Augur (REP)’s Joey Krug States Most ICO Token Offerings Were Overkill and No Reason to Exist
As the year draws to a close, it will certainly be remembered for the highs and lows that were seen in the Crypto market. This had a direct effect on how money was raised. More specifically, the initial coin offering (ICO) market.
With the prices of Cryptos hitting the roof, there was an explosion of ICOs in the market; now with the current bear market, there seems to be an implosion. This is all not altogether unexpected, according to Joey Krug, Pantera co-CIO and founder of Augur (REP).
Rise and Fall of ICOs
Pantera Capital, in their yearly review, tracked the current status and trends of ICOs. In this report, Joey Krug traced the way ICOs began and how became the main method of raising capital for most Crypto projects.
He should be fairly well versed as his coin REP was the first ICO on the Ethereum (ETH) blockchain in 2015, way before it was a common occurrence.
Much before the ICO boom actually began, Mastercoin was the first to use this route back in 2013 with Ethereum following suit the next year. The whole thing took off in earnest when, back in May of 2017, during the Consensus/Token Summit, Kik announced their token sale.
Since then there have been over 2000 coin offerings, many of them steadily failing. This, the report warns is inevitable, “As the token has no reason to exist they will, unfortunately, go to zero.”
Pantera Capital highlights more possible pain
Founded in 2013, Pantera Capital is the first U.S. Bitcoin investment firm. Not only is the company a leader in blockchain investment, but it is also one of the largest institutional owners of cryptocurrencies. Thus its reports and commentaries are given due importance.
The report pointed out how this method of raising funds was rather rare in first few years, noting
“For the first three years, there were a few really amazing projects where the token was absolutely necessary to the functioning of the network. They were pretty rare.”
Since then, however, such projects have dwindled further. The CIO went on to say, “For a protocol token to have value it must be absolutely necessary for the functioning of the network and the value is only because more and more people want to use it or find it useful — it has utility. In 90+% of those offerings, the token was not required.”
The implications of the report are that billions of dollars have been put into projects that had no intrinsic value, and thus, when the market corrects itself, they will be worth nothing.
This seems more and more likely as the effects of the lingering crypto bear market has already shaved off about $100 billion. Now with the SEC, and similar regulatory authorities around the world, looking to introduce stricter rules, it will be another reason to look for alternatives to raising money through token sales.
This should see the reemergence of more traditional fundraising methods being employed. For exampled equity is considered a less risky option. In spite of this investment firms such as Pantera continue to invest in ICOs, albeit with cautions.
If the findings of the report are accurate, it is only a matter of time before most coins see their value plummet further.