The SegWit2x fork cancellation is good news for ICOs (initial coin offerings). Many crypto investors had probably a significant portion of their assets parked in bitcoin in anticipation of the fork. The effect was that fewer ICOs recently were able to hit their funding mark, a large portion missing their capital targets. With the fork postponed and bitcoin’s rise in value, we expect to see investors shopping the ICO space again soon.
With nearly 210 startups raising more than $3.2 billion worldwide, ICO funding climbed to an all-time high in 2017. ICO or token generation events (TGE) are the most disruptive way for blockchain startups to raise capital and for investors to benefit from the potential growth of early-stage businesses. It allows anyone the opportunity to seed innovation in Dapps — open source software leveraged on the blockchain.
However, there are many unethical cases of DAOs (decentralized autonomous organization) where there have been bad practices, or unjustifiable discounts, and scams. Also known as smart contracts, a DAO’s financial transaction record and program are maintained on a blockchain.
One should be mindful that this paradigm might impact the role of venture capitalists and the existence of tech hubs such as Silicon Valley. The ICO mania has no limits.
History repeated, dotcom-style
ICOs really started to gain traction after Ethereum successfully raised over $18 million and created its foundation in Zug in 2015. ICO’s success has proved that the economy was desperately awaiting a new form of funding.
History doesn’t repeat itself but it moves to different rhythms. In the late nineties, Internet companies were driving stock exchanges to new highs every day as IPOs were booming. Investors were able to double their money on day one of trading. A business idea even if vaguely related to the Internet was sufficient to achieve success. Surprisingly enough, it’s the same story in the ICO world today. The difference is that blockchain startups are issuing tokens and not shares for raising funds.
During the “dotcom bubble” investors received equity in exchange for their contributions. ICO investors receive tokens that most of time, hold absolutely no ownership rights.
Where ICOs are headed
The future for ICOs and the token market is bright, but undoubtedly more oversight is needed. As the market matures, more “off-chain” rules will mutate and adapt to try to mitigate and regulate the coin markets. This will happen more quickly than most people think. Authorities have the responsibility to legislate and the financial obligation to manage this multi-trillion market.
To maintain the liberties that a self-regulated market enjoys, several associations are leading the way: Crypto Valley in Switzerland and JBA in Japan are great examples. First they classify the token’s nature to determine the legal implications of crypto assets. Most agree to four different use cases: currency (J coin/ USDT), utility (ETH), security with dividends (TAAS) and membership (Storj).
The idea is to align stakeholders and to improve ICO transparency for institutional-grade investors. Going forward, each project will have to comply with the protocol and rule of law.
Many issued tokens lack official legal links to its operating company. That is why many institutions see no value in cryptos. For this purpose, digital ID will take center stage especially concerning KYC (know-your-customer) and AML (anti-money laundering) compliance requirements. Forward thinking project, Swiss C-shares might be the world’s first, certainly transferable smart digital shares dividend payment and voting system.
SwissBorg is one of the first companies to be legally structured using this new type of C-shares. This will offer our token holders more rights, the security and guarantee of owning outright, a portion of the company.
ICO credibility checklist
1. Companies will need a proven existing business with revenues, leveraging blockchain technology, tokenization, encryption, and decentralization. Clear and adapted legal structure, accurate financials, a clear road-map and expertise in the related business must be provided. A template website and white paper is not enough.
2. International teams should be a mix of experts in tech and business. The human component needs to be one of the main drivers of credibility and future success of the company.
3. Projects should be backed by a high quality board of advisors and endorsed by well-known institutional investors.
4. Community being at the core of blockchain … companies need strong community on social media (telegram and Github) and through Meetups. This is a way of measuring the potential swarm and goodwill of a company.
5. Strong blockchain partners.
6. New standards for valuation.
7. Transparency on what will drive the token price on the market. This exercise requires an honest and unbiased assessment of the project.
8. The token should be linked to the legal entity through the C-share protocol or something similar.
Setting industry standards
The only way to attract more mainstream investors into crypto is a clear road-map, relevant financials, accurate legal structures, and transparent token distribution followed by defined fund usage. The white paper only serves as one of the means in which to explain the philosophy behind each project.