labeled version 5. When confronted by two of them, Tapscott had told one, Kathryn Haun, a board member of Coinbase, that she had only been included in a printed version, when she had obtained an electronic copy (version 5).

The other, Vinny Lingham, CEO of blockchain identity startup Civic and a shark on South Africa’s Shark Tank, told Alex via email he was hearing he had been named an advisor and Tapscott wrote back, “You are (obviously) not an advisor and have not been listed as one! So bizarre.” Lingham responded he was looking at the deck with his face and bio on it and said, “please don’t lie to me.”

Tapscott still seemed to want overlook the lies.

That evening, Tapscott, when asked by Forbes about the four falsely named advisors, said, “I currently have an order book for this financing of $250 million. To me that’s really the big story.”

Another example ICOs attracting the wrong people?

How Token Hodlers Create Added Volatility

A post from late September by Primoz Kordez, an advisor at ICONOMI, on token “hodlers” create volatility:

…there will always be a certain share of token holders who act as investors, either active or passive. Even if these investors are passive in their behavior, do they really have no effect on a network at all? Interestingly, in the token economy an investor is someone who impacts the floating number of tokens that can be utilized. By having more “hodlers” or passive investors in the token ownership structure, they effectively take tokens out of circulation for use. Assuming velocity of tokens and total spending stay constant, the floating value per token must increase if more tokens are hoarded by investors.

Essentially, the number of active tokens is reduced thus making them more susceptible to large swings caused by a large buy or sell from a passive investor. If a number of tokens are suddenly dumped onto the market:

It can lead to a downward spiral in which investors’ decisions cause underutilization of tokens exchanged, leading to lower network value and causing additional investors to flee.

This problem is most costly when token utility users (as opposed to passive holder) need more tokens to meet increased utility demands. They must trade for the tokens from another coin at a poor rate and don’t benefit from a higher token value since they require tokens for real usage.

The best scenario for stable and predictive token dynamics is to have more actual users in the ownership structure, but this isn’t something that can really be controlled.

Good projects need to be owned by real users – not passive investors. Users get the most value out of the network and should be rewarded for usage. Perhaps it’s possible to reward heavy users with increased token values or additional tokens. Using Vitalik’s idea of a predetermined sink, some percent of unused tokens could be burned, thus slightly reducing the number of tokens held by non-users? (A holding tax of sorts).

Star Ratings and Blockchain Stock

Matt Levine shared some thoughts on the upcoming ICO from Overstock.com’s subsidiary, T0 (t-zero)

There are two fundamentally different ways to think about “the blockchain” in finance. One way emphasizes the qualities that originally made bitcoin interesting: its trustless, decentralized nature, in which no one owns or controls the system as a whole. This is of course the philosophy behind bitcoin and Ethereum, but it is also the philosophy behind some of the more interesting and successful initial coin offerings. “The point of an ICO, done right,” I wrote recently, “is that you are not building a business; you’re building an unowned system for everyone to use.

The other way to think about “the blockchain” ignores those philosophical ideas and just treats blockchain as a technology improvement.

He goes on to portray what a mere technology improvement would look like for T0:

“All stock securities will eventually become tokens” [Overstock CEO Patrick Byrne’s quote] sounds ambitious, and in a way it is. If it’s true, then the opportunity for blockchainy stock exchanges like tZero’s to displace incumbent banks and exchanges is enormous. But in another way it is a retreat from the more interesting ambitions of blockchain proponents. It’s not a new form of business organization, a new way to build decentralized protocols to displace corporations as the engine of technological innovation. It’s just the regular old form of business organization, through public stock corporations, but on the blockchain.

Not exactly the future most crypto-enthusiasts are looking for. It needs to be more than that.

