The Strategist

ICOs raise $ 118 million in Q1 2019

04/02/2019 - 12:13

Startups attracted only $ 118 million in the first quarter through primary placement of cryptocurrency tokens (ICO), reports The Wall Street Journal, citing data from TokenData. For comparison: they attracted $ 6.9 billion for the same period a year earlier. This is another sign of the decline in the popularity of cryptocurrency.

Investors are discouraged by new regulations against ICOs, spread of fraudulent schemes and overall decline in the market.

The report also says that out of 2.5 thousand projects, which TokenData representatives have been watching since 2017, only 45% of ICOs managed to raise the required amount of funds. At the same time, analysts have calculated that only 15% of tokens that successfully completed initial allocations of coins are traded at the sale price or more expensive.

Abundance of scam projects and growing number of criminal cases brought against them scare investors away, while startups themselves are already afraid to mention ICO. It is believed that the ICO model may soon disappear altogether. However, many experts are sure that the idea of ICO deserves development, perhaps in the format of placing digital securities after the necessary legal concepts have been defined by regulators.

The researchers stressed that if the ICO market disappears, investors will switch to security token offerings (STO). At the same time, investors will receive an increased level of protection of their funds.

Such placements are made with permission and under the control of the SEC only among professional investors; the list of persons who received security tokens is provided to the regulator. Experts believe that in the future the issue of securities and bonds will be transferred to STO.

Recall that in mid-February, CoinSchedule conducted a study that showed that even after a repeated fall in the cryptocurrency market in 2018, the ICO market is still larger than it was in 2017.

At the beginning of the current year, another alternative option, IEO (Initial Exchange Offerings), came to replace ICO. Initial exchange offers are different in that non-project developers are looking for investors for new tokens, but a cryptocurrency exchange selects promising teams and promotes their coins among their users.

From the point of view of an investor, the process of transferring funds is changing. Instead of sending cryptocurrency to a smart contract of the project, potential holders will have to open an account on the exchange, transfer cryptocurrency there and, as soon as IEO is launched, buy tokens directly from the exchange. Managing of the exchange in cryptospace brought considerable benefits to the founders due to the high transaction fees, but as the market keeps developing, competition begins to increase.

With ICO, listing of tokens on the stock exchange may not be carried out immediately, but several months after the completion of the token sale. In the case of IEO, the exchange is initially the key partner of the organizer of the alternative token sale. So, the latter issues tokens and sends them to the exchange. In turn, the exchange distributes digital assets among interested investors who are verified users of the trading platform.

Instead of the usual ICO investor sending funds to a smart contract, the IEO participant needs to register (and, as a rule, verify) on the exchange, transfer funds to the account and, after starting the tokensale, buy coins from the exchange directly.

The agreement between the exchange and the organizer of IEO may contain various conditions: the maximum sales volume of tokens per investor, a predetermined asset price, hardcap and softcap, the percentage of sales and a fixed amount of funds for the trading floor, distribution of marketing costs, etc.