The Initial Coin Offering (ICO) system was one of the major factors that characterized the late 2017 cryptocurrency market bull run. However, recent records suggest that fundraising campaigns were only able to raise a meager $300 million in August 2018 in a market that is continuously declining. As such, we cannot help but wonder: is the ICO industry collapsing?
ICO’s Great Run
The concept of ICO was introduced in 2013, however, it was in 2017 that the crypto space truly utilized the fundraising mechanism. As such, start-ups raked in over $6 billion from token sales. The prices of cryptocurrencies hit an all-time high and investors finally saw the price potentials of the crypto market.
Now, legit startups that were able to raise funds from token sales are focusing on developing working products. One such startup is Ubex which managed to raise over $5 million during its token sale. The startup is planning on disrupting the digital ads industry by combining blockchain, AI and neural networks. Already deep into product development, the project has embarked on the establishment of multiple partnerships and listing of its tokens on several exchanges.
The Emergence of Regulated ICOs
After the 2017 ICO boom, a large percentage of ICOs were discovered to be scams, unrealistic or deliberately fraudulent. As such, about $1 billion of the total amount raised was reported to have been lost. This triggered the introduction of regulatory frameworks for fundraising campaigns in many countries. Even, countries like China and South Korea which were regarded as the powerhouse of the crypto movement banned ICOs.
However, financial watchdogs of various blockchain-friendly nations have set up guidelines and legislation for ICOs. Various financial watchdogs of the US have introduced stringent regulatory frameworks for startups looking to raise funds via crowdfunding. Recently, the US Securities and Exchanges Commission (SEC) fined a startup $500,000 for violating some of these regulations.
Another country that has scrutinized its ICO industry is Canada. Canada believes that majority of tokens sold at crowdfunding campaigns are securities. Therefore, the Canadian Securities Authority (CSA) introduced a regulatory sandbox where startups can access securities laws that apply to their projects.
What Are The Effects Of Regulations On The ICO Industry?
It Reduces the Risks Associated With ICOs
The emergence of regulations has curtailed some of the unethical and dubious practices in the ICO industry. As such, the number of scams associated with crowdfunding campaigns has immensely reduced.
It Has Increased the Number Of Product Driven ICOs
In 2017, majority of startups only needed to release a well-crafted whitepaper to sell their ideas or tokens. Now, startups are adopting products driven ICOs. Therefore, it is common to see tokens and products that have gone through series of tests at the fundraising stage.
Investors Now Have a Benchmark They Can Use To Assess ICOs
Before the introduction of regulations, investors had to carry out rigorous analysis and researches in order to ascertain the legitimacy of ICOs. With the introduction of regulations, investors can simply verify the compliance status of projects holding ICOs.
Startups Are Paying More Attention to the Products They Offer
Startups are more conscious of the type of products they offer as majority of regulations stipulate that startups offering tokens that can be categorized as securities are required to have a license.
As the ICO ecosystem evolves, the emergence of appropriate legislation is gradually improving the level of trust between investors and startups.