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The Future of Initial Coin Offerings

The ICO (Initial Coin Offering) is the buildup to the launch of a cryptocurrency or crypto related ‘opportunity’.  Investors are encouraged by the prospect of gains when the full system goes live and possibly by other ‘early bird’ inducements.   Unlike the similarly named IPO (Initial Public Offering) the investor is not buying a controlling stake in the business.  Also in contrast to an IPO the ICO model has very little government or even industry regulation.  The process could be seen as a form of crowdfunding.  Encouraging investment that will be used to develop a service.  Like crowdfunders ICO backers are expecting some benefit for their risk.  This could be a long term growth in their investment or a rapid dump of the new crypto goods following an expected rise in value after the launch.

As an investment this sort of enterprise should be seen as high risk.  There have been ICO scams for example Crowd Machine Compute Tokens (CMCTs) in 2018 where $5.8 million of investments were diverted to gold mining operations in South Africa rather than used to develop the product.

In recent years a number of big player cryptocurrencies such as Bitcoin and Ethereum have come of age together with related tokens and currencies running on the same Blockchains.  The opportunity for developing a new enterprise in an open market is decreasing. 

Many offerings now follow the IDO (Initial DEX Offering) rather than ICO model.  Very broadly the IDO has the same aim as an ICO; to raise funds for a crypto launch but has fewer controls and procedures left solely in the hands of the launch organisation.  Much of this is now handled by the DEX (Decentralised Exchange) such as DexPad who will require a minimum standard of documentation to host a launch and handles services such as minting the new currency.  The DEX model does provide more assurance to the investor as it is likely that a project with some thought behind it does exist and that the originators will not simply run off with the money.  It does not guarantee that the plan is commercially viable or that it will offer any return on investment.

Coinmarketcap keep a live record of current ICO and similar ventures.  As of July 2023 there are 5 ongoing projects, 10 coming up and 1,218 ended.  All the upcoming projects are IDOs and only one of the current projects is an ICO.  This type of summarised information is scraped from numerous sources.  Although it gives some idea of the volume of trades it will not be exhaustive.  This is proven by looking at Top ICO List which claims to present the top live ICO offerings.  None of the 8 listed at the time of writing matched up with those on the Coinmarketcap list.

It is interesting to note what these offerings are trying to do.  The majority are not planning to launch a new coin that will supplant all the others and rocket in trading value.  Instead the goal is often some sort of service or means of running a blockchain which requires a new coin to power it.  Some current example marketing puffs:

‘A lending protocol that generates revenue through facilitating swaps and interest rate differentials, generating revenue on the spread.’

‘The ultimate Decentralised blockchain-based car racing game that Allows (sic) you to earn native tokens and NFTs while you enjoy the thrill of the race.’

‘You will become a robot, managing your own land and participating in the creation of the world.’

‘To build decentralised applications that make use of real world data, these apps need an Oracle that matches the security properties of a blockchain.’

These summaries are usually backed by at least a whitepaper that fully documents its purpose and how it will work.  The extracts from the first few lines of each marketing puff at least give some clues as to offerings that would be best avoided.

This is the opening paragraph of an ICO announcement from Coinmarketcap in July 2023, grammatical errors are those of the original authors:

‘As we know that , nowadays blockchains are only focusing financial issues. And there are unlimited problems which in commercial areas. Futhermore most of problems occured by treditional systems.However most them can solve with blockchain concept if its being correct model.’

The company behind this is Pirichain.  Although they are a Turkish organisation there is no excuse for not having their English text thoroughly checked.  Other English documentation from the company is of a similar poor standard.   Coinmarketcap should take some responsibility for not overseeing the content of their ‘guest posts’ rather than simply scraping and summarising from the web.

Even if we gloss over the obvious errors the text makes little sense and certainly does not clearly put forward what Pirichain are trying to do.  Their ICO ran from  May 15 to May 30 2023 and again from June 18 to July 16, 2023.  Activity on the PIRI trading site and a lack of recent positive news releases from Pirichain hint that neither may have gone well.

The ICO/IDO approach to launching a new crypto product is clearly still a working model for raising funds but with a proven history of ICO frauds and many of the more obvious markets already filling up it remains a high risk for investors.  Any new scheme will need to be very clear in their rewards and objectives to attract funding and any purchaser should study publicity and the background of the developers before considering supporting them.

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