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In Part I of this paper I discuss why you need to exercise caution when assessing whether to invest in an initial coin offering (ICO). In Part II, I will provide you with the tools to properly assess an ICO based on a comprehensive selection criteria.



As the ICO juggernaut rolls on in 2018, almost unabated, it is
important to pause for thought. According to a recent report, ICOs
raised more money in the first three months of 2018 than they did
in the whole of 2017 - $6.3 billion to be exact! But with 1,600+
coins and tokens already in the market and continued rumblings
of ICO fraud, is an ICO really worth investing in?



When companies raise money through an initial public offering
(IPO) they use that money to grow a business. When a company,
partnership, community or joint venture raise money through an
ICO, they use that money to build a technological infrastructure
using blockchain technology with a vision to disrupt a marketplace.
Investors in an IPO receive stock benefits (ownership, voting rights,
dividends) for parting with their hard-earned cash. Investors in an
ICO meanwhile get little more than a digital key – a hash code that
proves you own a coin or token.

Valuing cryptocurrencies and their underlying pioneering
blockchain technology can been likened to some of the great
technology innovations of our time. The last 60 years has seen
a major explosion in pioneering technology. In the 1960s it was
IBM mainframes and Intel microprocessors. In the 1970s it was
Oracle databases. In the 1980s, it was Dell’s made to order PC
which eliminated inventory, Cisco’s networking equipment and
Microsoft’s operating systems. And of course, the creation of the
World Wide Web in the 1990s. Now in 2018, it is Blockchain
technology and cryptocurrencies – ground-breaking technology
threatening to disrupt and inherently difficult to value.


 History suggests, that as technology matures, it will be dominated
by a handful of market participants. Amazon and eBay emerged as
dominant players from the Dotcom Bubble, leaving many companies
in their wake. Extrapolating lessons learned from history indicates
that cryptocurrencies are no different and that only a few are
likely to survive. The winners will be determined by rates of user
adoption over a long period of time. Amazon was created in 1994,
and it wasn’t until 2004 when it made its first foray outside of book
retailing – some ten years later, that is really started to penetrate
a broader market. And it was not until 2015 when Amazon moved
into TV production, video and music, that it could truly be regarded
as an online behemoth – some 20 years later. Just like Bitcoin, both
Amazon and eBay benefited from being first to market.


Statistics provided by TokenData2 and reported by Brave New
Coin3 suggest that 46 per cent out of 902 blockchain projects that
raised money through an ICO in 2017 have already failed. The table
below summarizes these findings.

New ICOs in 2017 (count)     902
Failed at the funding stage (142) 16%
Failed after the funding stage (276) 31%
Total failed ICOs in 2017 (418) 46%
Semi-failed4 (113) 13%
Total failed or semi failed ICOs in 2017 (531) 59%
Source: Brave New Coin. March 2018.

To be fair, these numbers are comparable to Venture Capital (VC)
funded start-ups where failure rates are reported to be anywhere
between 30-75 percent. And depending on which publication you
read, this number can be as high as 90 percent. This is also in line
with Vitalik Buterin, the founder of Ethereum, who believes that 90
percent of all ICOs will eventually fail. So, given we have 1,600+
coins and tokens right now, which is an all-time high, it might be
fair to assume that only 100-150 of these will still exist by 2023.
Unless a new coin/token brings with it groundbreaking technology
or innovation (and it will need to be first to market), any new
entrants are likely to get lost in the sheer volume of coins. Coins
require adoption to be successful.

The only viable alternative to justify so many coins in the long
term is if you believe an emerging paradigm - that many disparate
ecosystems of tokens will be working independently to disrupt
different markets and solving business problems – which certainly
seems to be the case at the moment.



 According to research carried out by Statis Group LLC,5 80 percent
of ICOs are scams and only 8 percent make it to an exchange.
Their study applied to coins with a market capitalization above
$US 50 million. The US Securities and Exchange Commmission
(SEC) setup a cyber unit in December 2017 to tackle ICO fraud. It
has already made a number of enforcements including one of its
highest profile cases to date when the co-founders of Centra Tech
raised $US 32 million through an ICO and made false claims that
their debit card was backed by Visa and Mastercard.

Earlier this year, one of the largest ICO scams was exposed when
AriseBank purportedly raised $US 600 million and claimed to be a
decentralized bank. The co-founders released a false statement that
they had purchased a US Federal Deposit Insurance Corporation.
They used social media and even an endorsement from celebrity
Floyd Mayweather to gain exposure.

A website called tracks deceased coins, hacks and
reported scams. It is a virtual graveyard of coins and tokens – over
600 coins had been reported failed, as at September 2017.



ICOs are not regulated. The majority of coin offerings are carefully
worded to articulate that they are not offering securities or
equity. The few ICOs offering equity or profit share are captured
by securities regulation in the USA (US Securities Exchange
Act, 1934). The sale of securities (equities) are captured by the
‘Howey test’, which was created by the US Supreme Court to
determine whether transactions qualify as ‘investment contracts’.
This is why many ICOs are issued in Hong Kong, Singapore and
Switzerland – to avoid US securities legislation. And why many
ICOs are not offered to US citizens. However, ICO regulation is
still a very grey area, as buying into an ICO with the expectation
of capital growth could still be considered a security in many
jurisdictions – this is yet to be properly tested. Expect ICOs to be
targeted in 2018/19 by regulatory authorities once cryptocurrency
taxonomy and regulatory definition of ICOs become clearer.
Many countries are in the process of developing ICO regulation,
including Russia.




Raising ICO funds can be as easy as creating a website, issuing a
whitepaper and marketing an idea.. Once you have raised adequate
funding, then you are ready to launch your new token – most likely
from the Ethereum blockchain platform, where 90 percent of new
tokens have launched. The Ethereum website is user-friendly and
provides great support. There are also a number of outsourcers
like that can help with a digital wallet, marketing and
connecting with investors.



 With nearly half of all ICOs launched in 2017 having already
failed, it would come as little surprise to see a more cautious tone
from investors throughout the remainder of 2018. However, it is
important to remember that ICO failure rates are comparable to
widely accepted failure rates within the VC industry. Rates may
appear abnormally high if considered without perspective.
Stay tuned for the second part of this paper, where I will
explore what a good ICO looks like and then take a deep
dive into what you need to look out for when considering an
ICO investment.

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Comments: (2)

Ketharaman Swaminathan
Ketharaman Swaminathan - GTM360 Marketing Solutions - Pune 08 June, 2018, 15:35Be the first to give this comment the thumbs up 0 likes

Nice post. The popular narrative on alt-coins in general and ICOs in particular swings between two extremes of the spectrum: Either it's the best thing since sliced bread or worst thing since WMD. It's not often that one comes across a balanced perspective. By pointing out that hit rate of ICOs is no lower than that of VCs, your post strikes the middleground. Kudos.

Two quick observations: (1) seems to have shut down - when I just checked, I found that the domain name was for sale at (2) Given the financial losses involved in a failed ICO, any specific reason why the title of your post has chosen to dwell on loss of time instead?

Romal Almazo
Romal Almazo - Former Crypto and blockchain leas at CAPCO - London 09 June, 2018, 09:20Be the first to give this comment the thumbs up 0 likes

Thanks for your feedback. Coinist can be found here With regards to your second point 'financial loss' is implict in the title. 'Waste of time' can infer a number of things...

Romal Almazo

Romal Almazo

Emerging Technology and Digital Asset, Adviser

Former Crypto and blockchain leas at CAPCO

Member since

30 Apr 2018



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This post is from a series of posts in the group:

Innovation in Financial Services

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