Initial Coin Offerings (ICOs) were the darlings of the crypto world for much of 2017 and largely into 2018 before they fell from grace. Once hailed as an innovative and inclusive democratic method of crowdfunding before they crashed and burned in the Crypto Winter – optimistically so named since its season extended far beyond the normal tenure of three months..
In fact, the Crypto Winter was a more like the perennial Winter is Coming threat of top boxset Game of Thrones only rather than Winter is Coming, Crypto Winter was never going.
ICOs seemed to be the hallmark of the Libertarian ethos in that it allowed anyone and everyone invest in potentially game changing projects.
The coins issued with each project only seemed to go up in value. No one was prevented from investing in ICOs offering true democratisation of financial opportunity for all and sundry.
Regulation wanted to clamp down on the ICOs but ardent followers claimed it was merely to restrict access to investments for ordinary punters. When things faltered and scams were uncovered, regulation seemed more plausible.
Some 80% of all ICOs in 2017 were said to be scams by the ICO Advisory consultancy, The Statis Group.
Yet despite that, the $6,6billion raised in 2017 was soundly trumped by the $22 billion raised in 2018 by ICOs: the latter amount including beefy ICOs such as the $1.7 billion raised by the messaging app Telegram and $4 billion raised by the governed EOS blockchain.
Despite the increase in values raised, the path to ICOs is littered with thousands of failed projects.
So, what was happening?
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In addition to the Crypto Winter where all coins followed Bitcoin in a depressing regression from its $20,000 high at the end of 2017 to just over $3000 in January 2018, there were other factors at play.
Putting aside criminal activities, inept management and total lack of experience, the one common factor for all ICO projects was to list its coins on an exchange after the crowdfunding sale had finished to provide liquidity for the coins.
Reports of huge fees required, indeed demanded by exchanges, running to several million dollars often placed an unrealistic cost on projects. Then there was the pump and dump tactics of whales and groups of investors intent on buying their first lambo.
But what if there was a way to get to the exchange first and provide liquidity from the get go? Would that not circumvent potential scams and reduce risk for investors? This is where Initial Exchange Offerings (IEOs) have taken off.
In an IEO, the project secures the approval of an exchange to run its crowdfunding sale. The collection of money and distribution of coins is managed by the exchange rather than the project team. There is increased confidence in the project as it would have to demonstrate to the exchange, itself an independent entity, that the project was trustworthy and most likely successful.
The first IEOs were launched last year by unicorn exchange Binance though its Launchpad platform. Selected projects, such as Bread and Gfito and more recently this year BTT and Fetch.ai, sold out in seconds raising millions of dollars.
IEOs offer a number of elements that would appear to benefit the exchange, the project and the punters. The exchange has to evaluate the project and deem it fit for purpose. The project may often be held to account as in the case of Binance, which will only release funds raised when project milestones are met. Balancing that, the project should be able to access a new and large range of investors and not have to worry about token distribution.
IEOs can create more interest for the exchange, and possibly new users. All the users will need to go through formal KYC and AML procedures to get accounts. More transactions on the exchange will also equal more fees and known customers will only raise confidence and grow a community.
Finally, the punter should have a greater level of confidence in a project backed by an exchange, will have easier ways to purchase and trade the coins and may be in line for some impressive gains in value.
And did I mention that the Crypto Spring is definitely here.