Stats&Facts

ICO is dying. What is next?

Mar 4, 2019245

The time of ICO gradually passes. After the boom of 2017 and the shattered hopes of 2018, investors no longer believe in the detailed promises of ICO-projects about blockchain-revolution, patterns destruction, capture of market leadership and other "paper" achievements. According to our data, the number of ICO launched each month decreases (see the chart below), and the funds they collect rarely reach the required amount for the project development.

Regulatory authorities also throw paraffin into the flames as they put ICOs in a row with financial pyramids. Thus, China in 2017 introduced a ban on the ICO launching, and the U.S. Securities and Exchange Commission (SEC), placing ICO in a row with the participants of the market of traditional financial credit instruments, cancels projects that do not meet the requirements of American legislation. In fairness it is worth mentioning that fraudsters, indeed, often hide behind ICO launching to get money of gullible investors.

However, this does not mean that the cryptocurrency emission as a way to attract investment is forever lost for startups. There are several ways to collect investments that can be a successful (or not very) substitute for ICO, namely:

1) Initial Fork Offering (IFO);

2) Initial Mining Offering (IMO);

3) Initial Airdrop Offering (IAO);

4) Initial Exchange Offering (IEO);

5) Security Token Offering (STO).

 

Let's try to understand what each of these approaches is and whether they will be able to act as a worthy ICO replacement.

IFO was invented as a response to Chinese miners for ICO ban in China. According to one version it was just a joke, according to the other-quite serious idea of Bitcoin-tycoon Li Xiaolai, who planned to make another Bitcoin fork -Super Bitcoin. The essence of the approach was that a part of the new currency would be mined on premining. This money would ensure further project development.

The problem is that the cryptocurrency forks attract mostly inexperienced investors, and as a result they give practically nothing but a loud name. The exchanges add such currencies very reluctantly. For example, the same Super Bitcoin is traded at only on 9 exchanges at the moment, against 95 exchanges offering to purchase Bitcoin (according to Coinmarketcap on 26.02.2019).

The IFO is very similar to the other way – IMO. The essence of it is that the investor acquires already adjusted equipment to mine a new cryptocurrency. However, most startups produce tokens, which particularly can not be mined.

With the help of IAO, projects often try to stir up the hype around their idea and increase the recognition through free tokens giveaway. Often, Airdrop members have to fulfill simple conditions to get their tokens as registration in project social networks, posting comments on the forums, etc. In our opinion it is not quite correct to attribute this approach to alternative ICO ways of attracting investments, because it does not bring money to developers, and serves more as project advertising, which can attract large investors.  

IEO looks much more serious than the above approaches, where the exchange participates in the distribution of tokens. Before the sale of tokens, the exchange conducts a thorough legal and financial review of the project, acting as a guarantor of the purity of the transaction. For investors, this means increased reliability of the investment object, as well as potentially higher profitability, as the exchange is not interested in adding second-rate projects with low liquidity. Additionally, the problem of "gas" war is solved, when crowdsale participants compete among themselves for the right to acquire tokens, setting a higher commission (gas) for the producers. Accordingly, the higher the commission, the more likely that your application will be processed in the first place. Among the disadvantages of IEO should be singled out discrimination of investors on geographical basis (country and territories from the USA sanctions list of) and the risk of hacker attacks.


Perhaps the most popular way of attracting investments today is the issue of security tokens – tokenized shares, real estate objects and other "physical" assets. Such coins give the investor the rights to profit, or dividends. But more importantly, they give the investor the law protection, because STO projects fully meet the requirements of the SEC, which means that investors can file a complaint in case of violation of their rights. The disadvantage in this way of attraction of investments consists in considerable expenses on legal support of STO-project which is more expensive, than at ICO, and in high threshold of entrance (from $5000), irresistible for private investors.

It is the security tokens that are considered by the experts as the most appropriate alternative to ICO. Nevertheless, projects will take a long time to cope with the new realities, where the attraction of serious investments is not related to the general promises and color pictures in white papers, but to compliance with the law and physical assets capable of convincing Investors in seriousness of intentions. 

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