Messari Token Curated Registry founder Ryan Selkis has taken a jibe at the ICO industry, declaring that it is fundamentally misused for primarily fundraising purposes and that the speculative environment around ICOs has created a situation where many ICOs are “terribly overvalued.”
Speaking with Patrick O’Shaughnessy on episode 98 of the ‘Invest Like the Best’ podcast titled “The Crypto Barbell and Token Curated Registries,” Selkis argued the case of the Token Curated Registry (TCR) as a lasting solution to many of the problems facing ICOs.
Counteracting “Bad Actors” with TCR
Selkis, whose crypto startup Messari was covered by BTCManager in March 2018, is of the opinion that his company, which is a pioneer of the TCR concept, will play a part in creating a future where the crypto industry self-regulates and effectively gets rid of fraudulent, flawed, or bad faith ICOs.
In a 2017 blog post, he described Messari as a distributed crypto data library with the potential to someday become a hybrid of investor portal, self-regulatory, peer-review system, and crypto asset directory.
Speaking on the podcast, Selkis theorized that Messari would be able to deal with the threat posed by bad actors within the ICO space by incentivizing good decision making. The fundamental principle of Messari’s TCR is that a high-quality ICO list is curated by entities weighted by the amount of Messari tokens they hold.
The token gets its value from the quality of the list. Hence it is in the token holders’ financial interest to ensure that the list is of the highest possible quality.
In his opinion, this is the only way to ensure that the ranking system is not manipulated or gamed, as has been the case with other attempts at decentralized rankings within the space. The game theory at work, he stated, is that users voting in their long-term self-interest are likely only to pick ICO candidates that will genuinely add value to the list in the long term.
They thus have an incentive to admit only projects, companies or people that meet specific quality thresholds as well as to set standards high enough to be sufficiently exclusive.
Going further, Selkis explained that to prevent regulators like the SEC from coming into space with a big hammer to shut everybody down and stifle business, the crypto industry must have a self-regulation framework that delivers at least low-hanging fruit to regulators.
Explaining this point, he said:
“On a practical level, when the SEC takes action, they want to win cases, so they’re not going to go after the biggest projects because the biggest projects can afford hundreds of millions of dollars in legal fees and the SEC wants to be able to make examples of people. [We want to] make it as black and white as possible, to begin with, using what we called the NOVA principles – Non-controversial, Objective, Verifiable and Actionable.”
He also clarified that to avoid list redundancy, steps had been taken to ensure that Messari TCR token holders are not merely speculating, but are using the token constructively. According to him, all Messari users are accredited institutional investors, not retail ‘mom and pop’ investors. This way, he says, TCR investors have skin in the game, which makes them invested in proper ICO regulation.
Much Ado About ICOs
When pressed about his thoughts on the ICO financing model as an alternative to traditional capital raising, Selkis stated that in his opinion, the ICO market has become distorted because it is being seen primarily as a platform for raising capital, which attracts everyone including startups with no genuine need for an ICO or no economic model for their token.
Thus, said Selkis, rather than encouraging innovation as intended initially, ICOs have become speculative events featuring significant amounts of overvalued assets.
In his words:
“The problem in the industry right now is that the ICO market as a whole has become a capital-raising tool primarily. In theory, these tokens are not supposed to be equity, or an equity-like instrument because that then makes them securities, which is an issue that everybody dances around.”
Going further, he revealed that even though the market is reasonably successful at ensuring that the most transparent projects generally find the most ICO success, the Messari TCR can at the very least immediately identify and exclude the roughly 20 percent of ICOs that are exist scams or outright frauds by asking and verifying necessary ICO information such as team members, legal location, existence of verified web assets and addresses, legal counsel and management of token supply.
The truth, Selkis said is that even though at the moment investors tend to treat TCRs as binary bets and entries, there will ultimately be a “rightsizing” of the different existing TCR tokens, which will lead to them being thought of more as a fundamental fact of investment due diligence. According to him, it is that 5 – 15-year infrastructure strategy that Messari is gunning for.
Summing up his thoughts on the matter of ICO industry self-regulation, Selkis then remarked that through the use of a TCR, a sizeable flywheel effect could be created if only a critical mass of funds, exchanges, and regulatable entities come to some agreement on codifying a basic set of industry standards.
While not containing vast amounts of detailed information he said, even a necessary industry code with remedial-type details would be very useful in preventing the industry from eating itself, and also in keeping increasingly twitchy regulators away.
The full episode of the podcast can be found here.