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Cryptocurrency avalanche: why the ICO market is growing so fast

Monday, 30 October 2017

The Initial Coin Offering (ICO) market is new and relatively small. In 2016, the world spent an ICO of $ 103 million, if you do not take into account the hacked and canceled ICO project The DAO. In the same year, the world market of venture investments amounted to $ 127 billion. Meanwhile, according to the portal CoinDesk, for the first half of 2017, ICO was held in the world for $ 1.13 billion, of which $ 797 million was in the second quarter. The results of the second half of the year promise to be even more impressive.

The first ICO took place just over four years ago. In January 2012, a software developer from Seattle J.R. Willett published a white paper, a document proposing the creation of a programmable "money layer", an add-on over the existing blockchain of bitcoin. Mastercoin's proposed protocol was to allow anyone to create their own crypto currency using bitcoin as the basis. To fund this development, in July 2013, the Mastercoin fund conducted an ICO: five hundred willing to help the project transferred to its e-mail address 5,000 bitcoins for $ 500,000 at the then exchange rate, receiving in exchange digital ToToken tokens. The idea was that tokens - not shares, but a kind of digital debt receipts - would go up as the protocol evolved, and in time they could be sold more expensive.

In 2014 and 2015, the number of ICO could be counted on the fingers, but in August 2014, a rather large placement took place: Ethereum blocchain, the creation of Canadian-born Vitalik Buterin, attracted 31,591 bitcoins. At the rate for August 2014, they were worth $ 18.4 million, now the same amount would cost about $ 140 million. Today, the vast majority of ICOs are conducted on the basis of Ethereum - the relative simplicity of writing smart contracts (a protocol that, based on mathematical algorithms, independently conducts transactions and controls their implementation) promoted the popularity of the platform and facilitated the attraction of funding. In 2016, the number of ICOs was measured in tens, and a real breakthrough happened in the spring of 2017, following a sharp increase in the rates of major crypto-currencies. In the summer and autumn of this year, there were at least a couple hundred ICO per month in the world. RBC magazine analyzed the 100 largest in terms of attracted funding ICO - the picture turned out strange, but interesting.

TOP ICOs

In Blockchain We Trust

The main conclusion - judging by the figures, the most attractive factor for investors is blockchain as such. The two largest ICOs are the projects of new blockchains: Tezos, which attracted $ 230.5 million in crypto currency equivalent, and EOS - its crowdsdale has already raised $ 200 million and is likely to become the largest in history, as it will continue until June 2018. And the project Aeternity held two rounds of ICO for a total of $ 31 million, both were listed as the top 100. All these detachments claim the title of "killer Ethereum" and want to challenge the hegemony of the platform of Vitalik Buterin.

In general, for projects that are related to the infrastructure of the detachment, new blockchains, the creation and transformation of tokens, the interaction between various blockchains, blockchains and the outside world (oracles), etc. - accounted for almost a third of all funds raised by the 100 largest ICOs. On the second place in terms of the amount of funds raised and the first in terms of the number of projects - the finance sector: crypto-currency cards, purses, banks, exchanges, payment systems, etc.

At the same time, most of the projects do not have a working product, or 84 of 100, according to our calculations. Obviously, this is not a negative factor for investors, unlike the presence of blockchain in the project (if the business model is not connected with the blockchain, count on a large ICO not worth it - with a huge share of probability it will not cause much interest in crypto-investors). A number of projects have already expired or postponed to a later date the date of release of the product or service indicated in the "white books". This date is often indicated vaguely and vaguely or not at all.

Uncertainty is facilitated by the very status of the "white page" as opposed to the issue prospectus that is issued before the IPO (Initial Public Offering, initial public offering), white paper is not a legally binding document. Strictly speaking, this is a declaration of intent or presentation, set out in freestyle, and not legally binding obligations. The companies that go to ICO at the same time try in advance to give up any responsibility related to the conduct of the crowdsdale. Here, for example, is an excerpt from the "white page" of the EOS project, which is hard to suspect of malicious fraud (at least in the general background): "EOS tokens have no rights, objectives, functionality or functions, either express or implied, including without limitation any applications, goals, attributes, functionality, or functions on the EOS platform. The company does not guarantee and in no way promises to the buyer that EOS tokens have any rights, goals, purpose, attributes, functionality or functions. "

The sale of tokens to the ICO is reminiscent of the situation in which your friend decided to build a casino and gave you chips of an institution that has not yet been built, licensed, and so on in exchange for investment. And you yourself sold a chip on the Internet to a stranger with a fake name who does not even know how to build a casino and which you can not sue if he steals your money and buys Porsche on them.

Business on trust

From the point of view of existing laws, all ICOs are now in the gray zone, and the crypto currency itself does not have a legal status. Some countries like China and South Korea have already banned ICO in their jurisdictions - as the market expects, before the development of laws and regulations. How can this new industry, the scale of which is already measured in billions of dollars, manage to still exist and grow in conditions of lawlessness and total suspicion?

The main and often the only capital of blockchain projects is trust. The largest ICOs, measured in hundreds of millions of dollars, were conducted by well-known and reputable people in this environment: investors are confident that for these people the development of the ecosystem is incommensurably higher than the possibility of fraud. The level of confidence in the blockchain enthusiasts like Vitalik Buterin, Bernard Lietar (Bancor) or Janislav Malakhov (Aeternity) is very high - often even their approval word sharply increases the chances of a new project for a successful ICO. Almost all the teams want to see in the advisers Buterin, but more recently, Vitalik refuses everything (in several projects, he is still considered an adviser from previous years). Increases the credibility of the project and the availability of respected venture capital funds such as Sequoia Capital and Andreessen Horowitz or such new and successful crypto funds as Polychain Capital, Blockchain Capital or Crypto Fund AG.

If the project does not have a strong idea authoritative in the blockchain environment of the founders and large investors, the success of its ICO may be due to the high-tech, which began this spring and can just as quickly come to naught. In addition, 2018 promises to be a real test for the huge number of projects carried out by ICO - this year they promised to produce ready-made blockchain-products and services. If this does not happen (and the chances of a massive disruption in terms are quite large), the young ICO industry may collapse sharply. The best projects are likely to survive, but the fate of the secondary token market of thousands of other projects will be unenviable. At the beginning of October, more than 1100 various crypto-currencies (including tokens) were traded on specialized exchanges, and the total capitalization of this market was $ 150.2 billion.

When preparing the text, the materials used were CoinDesk, KPMG, Token Data, Smith + Crown, Coinmarket.