EY Report: Most Tokens’ Value Derived from “FOMO”

EY Report: Most Tokens’ Value Derived from “FOMO”

British* audit house Ernst & Young has just released a report of its comprehensive analysis of 372 ICOs conducted in 2017. The token sales included in the research raised a total of close to $4 billion.

The report highlighted the fact that the number of token sales reaching their targets dropped between June and November 2017. This trend appears to have reversed in December and January as we reported here.

3 out of 4 ICOs Operate on Ethereum Platform

During 2017, the total amount raised by ICOs was more than four times the amount raised from traditional venture capital funds. However, the large sums being raised has also attracted hacking attacks. The researchers believe that more than 10 percent of investor funds may be lost to these attacks.

Of the projects analysed, 77 percent were being built on the Ethereum blockchain, 13 percent on custom networks and 4 percent on the Waves platform.  The report pointed out that the popularity of the Ethereum network had led to a 1,447% increase in the number of transactions on the network and a 5,072% increase in the cost of deploying a smart contract.

The report pointed out that most tokens were being valued on the basis of “fear of missing out”, rather than on project development forecasts and the nature of the token. The lack of fundamental valuation can lead to extreme volatility once a token begins trading on the secondary market.

The researchers concluded by saying that blockchains can increase project transparency but emphasised that the industry must set new standards that are accepted by all participants.

They also said that blockchain technology is expensive and slow, and only proved to be useful in a limited number of cases. Project founders should, therefore, provide clear justification for blockchain and token use.

*[In our original publication, we stated that EY was a French audit house, this has since been corrected – Ed]