Building The World: ICOs And The Cryptosphere In 2018
The gathering blockchain impact is rolling quietly on like a silent tsunami. ICOs in 2018 represent a large step up from 2017’s figures, both in terms of the number of ICOs and the values involved.
For a bunch of kids lining up at a diving board, however, many ICOs have belly-flopped and the spectacle has been less than stellar on many occasions. From a free-for-all where individual projects sank or swam on their own merits, the cryptosphere is accumulating a body of knowledge that might be indicative of a fundamental weakness in the model itself. At minimum, it points to a need for much greater regulation, preferably from industry bodies.
For the 2018 YTD, a $5 billion increase over 2017 has been recorded in ICO funding. 2018 has witnessed $12 billion given to ICO funding, as opposed to $7 billion for 2017.
Almost half of this year’s total amount, however, is accounted for by Telegram ($1.7 billion) and EOS ($4.2 billion). This has prompted commentators to note that, although expanding, the much-vaunted massive uptake of the ICO model seems to currently be skewed, if not somewhat ill.
Complicating the emergence of the ICO model is the percentage of hollow offers that have jumped onto the ICO bandwagon. The route from novel ICO to being a liquid, large-cap digital coin is convoluted at best. The realm has also been littered with poorly conceived projects and outright scams.
Some 20 percent of project white papers may be mere noise, while phishing and outright hacking have been responsible for stealing around 15 percent of all crypto assets by market cap, a startling statistic. Some 50 percent of all ICO projects never raised sufficient funds, or did so only to fold shortly thereafter.
Startup Stats Are Grisly
The ICO model is not alone in featuring bad statistics, as some 65 percent of Kickstarter projects fail, for example. Around 70 percent of venture-backed startups fail to reach Series A. Some 85 percent of DotCom tech initial public offerings (IPOs) also flop within 10 years of launch.
Consensus thinking is a major driver of digital asset well-being. Cryptocurrencies, as an asset class, are viewed and evaluated along traditional asset lines, and the top ten virtual currencies also dominate market sentiment, whether legitimately or not.
Bitcoin’s slump going into 2017 dampened almost every crypto sparkle, making things that much harder for emerging ICOs. Moreover, market cap and daily returns are poorly correlated in the arena, as a trend, something that is anathema to legacy investment models.
More than 300 crypto funds have been formed to allow for investment in digital assets, and these funds collectively control about $7.5 to $10 billion of funds under management. Much like individual ownership, these digital assets are heavily concentrated among a very few companies, and the future of funds with less than a $25 million kitty looks bleak.
As the financial industry works towards formalizing digital tokens as an asset class, these needed refinements of the arena will start to make it recognizable, benign and profitable for legacy investors. There has been decentralized exchange proliferation and there have also been custody developments that enable institutional players to speculate on digital assets.
Unthinkable a year ago when regulation was just gaining bluster, virtual currencies can now be traded via traditional financial products, like Bitcoin futures. With that said, many legal, advisory and digital exchange parties have monetized ICOs as middlemen, encouraging spurious evaluations and making the cost of buying into an ICO that much higher.
An emerging acceptance in the realm is also that choosing an ICO token or liquid coin doesn’t pay, at least from an longer-term investor’s point of view, in comparison to indexing strategies. These and other dynamics are only now being assimilated into a body of knowledge that can point to streamlining the arena and populating it with needed support. Emerging token taxonomies need to be met with with a unified framework, one that marries both public and private blockchains, and the arena.
Between monied legacy investors and successful crypto startups, the community is finding its feet, and missing bits, now that legal or regulatory requirements are known. Various players are emerging to support the arena, and it is hoped too that in the next phase of digital asset proliferation, this will also diversify current digital wealth concentrations. Their ability to drive new token costs up for investors will also hopefully become stymied, at at least more competitive.
Establishing Protocols In A New Digital Asset Class
The more than $20 billion explosion of ICOs since the start of 2017 has come with mixed blessings, and the arena remains one in which there is still time to straighten things out and quash monopolies, although some aspects like Bitcoin mining already seem destined to be the monopoly of big hitters. The global financial industry is hard at work to present tokens as a complete digital asset class. Seen as such, the digital asset market cap of some $300 billion would become a component of the $10 trillion alternative global investments kitty, or a bit part of the global $500 trillion in assets and securities.
Besides ICOs, airdrops and forks also generate funds for a project community. These routes are also in need of acknowledgement and regulation, to prevent a gap through which scam offers can proliferate. Observers note that the token economy is off to a good start to becoming an asset class, assuming certain focus points are prioritized.
Firstly, amalgamating digital and traditional custody facilities needs to become commonplace. Secondly, liquidity will receive a major boost with institutional players on exchanges. And thirdly, existing and emerging digital exchanges will need to refine their offer and run within the same incredibly tight service margins of legacy exchanges.
The established fintech world is moving in this direction, also tokenizing traditional securities by employing Security Tokens. Although seen as pariahs for the longest time by many cryptosphere enthusiasts, legacy fintech players can help in formulating recognizable digital asset offers that bring fees down, enhance access and push the agenda of wealth management distribution. As things stand right now, “crypto infrastructure” per se is often still inefficient, too expensive and open to innumerable points of opportunistic rent-taking by strong, vested intermediaries.
Cryptosphere ICO Summary
From a brisk and novel new model, ICO launches are now accruing many of the costs and challenges of legacy IPOs. The burden of managing a listing and investor relations, while trying to focus on core value tech development and sales, is pronounced in a modern ICO.
This is unlike the expectations of private early stage tech firms, for example, and many projects don’t get it all right at the end of the day. Devising a token is also a highly taxing task, as developers immediately need to incorporate a detailed understanding of the target industry, overall economy, incentive employment and also the token’s features. Presenting a comprehensive ICO that is unambiguous on issues like staking and burning, while still pointing to the inherent value of it all, is can be extremely difficult.
As issues like securities law treatment, fund regulation and payment protocol regulation begin to solidify, the cryptosphere holds the potential to be a shiny new offering, brimming with value. Global regulators generally employ a tech-neutral approach, viewing needed legislation as enabling business and human endeavor, rather than software developments.
A distinction between “original” digital currencies and second-generation assets is beginning to form, and should also contribute to the overall professionalism of the arena. The cryptosphere is healthier overall than a year ago, but its health makes its ills more visible.
The next five years represent the entrenchment period for cryptocurrency. It remains to be seen whether needed developments at least render the realm compliant in every sense, and thus attractive to investors. With a bit of luck, lots of regulation within the industry and some innovation, the cryptosphere might even look better than the legacy realms in five years time.