ICOs: What's the problem right now?

In the past year, the capital contributed by ICOs rose quite steadily. It is also clear why: It is a simple way to finance your own business idea.

If you take a look at the figures for 2018, it immediately becomes clear that the invested capital declined rapidly. One could now counteract and make the claim that the funds invested in April are still above those of November. However, a closer look reveals that about half of the April capital is covered by the EOS ICO. Telegram (TON) and EOS both influenced the February high to a significant extent. We will take a closer look at what this considerable decline is due to.
ICO - the puffer fish among the assets?

It can not be denied: a high number of ICOs turn out to be scams. Only 8 percent of the ICOs are successful and are listed on Exchanges. That this makes the regulators sit up is natural. In July of last year, the US SEC published the "DAO Report," which disclosed that some issued tokens under the Securities Act of 1933 are an investment contract. Thereafter, these tokens fall under SEC regulation. The SEC enforced this decision four months later in the case of Munchee Inc. These events then led to some subpoenas and enforcement actions earlier this year.
Total Capital Raised by ICOs via Medium

In sum, these events result in less capital being invested in ICOs, as shown in the graph above. It can not be denied that the SEC's stranglehold makes an ICO less attractive as a form of finance for founders.
Advantages of ICOs not to be dismissed

Basically, an ICO has many advantages over the venture capital, which is seen as a classic form of financing in the start-up scene. If you want to find a venture capital investor as the founder, you can expect many more tasks such as pitch decks, executive summaries, due diligences, etc. In addition, there is the possibility that one must assign company shares to investors. In order to do this legally correct, further lawyers are needed, who in turn cost money.

An ICO appears to be the easier way for many founders: you can easily get more capital faster than venture capital. In addition, at best, it is financially supported by people who have the same vision.

There are also some advantages for investors: While you can only invest in venture capital with very high sums, you can participate in most ICOs with just a few hundred euros. Both forms of investment are highly risky. For venture capital, however, the money is usually tied up for several years. In addition, a management fee is due, which one must afford in a VC investment.

The fact is: ICOs as a form of capital procurement have dark sides, but also relevant advantages. Innovative business ideas are promoted, high value increases are possible and one can participate in the success of the company. Since the world is not just white and black here, too, one will have to agree on a middle ground so as not to "regulate away" long-term ICOs.
A possible solution

It is imperative that there is some regulation for ICOs. The fact that a legal framework exists for such investments is basically an advantage for both founders and investors. One possibility for a compromise would be the so-called principle of proportionality. This has already been implemented in the MaRisk (Minimum Requirements for Risk Management), a management instruction of BaFin aimed at credit institutions.

The principle of proportionality states that smaller institutions have fewer instructions to follow. Companies with a higher risk must therefore comply with stricter regulations. This principle of proportionality could be applied analogously to ICOs and used as a guideline for the required capital. For example, companies that want to take less than 1 million euros have fewer directives. Conversely, this would also create an incentive to calculate the capital requirements with a sharp pencil.

In order to foster innovation and give ambitious founders the chance to realize their idea, it is imperative that simplicity persist despite regulation. Otherwise, the number of ICOs will continue to decrease.

source: https://www.btc-echo.de/icos-woran-hakt-es-momentan/