ICOs Will No Longer Exist By 2025?
2017 was a year when initial coin offerings have collected over $6.4 billion of investment. It seemed that ICOs will inevitably dislodge traditional fundraising methods. However, since then, the enthusiasm for ICO as we know it has cooled down.
Why did it happen, and will ICOs no longer exist by 2025? Here are some of the Priority Token team thoughts on this subject.
► Rise And Fall Of Version 1.0 Of ICOs
Coinschedule states that ICO projects have raised $20 billion of investment since the beginning of 2018. Sounds optimistic, but the fact is that almost a half of the sum has been raised by the top-10 projects, including EOS ($4,197,956,136), Telegram ($1,700,000,000), Ruby-X ($1,196,000,000), and so on. Also, keep in mind that the number of ICOs flooding the market has increased dramatically as to compare with 2017. In this way, an average share of each project became significantly smaller.
More and more projects fail to meet the investors’ expectations — due to bad intentions, lack of expertise, poor management, regulatory issues, and a variety of other reasons. According to the DeadCoins, more than 800 tokens that were sold in course of ICOs are currently inactive. The Coinopsy experts predict that at least 1,000 projects will eventually die in the near time.
One of the typical mistakes of the ICO founders — a failure to estimate a future value for the project tokens. Because of that, their tokens soon become no more than useless trinkets. According to DIAR, 70% of tokens are now valued at less than their initial ICO price. 402 out of 562 projects that raised over $8.2 billion are now worth only $2.2 billion. 324 projects (over a third of those that completed an ICO) still don’t have their tokens listed on any exchanges.
► Regulatory Issues
The US Howey test, widely used to distinguish securities selling, can be to some extent applied to token sales. Basically, an ICO offers an investment of money in a common enterprise in order to profit from the efforts of others, which fits into the Howey test quite well.
This has already lead to a variety of SEC securities restrictions in regard to a number of projects, as well as registration and reporting requirements for even more of them.
This has to be taken into account since selling unregistered securities can end you up with heavy fines and even imprisonment. One of the well-known examples is Tezos, a company that raised over $200 million during its ICO. Today the project is no longer active due to a pile of lawsuits from angry investors claiming they’ve bought unregistered securities.
So does it mean that an ICO as we know it, a handy crowdsale vehicle allowing to skip legal compliance issues and other trouble of classical fundraising, is about to die? Most likely, yes. By all means, a quick-fix ICOs of 2017 will exist no more in 2025. But it doesn’t mean the industry is falling apart. So what ICOs will be like in years to come?
► The Future Of ICO
The ICO market will continue to expand, and advanced projects will flock to it. However, regulation will also be amplified. These factors will force the teams to increase the quality of their offers and their expertise in project management.
As for now, the market consists mostly of retail investors. In future institutional investors like venture capital funds will enter the market, and this trend can already be observed. VCs are now seeking solid projects on the pre-product stage to invest in them early and get maximum ROI.
As for the regulatory issues, the authorities are now unsure as to how to approach the ICOs. It can take years for them to have it sorted out, but when they do, ICOs may look more like traditional IPOs, with all the necessary safety measures and legal compliance.
Security Token Offerings, or STOs, are a step in that direction. With a utility token, the investor doesn’t own anything, since there is no real asset backing the token. With a security token, the investor owns an asset that the token represents (equity, derivatives, real estate, etc.)
Although Initial Coin Offerings have already raised billions, the very concept of ICO is still in its infancy. Now we witness this form of fundraising evolve in order to become more convenient, trustworthy and beneficial both for the founders and the investors.
If you are about to launch an ICO, we advise you to stick to the industry’s up-to-date best practices. And if you need some help and guidance, Priority Token is always there for you.
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