ICOs Raised $4 Bln in 2017, What 2018 Has in Store [NEW YEAR SPECIAL]
2017 has definitely been a record-breaking year for ICOs: a fiat equivalent of some $4 bln have been raised, and the number of successful token placements have increased to a couple of hundreds globally. Yet, in the same year, traditional IPOs are estimated to have raised $188.8 bln in total of 1,624 deals, according to E&Y IPO Global trends report. Only in third quarter, 2,645 venture capital deals amounted to $42 bln.
ICOs
have raised less about two percent of global IPO proceeds, but ICOs not
IPOs, and not venture capital deals, are the talk of the street these
days. Why?
In one year only ICOs proceeds have surged
almost 40-fold, from $96.3 mln in 2016. In 2014- 2015 the amount was
microscopic. More than 180 new ICOs are scheduled to launch in 2018, according to ICObench listing.
It
would be superficial and arrogant to explain the ICO explosion only by
desire of newly-rich crypto-miners to invest their unexpectedly
reevaluated digital assets in something productive and to protect
themselves against volatility. It may be the case, but it doesn’t
explain the whole case. In fact, there are three root causes of ICO
success.
The good reason
ICOs and
cryptocurrencies exploit fundamental flaws of the traditional funding
methodologies. They bring justice and equality to projects from
underprivileged geographies, sectors, and don’t rob founders’ share
while doing so.
Traditional financing is tilted towards
an intermediary, not a creator, and it is designed to lower the risks of
that intermediary, not the investor or founder while maximizing
intermediary’s yields. It basically works around the principle of
Matthew 12:15 - “Whoever has will be given more, and they will have an
abundance. Whoever does not have, even what they have will be taken from
them.” Simply saying, it takes money to get more money.
Classic
venture financing is orders of magnitude harder to achieve for those
who live outside global hub cities. Most US funds won’t even consider
financing an enterprise not domiciled in the US. Venture capitalists
normally claim a hefty part of the equity in exchange for the money, so
investors, irrespectively of their share, greatly influence the decision
making of the founding team, and not always for good.
The
first answer to these problems were crowdfunding platforms. ICOs have
just made another step towards reducing the friction behind
crowdfunding, de-intermediating it further.
The bad reason
Getting
venture financing, let alone reaching for IPO afterwards, requires the
team to distract themselves from the product development, marketing and
promotion. Compliance, legal and due diligence procedures make the
auxiliary mission of securing the funds for the project a separate task,
as complicated or even more complicated than launching the product
itself.
It’s not the only reason behind the ICO triumph.
Despite
cyber-anarchists’ wet dreams, states won’t go anywhere anytime soon,
and legal norms for ICO didn’t appear out of thin air. As they say in
the military, service regulations are written in blood – of those who
died to teach others a lesson. Stock exchanges and financial markets are
regulated not exclusively to keep the profanes out. It is because most
scams, frauds and crashes have already happened there. Sooner or later,
ICOs will be regulated. And we should rather be a part of the solution
to this problem, not the problem itself.
The ugly reason
In
ideal post-Blockchain smart-contract, self-governing, crypto-anarchic
world, imagined by technophiles, we should all be singing “Hosannas” by
now, praising human progress and ingenuity.
But we
wouldn’t be humans if a life-changing invention weren’t used to cheat,
defraud and steal. Cryptocurrencies and subsequently ICOs aren’t an
exception, and there are and always will be frauds of course.
Traditional financing doesn’t necessarily offer substantially better
investor protection. Even the most stringent due diligence doesn’t
guarantee against fraud. Crypto investment schemes are especially prone
to it because of anonymity.
ICO segment is still in
its infancy, yet this baby is gaining weight alright. Childhood
illnesses are many. First and foremost, crypto world has a severe
reputation problem. The SEC calls for extreme precaution when investing
in ICOs. To gain trust, we should start from within, and establish it
first with the community.
Even in the absence of
governmental regulations, self-regulation framework of ICOs will
inevitably arise. Moreover, to avoid overregulation and unnecessary
intervention of governments, it is essential that the community keeps
policing itself better than any regulator. That’s exactly where the
sector is headed – otherwise, it won’t survive.
What to expect in 2018
In
coming year ICOs will offer more projects to serve the broader
community, not limiting itself anymore to the Blockchain infrastructure
development, payments and speculative trading. It will less much less
revolve around purely financial technology. In 2017, we have already
seen examples of Blockchain notary public, Blockchain-based real estate
investment, loyalty programs, supply chain management, intellectual
property rights management and other real-world applications. We’ll see
more of that in 2018.
- By Sergi Dromo
Sergi Dromo is a cyber pessimist, techno-philosopher and unorthodox thinker.
Source : cointelegraph.com
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