Are Initial Coin Offerings (ICOs) dead?

As a brief primer, Initial Coin Offerings also called ICOs are a crowdfunding model popularised by blockchain startups to raise funds for their project. This model bypasses the regular venture capital (VC) route to raise funds from the public by selling crypto-tokens or coins which have some utility in their project.

There was huge enthusiasm for this funding mechanism in 2017, investors poured money into projects that had just a whitepaper which is a semi-technical document detailing the idea and intentions of the project. It was so rampant that it seemed to threaten the traditional venture capital raising model.

In 2018 the frenzy died down or so it seems because of a number of reasons; firstly the entire cryptocurrency market went into a tailspin shedding over 80% of its value from the beginning of the year and thus burning most investors who got into the market in 2017. Another reason is that a number of projects proved to be outright scams, bailing with investors money. Lastly a number of projects under-delivered on their grand promises.

Enter 2018 retail investors who got into one project or another after their cousin mentioned how they just made it big from some coin or the other were reeling from loses. People sold their houses to get in on the hype. The fundraising model seemed dead. However, from the numbers; it actually seemed like a much bigger year for ICOs than 2017. In 2017 875 projects raised $6 Billion while in 2018 1166 projects raised $7 Billion. Africa was duly represented even though to a little extent with Kora Network raising $12 Million to be the largest blockchain project out of Africa.

Something that is little mentioned is that the data is skewed by projects that raised a huge amount of funding because of their well-established business like Telegram or Kodak. Also, most ICOs that were successful in 2018 went through the private investor or institutional route also called Private sales as the guy on the street was not in a hurry to dish out his funds to any new project. So in actual fact based on the proposition of the crowdfunding model it was a very tough year, a year in which the crowd wasn’t willing to play ball after dashed hopes and dreams of Lamborghinis were whisked away.

It would be difficult to predict what the future holds for the fundraising model. However, the United States SEC has been cracking down on some operators for selling unregistered securities in form of ICOs. The main theme in the blockchain space is a focus on ‘Buidl’ that is building out the use cases and the promises sold to everyone. We are yet to see how the market would access the performance of projects and whether this would spark enthusiasm for funding projects in 2019, we are sure, however, from the performance of 2018 that the crowdfunding model still lingers on.

This article is in partnership with Quidax. Quidax is a European based digital assets exchange with a focus on Africa. We provide a seamless platform for users to send, receive, buy and sell digital currencies including Bitcoin, Ethereum, Ripple, Litecoin, Bitcoin Cash, and Bitcoin Gold using their local currencies.


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