Even before the rapid dropping of Bitcoin and other cryptocurrencies, there was talk that the ICO market was defunct. And we must admit that this is not just talk. Here are some very indicative data of the ICORating report for the 3rd quarter of 2018:
is the total funding amount raised by 597 projects over the quarter, compared to the $8,359,976,282 collected in the 2nd quarter of 2018
57% of ICO projects
announced in Q3 2018 were not able to raise more than 100,000 USD. Only 4% of all announced ICOs were listed on exchanges.
The fall was 48%
In the quarter from July to September alone, the fall in funding raised via ICOs was 48%. Funding raised in September fell by more than 78% compared with May
In November, cryptocurrency market panic gives even more rise to say that the ICO market is already dead. Many owners of tokens are urgently searching to sell their ICO tokens.
Indeed, the ICO market at the end of 2018 doesn’t give reasons for optimism. And this is a completely natural stage which was easy to predict. The situation is as follows. Since the end of 2016 and till the beginning of 2018, ICO market was full of optimism – both founders and investors. The average development time of a blockchain project is from several months to a couple of years. And only by the middle of 2018, it became clear that most ICOs are unable to fulfill their promises to investors neither regarding the price of tokens nor regarding the completion of the project.
The reasons for the fall of the ICO market
We can name several reasons for the fall of the ICO market in 2018:
Half-baked and non-viable ideas of projects
Most of the ideas on which ICO projects were based have remained mere ideas – due to the lack of a real product, lack of a market niche, lack of sufficient demand.
Copying existing projects
ICO rapidly copied each other and similar non-ICO projects.
In some niches, there was an absolute overabundance of projects – for example, several hundred (if not thousands!) ICO on the creation of cryptocurrency exchanges.
Only a lazy person hasn’t launched own ICO in 2017-2018. It seems it is the easiest way – to create a website, write a White Paper, run ads and collect money. And, well, it is still necessary to develop a product. But some other time.
Misuse of blockchain technologies
The magic word “blockchain” was perceived as a marketing ploy. At the same time, 90% of projects absolutely didn’t need blockchain technology, and moreover, blockchain was directly contraindicated to some projects. These projects died in the first place.
With the advent of ICO, scammers from all over the world have got a second wind. This inevitably affected the confidence in the market.
Scammers and inexperienced investors, as they say, “found each other”. The easy access to investment in ICO turned out to be a huge disappointment for many investors.
As a result, we have what we have – a crisis in the ICO market.
STO vs ICO?
A new form of crowdfunding – STO – is being actively discussed. According to many analysts and experts in the field of crowdfunding, STO will replace ICO and save everyone. Of course, Security Token Offering has some advantages over Initial Token Offering:
– STO is within the legal framework;
– Investors have rights, not virtual, but real ones: the right to receive dividends, the right to vote on certain issues, and sometimes even the right to share in the company;
– STO is forced to be more transparent to investors, including with regard to its finances and corporate structure.
But STO has at least two essential disadvantages:
– Significant restrictions for investors – not everyone will be able to participate;
– An expensive and long procedure of legal packaging of STO project.
It is hard to expect that STO will become as much trend as ICO. We venture to guess the situation will evolve as follows. The ICO market is quite capable of surviving the current “crisis of maturing”. ICO-projects will be smaller but they will have better quality. The information field around such projects will shift to the product – instead of hype around a token sale. STO will also take its niche and make the market more respectable. It is likely that many projects will combine ICO and STO and offer utility tokens and security tokens. Each type of token will be intended for a specific target audience.