Initial coin offerings (ICOs) mark an important aspect in the Web 3.0 Blockchain revolution. In exchange for capital, companies sell tokens. People can either use the token, or anticipate it to rise as demand for the company’s goods and services increases. There are three types of tokens now in the market.
- Payment tokens: They have no further functions or links to development projects, and are seen as a mean of payment.
- Utility tokens: They intend to provide digital access to an application or service. Most of the ICOs today come under this type.
- Asset tokens/ Security tokens: They represent assets analogous to equities, bonds, or derivatives.
There is much pessimism in ICO’s rise, and much like any new technology, skepticism remains.
Bear Market Would Bring Best ICOs
The bear market has impacted the cryptocurrencies massively and investors who are sitting on fiat have only one thing on their mind: are cryptocurrencies going to fall further? Similarly, the crypto-funds which actively invest in the ICOs are reluctant to do so. The reason stems from the 60% discount rate that cryptocurrencies are now trading at, forcing a project to be very promising to be worthy of any cryptocurrency deployment. Anyone investing in these tough times will only be looking at the best projects, ones which investors would not want to miss under any circumstances.
Token distribution or so-called tokenisation models have improved enormously and the bear crypto market has made companies to look at that model even more closely. It is no longer 2017, when pump and dump models work with ease. Companies holding ICOs have become more aware whether their tokens are held in the wrong hands, since doing so limits the long-term value of their tokens. The introduction of larger lockup periods has tied up investors in the tokens for a longer period of time, with the average being just over three months.
It is not uncommon for founders to retain up to 20% of the tokens initiated, although they tend to have little domain experience. Problems such as a lack of raised capital and token cash flow will emerge. However, it is crucial for founders and their teams to hold tokens. Creating a profit motive pushes the team to work harder as their hard work will eventually translate into monetary gains. A higher profit motive allows a company to attract better talent, improving the team. This is comparable to the finance industry, where partners, such as ones from Goldman Sachs, are given shares so their financial success directly correlates to the firm’s. Goldman Sachs’s strength in the banking industry proves this point.
The current situation in the crypto-world is uncertain. Increasing difficulty in producing the same returns as before means that only the best VCs are joining. To maximize their success rates, they are only looking at the best projects – ones worthy of smart capital injection: the combination of money, connections, publicity, and know-hows. Today’s market automatically eliminates the poor performing ICOs, but provides worthy ones with more and better resources.
Only The Best Exchanges Would Survive
The days of everyone trying to open a crypto-exchange to facilitate mainly alternative coins are numbered. Regulators around the world are tightening their grip and even the well-established exchanges are highly scrutinized. Japan and South Korea by far represent one of the strongest markets for exchanges. As of Wednesday, two more exchanges in Japan – Mr. Exchange and Tokyo GateWay – have decided to withdraw their application with Japan’s Financial Services Authority, ceasing their operations. With regulators applying necessary and healthy pressure onto the industry, platforms which merely act as an excuse to raise funds, instead of adopting core technologies, will be soon shut.
Today’s ICO market lack regulation and scrutiny. The existence of many scams is virulent, and investors are facing a wild climate. Yet, the lack of regulations is only a short term problem. Government agencies such as the SEC and Switzerland’s FINMA have started to formulate regulations on cryptocurrencies, covering aspects such as money laundering. Extra scrutiny is given by the tech giants, as Twitter, Google, and Facebook have imposed advertisement bans on ICOs, preventing scams from gaining publicity.
Tokens allow access to a service offered by an ICO start up, whereas USD or Bitcoin may not. This creates intrinsic value as the token symbolizes the key to unlocking a startup’s utility. The intrinsic utility of a token, thus, is present as long as a company has value.
There is huge development going on as this article is written. Medical and pharmaceutical companies have started developing blockchains and cryptocurrencies, ones which are used to gain capital whilst enabling access to new drugs and secure storage and transfer of electronic health records.
Ford, an industry giant itself, has started to engineer new cryptocurrencies. In essence, the system allows drivers to sell their time by choosing to move to a slower lane, accepting crypto-payments from vehicles that don’t want to overtake them.
Cryptocurrencies enable access to the service of companies, e.g. Ford. Even if the token has no value on its surface, it unlocks the services companies provide. And, if ICOs aren’t creating new utility, people simply won’t invest, and it won’t make it far in the long term. The crypto-market purges itself.
Hence, it has value in its core, and ICO skeptics fail to understand beyond the surface of utility tokens.
All of these advancements are fundamental to the cryptocurrency eco-system. The future of blockchain and cryptocurrencies is paved, as regulators and firms are standing up to stop investors from losing money to scam ICOs. A lot of ICOs fail, true, but so do a lot of startups. Only one out of 10 startups eventually become profitable. In fact, the relationship between ICOs, startups, and new business branches are tightly correlated. In this new era, when ICO regulations slowly appear, ICOs can be seen as an alternative method for raising capital. Denying ICO success is denying the potential of startups, and by extension, being pessimistic on innovation and improvements.
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