The ICO Fades, and The Digital Security Rises

By Kapil Gauhar

When the Ethereum Blockchain stepped online in March 2016, it led a new era in funding for startups. Easily created token or coins on Ethereum’s public blockchain digitally allowed anyone with the idea to raise funding from world sources with least or no interference from regulators.

The ICO was born and promptly came in headlines with skyrocketing valuations and unheard of returns which eventually led to a crescendo of criticism from skeptics. Shrewd investors were seeing 100x plus return in only a few weeks. It became a massive boom which has immediately gone into the bust.

As indicated by Inwara, the research firm, in the first quarter of 2017, there were 35 ICOs. In the second quarter, the number jumped to 60, and in the fourth quarter, that number jumped again to a surprising 6,906 ICOs. By the end of quarter 3 of 2018, the number of ICOs dropped to 382 owing to heightening the regulatory action, a pushing drop in price and nosediving valuations for retail investors.

While it lasted, yet the boom was a close goldrush for the well-linked and the wealthy and for the more opportunistic token issuers. A new blockchain project, EOS raised over $4B before they had a live product. However, the countless retail investors who flocked to the regulation-free opportunity for investing in the next big technology wave have lost out.

In the fourth quarter of 2018, the ICO and utility token markets appear to be on life support with least or no expectation of recovery. The legitimate projects are mired by the deep question about whether or not their utility token is in fact, security. Therefore, Paragon and Airtoken were fined $250k each and obliged to buy back the tokens and convert them to securities.

Generally, some projects will survive the crash. The next Amazon or Google might even be among them. But the majority of ICO-driven startups seem to fizzle over the time.