ICOs have long been a gray area, a continuous bubble, now fading away in the shade of a declining crypto-market.
It has not always been like this: the first half of 2018 blockchain startups have collected 11 billion dollars. However, by October the investments in ICOs had reached the lowest level in 2018, and the buzz was getting lower.
Pros and Cons of ICOs
PRO– the definite positive point of ICOs was giving a new investment option to individuals. While traditional financial markets hold a high barrier for small investors, ICOs allowed anyone to join.
CON– some of the disadvantages of ICOs became the reason for their decline. Besides the high amount of scams and shady projects, half of the ICOs did not yield any returns, while 55% of them have failed even to complete their crowdfunding.
3 Factors of ICO Decline
1. Market Saturation
The crypto-market offers now over 2068 tokens and coins. From here the top 7 coins (such as Bitcoin, Ethereum, Tether) hold 87% of the total market cap. The 13% remaining is divided between about 2061 players who share less than 1% of the market. Even for the most devoted crypto enthusiasts, it is hard to follow all of the changes in the market, and new entrants are less than welcome.
2. Lack of Use Cases
Even the greatest ideas could fail- regardless of the many lucrative projects in the blockchain market, ICOs had a way of higher failure rates than the average startup. 92% of all launched projects have failed by this year August, striving at an average lifespan of 1.2 years. Hardly any startups were able to provide a working platform, and show a use case.
3. SEC Repercussions
The SEC is starting to strike down ICOs: 2 startups have been forced to return all of their ICO funds to investors. ICO influencers are fined for promoting unauthorized securities. Startups launching now have to think twice about building a strong case for their utility token, or registering their funding as security.
ICOs were not a bad idea: providing individuals with a chance to invest individually and break the silos of the current financial market. However, there need to be clear regulations, carefully vetted projects, and protection for investors for the market to revive. Security token offerings, though still in their infancy, could provide these benefits while keeping the door open for individual entrants.