Geography of Token Sales

From Observations on the Geography of Token Sales at Smith + Crown:

  • In terms of both sales activity and raise amounts, Switzerland and Singapore are unsurprisingly leaders.
  • The number of sales occurring and the amounts raised in the United States isurprising, given a widely held view of US regulatory risk.
  • In addition, the list of countries filling in the secondary tiers of ICO activities contains a number of somewhat surprising entrants. Whether this represents a relatively small number of globally-dispersed outliers or the beginnings of a new trend of projects moving away from traditional financial centers–crypto or traditional–is yet unknown.

Along with the writeup, they created 3 nice-looking charts/infographics to analyze various ICO data by country. There’s less discrepancy overall than I would have expected. Now, if only we could see from which countries ICO money originated.

 

For stable token values, sinks are highly beneficial

Vitalik published a post on the valuation of medium of exchange tokens, which have dominated the ICO landscape. This type of token implies that it can be exchanges for goods and services on a platform built by the development team. It’s similar to a Kickstarter-style funding, except that tokens must have ongoing value. It’s not sufficient to deliver a product once.

…the cycle is not complete, and in fact it never will be; there needs to be an ongoing stream of buyers and sellers for the token to continue having its value.

He goes on to the many factors that go into determining the value of a token, concluding:

One immediate conclusion from this particular insight is that appcoins are very much a multi-equilibrium game….Another, and perhaps even more important, conclusion is that the market cap of an appcoin depends crucially on the holding time H. If someone creates a very efficient exchange, which allows users to purchase an appcoin in real time and then immediately use it in the application, then allowing sellers to immediately cash out, then the market cap would drop precipitously….hyper-efficient exchanges are around the corner

Due to this, he says values cannot be sustained solely on their usage as a medium of exchange; there are too many outside factors. He cites Etherdelta as an example of an alternative model, where fees are collected in the interface. Another option it to set a side a specific amount to buy back tokens and burn them, thus reducing deflation/costs of holding over time.

The important thing is that for the token to have a stable value, it is highly beneficial for the token supply to have sinks – places where tokens actually disappear and so the total token quantity decreases over time.

There’s been a lot of discussion lately about the value of tokens and the right way to do a token sale/ICO. The standards around tokens/ICOs need to be raised and hopefully this helps push more projects in the right directly. Of course, it won’t do much to help the dozens of poorly structured projects that have already raised millions.

 

ICO Returns Waning?

In their last two weekly emails, which unfortunately are not published on their blog, TokenData.io has shared some interesting findings around ICOs lately. Last week, they shared:

We’re also tracking more than 140 tokens that have been issued through ICOs (142 to be precise). A quick analysis on the returns of these 142 tokens – relative to BTC and ETH – shows that “only” 31% of tokens outperform both base cryptocurrencies (graph can be found below) if held since issuance.

And this week, they shared further data showing a slowdown:

On average, tokens outperformed the two base cryptocurrencies for the first 3 quarters of the year. And – although time and data are very sparse – this outperformance trend has come to a slight halt right now. The 4 ICOs that took place in October and whose tokens are being traded, have underperformed both ETH and BTC. Moreover, BTC is outperforming both tokens and ETH for the first time. While it’s too early to proclaim that “winter is here” the TokenData team will keep you up to date in the coming weeks as this unfolds.

Below is a screenshot of their data. Interestingly, the average amount raised by the 40 “successful” ICOs is much lower than the ones that underperformed ETH and BTC ($14.8 million vs $10.2 million).

 tokendata - ico performance

Likewise, ICOs have raised much more as of last vs pre-2017 and Q1.

  • 2016: $3.8 million
  • Q1 2017: $1.6 million
  • Q2 2017: $17.9 million
  • Q3 2017: $14.2 million
  • Q4 2017: $31.5 million

While recency likely plays a part, since some tokens haven’t had time to see large gains, the fact that the values are starting significantly higher decreases the changes of a huge gain significantly.

 

 

 

ICO Analysis Report Updates & Additions

UPDATES ON ICOs WE’VE COVERED

  • Ripio – added a speculative buy score from Picolo Research
  • WorldCore – added a “negative” opinion. If you’re considering participating in this one, give the full report a read.

NEW ICO REPORTS