ICOs: Many Raise Questions, Some Offer Opportunity

ICOs: Many Raise Questions, Some Offer Opportunity

 

It has been an eventful year for cryptocurrencies as ICOs have suddenly emerged as the dominant crowd-fund model. In practice, an ICO is essentially a business model which issues a token whose purchase is required to access the goods or services offered by that business.

An ICO token, then, is generally a Blockchain-derived cryptocurrency, similar to Bitcoin for example, but which also carries a functional value of sorts.

A huge number of start-ups have raised enormous amounts of funds through the ICO fund-raising model whilst having little to offer above a concept written on paper with not such much as a viable product in sight. The act of successfully raising funds cannot necessarily be taken as an an ideal parameter to judge on its eventual success as a business.

Judging the Potential Success of an ICO

Whilst there is as yet no market consensus about what a successful ICO looks like, even the best ICO investors around will, if they are being honest, admit to a sentiment-based aspect in their decision to go with an ICO or not. There are, however, some parameters that can be used to assess on its eventual success:

  • ICO is attracting support from Venture Capitalists
  • Has a beta version / minimum viable product (MVP)
  • Receives support from a vibrant and enthusiastic following
  • ICO has set out a clear road map, elements of which it has successfully completed before going to sale

 

Concrete Examples

Let’s have a look at some examples and see how they compare to our list.

Gnosis

Gnosis is a decentralised platform for prediction markets on the Ethereum platform. The project aims to allow users to bet on future events such a sports games or elections.

In August 2016, the start-up initiated private testing of its Beta version of software. In April 2017, it launched its ICO, raising $12.5 million via a Dutch auction. The startup has demonstrably been following its own, well-defined roadmap, showcasing its achieved milestones.

Whilst its current token price sits below its ICO price, this is likely more a reflection of some fickle investment attitudes that do not align with a long-term perspective of allowing the business to develop and expand its operations.  

Iconomi

Iconomi is a digital assets management platform, that uses multi-signature protected cold storage to archive and protect digital assets.

In September 2016, the start-up raised $10.5 million in an ICO from 4,000 investors. By October 2016, the company already had a product in place with another already in development. The company’s timeline announced the use of money for further hiring, new office space and development of its products.

An initial exchange listing at $0.20 is now hovering at the $1 mark. 

Golem

Golem is a decentralized market for sharing computing power. The project allows users to make money by renting out their computing power.

In November 2016, the start-up raised US$8.6 million in its ICO for Golem Network Coin (GNT). The project is touted by the community as an ‘Airbnb for computers’, and the team has provided a timeline to various product releases which are titled ‘brass golem’, ‘clay golem’, ‘stone golem’ and ‘iron golem’. The beta version of its first release ‘Brass Golem’, initially slated for May 2017, was released in August 2017. 

An initial ICO token price of around $0.015 now pulls in a tidy $0.30. 

Future of ICOs

Whilst critics of ICOs may assert – quite rightly – that the associated risks are generally quite high, a discerning attitude underpinned by diligent research should mean that there are worthwhile projects that make for good long-term investment opportunities. 

Crowdfunding, as a capital-raising mechanism is still evolving and is witnessing an influx of both mature and immature market players. If the former win out, or if competent regulatory frameworks arise to gently dissuade bad-faith actors from entering the market, then ICOs may just go on to become the most prominent start-up fundraising mechanism of our generation.