ICO’s have quickly become the de facto standard of raising funds within the cryptocurrency industry, with over $12 billion raised through ICO’s in the first half of 2018 alone. Despite the large amount of money that came into cryptocurrency in the past two years, September 25, 2018 reports allege that one out of every three ICO’s isn’t even listed on an exchange.
The Bleak State of ICO’s
Of the over 300 unlisted tokens, developers of 44 of these tokens have still not provided any information on how their respective tokens will be distributed. What’s more, this radio silence from projects comes despite their financial success in raising over $1 billion.
Diar conducted research that shows that the majority of ICO’s undertaken in 2017 are now worth $2.2 billion at current market prices, meaning investors are writing off a $6 billion loss in less than a year after the funding round ended.
On top of this, most of the tokens are stored with the foundations or board structures typically overseeing a coin. Many have smart contracts or policies locking funds for a period after token distribution ends to assure investors.
Regarding the centralization of wealth, the majority of funds raised have been made by very few projects. Diar reported that 40 percent of all money raised through ICO’s in 2017 was from only 20 projects.
What Does This Mean for ICO investors?
Participating in crowdfunding, whether traditional or otherwise, has always been seen as the wild west of the financial wild west.
While ICO trading has returned some of the best performance in an industry where three-digit gains (or losses) are made within a week, with Business Insider stating an average return of 12.8x, users can very quickly lose everything.
For this volatile fundraising model to continue being acknowledged as a legitimate method of bootstrapping a project, a serious overhaul of how ICO’s are conducted, along with better due diligence by prospective investors, needs to happen.
Basic investing principles such as diversification, doing research, removing emotion from trading, are even more paramount when stakes are this high. If ICO investors can keep these rules in mind, they may have what it takes to make a pretty penny from this risky corner of crypto.