Recently, Coindesk published an article stating, ”The ICO is over”.
What we’ve found, in the words of Mark Twain, “The reports of my death are greatly exaggerated.”
We have signed almost 200 ICOs, in fact, 10% of ICOs who conduct Know Your Customer (KYC) and Anti-Money Laundering (AML) use our services. We thought we’d share our thoughts based on our internal data.
Over the last year, we have had an average of tens of companies contact us each month, looking for compliance services.
In the last three months, there has been a drop in the number of ICOs. There are multiple reasons for this including:
- Drop in prices of bitcoin/ether. Prices are down 65% from earlier this year. There are multiple reasons for this, including a sell-off of tokens by initial coin offerings (ICOs) who have already raised funding. ICOs have sold off ~62% of average amount raised to pay for operations, reduce risk, etc.
- Smaller average raise. Companies are not rushing to market because the likelihood of raising $50m is much less than it was six months ago.
- Marketing restrictions. It became much harder to reach potential contributors after Google and Facebook implemented severe restrictions on ICOs.
- Regulatory pressure. Several regulatory bodies, specifically the Securities and Exchange Commission (SEC) in the US, have put forward statements that have raised concerns about the legality of certain ICO types.
So, ICOs are dead? No, not by a long shot. Unless there’s specific regulation against ICOs in US and Europe, there’s no way you can put the genie back in the bottle.
We still see tens of companies a month coming to us for an ICO. In fact, we created a self-service RegTech Webstore to help our sales team deal with the volume of customers. The reason ICOs won’t go away is that it’s a great way for companies to raise money:
- Faster than venture capital, ICOs go from launch to funding in 4-6 months.
- Better terms than venture capital, companies don’t give up large amounts of equity.
- Don’t need traction, a common venture capital requirement that precludes companies who need money to launch and gain traction
- Don’t need to be in the US or have started a company previously, traits venture capitalists often look for
Going forward we expect a lower, but steady amount of ICOs before an upswing led by the following factors:
- Companies built around tokens. In the last year we saw a large amount of companies change their architecture to accommodate a token so they could raise money via an ICO. Now we’re starting to companies conceived and built around tokens.
- Large companies conducting ICOs. While the KodakCoin fizzled out, it’s only a matter of time before larger, more established companies use this method. What they need is regulatory certainty.
- Regulatory Certainty
- Companies such as Polymath, EtherParty and Tokensoft who enable compliant security tokens.
- Reg A+ offerings. While many ICOs have applied, none have received SEC approval to conduct a Reg A+ offering that would allow them to conduct a security token offering without requiring accredited investor validation and or a limited number of contributors. This will change.
- Tokenization of physical assets, we saw this with the St Regis Aspen Resort, more will follow as companies learn they can tokenize assets and treat them as securities
- Creation of security token marketplaces. Right now there’s no way to buy or sell a security token. That will change with Tzero’s upcoming launch.
Are ICOs down from earlier this year? Yes. However, to those who say ICOs are done, remember another quote, “The ICO is dead, long live the ICO.”