According to a 2017 ICO report by Ernst and Young (EY), published on October 19, 2018, 86 percent of the tokens from ICOs in 2017 are currently below their listing price, with 30 percent having lost all of its value.
Demand For ICOs Continues to Grow in 2018
According to the EY report, while ICOs were a popular and new way of investing in early-stage blockchain-based startups, it was littered with risks. These risks include misrepresentation, fraud, and theft. Fabric Ventures and TokenData reported that in 2017 the ICO industry raised in total $5.6 billion from a wide range of retail investors.
In the study, only 29 percent (25) ICO-backed companies followed up with working products and prototypes. Despite, numerous warnings and high levels of fraud and theft in the ICO industry, the demand for ICOs and cryptocurrencies continues to grow in 2018.
The EY report noted that the ICO industry raised over $15 billion in the first half of 2018 alone, an amount that almost triples the total amount raised in 2017. It was interesting to see that the Top 10 ICOs raised 52 percent of the total claimed funds in 2017. These top ICOs include EOS, Telegram, Petro, TaTaTu, Dragon, and the Huobi Token.
Early Returns on ICOs Are Not Encouraging
Unfortunately, the early returns on ICOs showed very little confidence. In one year, after raising substantial money, very few ICO-funded startups worked towards their product. As for companies that have made progress on their product, the value of the tokens has only increased by 13 percent, with 71 percent of tokens having no value and offering in the marketplace.
In contrast, software startups that are backed by a traditional venture capital firm have shown significantly more substantial progress than ICO projects. There is a higher percentage of companies that have a functional early-stage product that ICO-backed projects.
As for companies with a working product, EY noted that many of these ICO-backed projects have unfortunately abandoned their investors. They have de-emphasized the role and importance of the tokens. 7 out of the 25 reviewed projects have accepted other currencies, which renders the original token designed for the platform useless. Some projects have even dropped their utility tokens.
While the vast majority of ICOs have not provided a strong return on investment, the ICOs that do perform well, provide significant gains. The top ICOs launched in 2017 bring 99 percent of the net gain since their initial coin offerings. Although there are many different types of blockchain-based projects, the most successful investments in 2017 were blockchain platforms.
Ethereum Reigns As the Most Popular Blockchain Platform
Even though blockchain platforms performed well, which include NEM, Neo, Waves, and Stellar, they were unable to compete with Ethereum. Ethereum had a significantly large number of ICOs operating on its blockchain platform. Furthermore, they also had a large and strong developer community. In comparison to other competing platforms, Ethereum had the highest level of Developer Activity on GitHub and social media activity on Reddit, Facebook, and Twitter.
While EY noted that there is not enough data to form a complete perspective on the ICO market, the early returns are not encouraging ICO-backed companies are incredibly high-risk investments since the majority of ICO-backed projects fail to progress and develop their product. EY predicts that over time, the ICO industry will shift away from retail investors and go towards entities like investment companies and venture capital firms that can understand and manage the existing risks.
As for the report, since the ICO market is unregulated, there wasn’t a single source of ICO dates and reporting standards. Overall, the EY report analyzed ICO projects from many third-party websites and verified their conclusions against other public studies to increase the validity and reliability of the study. Furthermore, they also conducted interviews to gain a better understanding of the industry.