Have ICOs Come To An End? – Not Necessarily
The years of Initial Coin Offerings, or ICOs, have gone. Particularly the last point was 2017 when the ICO market grew from $15 million to the whopping $1 billion in just 12 months period. The returns were through the roof. This is where lots of companies have seen insane revenue but everything has a dark side to it as well. The more ICOs there were, the more scammers and fraudulent firms plagued the world. These were very committed to their causes (being sarcastic here) some only rocking a flashy website and dodgy white-papers.
The pre-sale was a new marketing strategy back in 2017, where companies would start selling tokens to people hungry for new cryptocurrencies even before they would release them for a trade. The idea behind pre-sale was that early investors would get hefty bonuses like 10% to 30% of volume they already bought up depending on the company releasing the ICO. This would grow immense hype around the new token and thus result in them selling out way faster than anyone anticipated. The ICO funding process would work like this, first, there would be a seed round, then the company would open up to private sales, after the success the pre-sale period would begin with a close followup of public sales and overall greenlight on trading.
Quite a bit of different industries made a habit of working with these new tokens, top Forex brokers 2020 would offer bonuses to the users depositing these cryptos and allow them to trade away freely. This, in turn, was one of the biggest points of sale for the ICO companies as the more brokerage firms supported their tokens the more interest there would be from people and thus expectations from traders to benefit in the end, which would consecutively result in huge investments and extremely fast sellout process.
Private sales were popularized in the year 2018, however, before we get into the details on what was going on a little prelude is in order.
As the demand for ICOs was growing in 2017, the creation of Seed Rounds has become a necessity. What this meant was that the investors interested in the new tokens would invest their money for a huge bonus (something around 100 to 500 percent) thus funding an initial development and market efforts. The total market as of mid-December has achieved crazy $650 billion. This meant that not only ICOs were blowing up but the crypto market overall as well. Both media and public eyes were on the newly created market, however, sharks were out in the water as well. Regulators and traditional VCs started to take notice of the developments and wanted to take a big bite out of this new market.
All of this brings us circling back around to private sales. This stage is one of the most familiar spots for most of the readers as of today as this is where quite a bit of people got involved in the process. The private sale is quite alike a normal funding process for VCs and startups as well as wealthy individuals, and investment funds. To keep everything under new and strict regulations the companies started accepting only accredited investors often requiring an additional signing for a new ICO contract which were called SAFT agreements.
The End of Public Sale
While 2017 was full of Seed Sales and gave a start to the Private Sales, the year 2018 was where all of this hit the new highs. Fundamentally, the idea was that even though there were around 3 times more investments making up around $10.5 billion, most of them were private sales and pre-sale investors. This was mostly due to the fact that fledgling projects found a new sweet spot where they would market themselves to 10-20 big fish investors instead of tens of thousands of smaller ones. It helped reduce legal risks as well due to the fact that everything would follow proper investment procedures. Lastly, the whole point of ICOs is to continue generating income and this cannot be done if the investors are just dumping the tokens the moment it hits the exchange. Due to this, giving the pre-sale and private sales to bigger investors would allow the company to keep the market value of the token for much longer period of time without devaluing the project.
Average Joe Investor Perspective
In 2020, a lot of high profile projects are canceling their public sale due to the fact that a lot of them easily find private investors to buy up everything. A good example of these is Dfinity Foundation and VideoCoin. However, to make sure that there’s even and fair distribution of the tokens a lot of these ICOs have started doing the community airdrops.
Understandably, not a lot of people like this idea, however, some of the average traders will benefit for sure as it is quite easy to acquire some good free tokens. For example, Dfinity Foundation was gifting anywhere from $500 to $2500 worth of tokens to people who were involved with their project via joining their telegram groups, subscriptions, and engagement with the community. So from this perspective, it doesn’t seem hard to acquire these benefits since this is what most of the investors do anyway.
Some of the average investors have also come up with quite interesting ideas involving making a group to create a higher bargaining power. The group all together would accumulate a larger amount of investment and therefore would get into the private sale market. However, obviously there were scammers here as well. A lot of these groups do not utilize tools that induce trust and thus are, as a rule of thumb, to be avoided.
What About The Market?
Development-wise the market has matured a lot and quite quickly at that. On one hand, the more established funds start investing in cryptocurrencies the more stability and legitimacy the ICO will have. This in term will grow the market even further and add more stability to it making it a safe environment to trade for anyone interested. However, there are also huge downsides to it and lots of traders are dissatisfied for good reasons.
First of all, market adoption is reduced due to the fact that we have big whale private investors instead of a steady stream of interested individuals. Actual users of the network would have to go through some hoops to learn about the ICO, see reviews on interesting websites, and thus become actual active users of the network. However, if you use only private investors all of these aspects are basically thrown out of the window, which means that you get a very faceless and emotionless exchange where people are not as committed as they should be. This in fact will hit the overall market popularity as well since private investment funds will draw their own audiences but it won’t ever reach the numbers the first ICOs were.
Secondly, investors do not pay big attention to airdropped tokens. This means that most of them will dump the tokens as soon as it is possible on the exchanges dropping the value of the crypto at the same time. It basically has the opposite effect to what it should have.
The cryptocurrency market has become popular due to the fact that it is decentralized. When an ICO gives 10-20 percent of the individuals the control over most of the tokens it just creates the illusion of decentralization while in reality, it is quite the opposite but instead of governments and banks, you have wealthy private investors.
Cryptocurrency is still viewed as a way to put ordinary people in charge of the market. This has been the driving ideology and the foundation of the whole system ever since Bitcoin was first popularized. Being an accredited investor means that one should have at least $1,000,000 net worth, which means that closing off the ICOs to people who have more than a million just creates a huge divide between the average traders who make up the market and the private individuals who just benefit from it and nothing else. It is interesting that in 2020, the Unchained Capital’s HODL Wave graph shows that as much as 40% of the bitcoin has not moved anywhere at all, which means that there are huge wealthy individuals just sitting on these coins and keeping the market stale for everyone involved.