In the past two years we have seen the
rise and fall of one of the most lucrative fundraising bubbles in history.
in 2017 to 2018 over $14 billion were raised from what became known as
initial coin offerings or ICOs but since then the ICO boom has come to a
screeching halt ICOs are no longer in favor anyways
they’re down 95%. Is this the bottom? The ICO market is gonna be in a lot
of trouble actually and a lot of those ICOs will never make it back to the
where they were eight months ago. In 2019 ICOs raised less than $370 million. Why the sudden drop-off? Well let’s just call it a trust issue. The vast majority of them are either scams or underdeveloped and
people just seeking to raise money really easily. Without your bank knowing
it you’ve been using its reputation to burnish these ICO scams and selling them
to customers when you know damn well the coins are worthless if they even exist
in the first place. You know I guess I do understand after all because for all the ICO mumbo jumbo what we have here is an old-fashioned pig in a poke. Lack of regulation. This was the main reason behind the spectacular rise and fall of
ICOs. Companies were raising millions by selling cryptocurrency tokens without
having to comply with the time-consuming and expensive procedures required in the
traditional IPOs. With no regulatory framework to protect investors it’s not surprising that many of these companies just took the money and ran. What is the next big step in the evolution of crypto fundraising? I thought ICOs when they first came about were revolutionary because the whole network effects and
the ability to then grow networks and with them the branch effective network
of network effects was pretty amazing but they were very much misused and the
whole trust went out of the market and we’ve been looking at how we can take
that kind of decentralized constructs and unregulated exchanges on one hand
and then the traditional market infrastructure on the other hand and
combine the two so that you bridge the gap between them because it’s you have
to for the foreseeable future coexist. After people lost faith in ICOs, a new
fundraising method appeared in the crypto space. IEOs or initial exchange offerings our token sales conducted on the platform or a crypto
currency exchange. The exchange backs a project with the credibility of its name by listing the token sale on its website this is supposed to give investors a
greater sense of security and give the project and established platform of
exposure. The exchange has the existing network of investors they can handle the process they can handle the marketing they can handle the money coming in. That in itself is a very very interesting concept because it can be much more
effective to get to market much quicker for those project developers. The launch of BitTorrent on Binance in January this year seemed to promise a bright future
for this new fundraising model. The token sale was a success
it ended in only 15 minutes with over 17 million dollars worth of tokens sold.
Sounds great, right? Well, maybe not. The figures are misleading on IEOs
because everyone talks about and if we look at the data out there that there’s
been a phenomenal amount of activity but that’s really been concentrated to a
small number of large IEOs. The enthusiasm for IEOs fizzled out pretty
quickly. In 2019 IEOs raised only $1.6 billion dollars. still far from the $7.8 billion raised by ICOs a year earlier. This is because IEOs did not actually resolve the credibility issues
of cryptocurrency projects. Because a lot of these exchanges in their own right
are unregulated and they say they’re offering IEOs as the matter of trust but by
virtually being unregulated or having questionable balance sheets or processes. You may think you are adding some interest wherein reality you are not.
Therefore the very investors that got burned by ICOs see no different a
construct in terms of that investor protection mechanism. In other words IEOs are just old wine in a new bottle. To earn back people’s trust companies need to offer the security that only regulatory compliance can provide but
most startups lack the resources to go through the path of a traditional IPO. When you look at IPOs I mean the process is quite expensive and that’s not only
in terms of legal fees but also corporate adviser fees and of all the
intermediaries involved it’s very lengthy it’s very detailed it also
requires a lot of overhead and capacity within the firm and that’s why a lot of
companies also defer from going private to listed because the whole governance
structure becomes completely different. So if ICOs and IEOs are incredible
enough and IPOs aren’t accessible enough Where does that leave us? It seems the ideal solution needs to be a middle ground between security and
accessibility. Perhaps STOs or security token offerings
are that middle ground. Tokens sold in STOs are securities in tokenized form this means the issuing company needs to fully comply with regulations before
launching in STO. However, STOs have an advantage over IPOs: blockchain
technology. By using blockchain STOs can save companies roughly 40 percent of
their expenses in regulatory processing fees. The whole idea of tokenization was
to become more efficient and not be beholden to the existing establishment
having an instrument identifying having the tokenized security that isn’t
international central securities depository or an international one is
where we should really be going But the groundbreaking novelty introduced by STOs is fractional ownership: each security
token corresponds to a fraction of a larger asset like a stock, bond or
commodity. This allows small investors to participate in sales traditionally
accessible only by large investors. This is what’s game-changing so the average
person in the street can now have in access if done the right way to these
asset classes it won’t be long before you then see listed blue chip companies
also saying well actually I may list and do an IPO but I may also offer a
proportion of my securities in tokenized form as well. Blue chip companies. Think
companies like Walmart, Coca-Cola or Apple. Imagine if they tokenize shares of their company. How would that affect
standard business fundraising practices? What would that do for cryptocurrencies?
Are we headed to a world of tokens for everything and anything of value is
translated into a digital tokenized security?