NASAA launches an investigation into over 200 allegedly fraudulent ICOs

NASAA launches an investigation into over 200 allegedly fraudulent ICOs

Not the NASA you were thinking about

The days of the pump and dump ICO may be numbered

: the North American Securities Administrators Association (NASAA) is on the warpath, taking action against potentially dodgy cryptocurrency schemes. In an announcement made yesterday, NASAA revealed it has opened over 200 cases investigating possibly illegitimate, illegal, and fraudulent ICOs and cryptocurrency related businesses since its launch in May 2018. All under the codename “Operation Cryptosweep.”

NASAA is a collective task force made up of representatives from the US, Canada, Mexico, Puerto Rico, and the US Virgin Islands. Its aim is to uncover illegitimate cryptocurrency scams, and protect potential unwitting investors. “State and provincial securities regulators are committing significant regulatory resources to protect investors from financial harm involving fraudulent ICOs and cryptocurrency-related investment products and also are raising awareness among industry participants of their regulatory responsibilities,” said NASAA President and Alabama Securities Commission Director Joseph P. Borg, in the announcement.

The point NASAA makes is that, if cryptocurrencies qualify as securities then they must be subject to, and apply for specific regulatory certification, or they must apply for exemption. Either way they must acknowledge this regulatory process in some way, the reality is, many do not. A full list of all those being investigated as part of “Operation Cryptosweep” can be seen here. It seems the primary reason for investigation is due to selling “unregistered securities.” The rise of the ICO presents a challenging future for cryptocurrency investors, and the general public alike. With a widely unregulated field, there are few safeguards to protect investors from dodgy scams.

At Hard Fork we recently reported how most of the top 100 cryptocurrencies don’t actually have a working product, giving investors no return for their money. What’s more, cryptocurrency exit scams exist, which specifically aim to raise money and run. They’ve illegitimately taken over $100 million from investors. Supposed regulation is one of blockchain and cryptocurrency’s most challenging issues right now. Whether for or against great control of our digital assets, hopefully “Operation Cryptosweep” will help to legitimize the field, and weed out the crooks.

Article Produced By

Matthew Beedham

SIX Group Executive Questions Launch of Crypto Trading Expresses ICO Optimism Instead

SIX Group Executive Questions Launch of Crypto Trading, Expresses ICO Optimism Instead

Thomas Zeeb, CEO of securities services

at Switzerland’s top stock exchange SIX, revealed that the firm is unlikely to launch crypto trading, Business Insider reported August 17. According to Zeeb, cryptocurrencies are really “not a priority” at the moment, taking into account the fact that there are a number of other platforms that provide Bitcoin (BTC) trading services. Moreover, Zeeb noted that there are still some "reputational" issues surrounding Bitcoin, also suggesting that Bitcoin is all about “hope and hype.”

However, the head of securities services at top Switzerland’s stock exchange expressed optimism about the concept of digital assets. Zeeb stated that digitals coins such as Initial Coin Offering (ICO) tokens are “here to stay,” with its mass adoption coming in around “five years.” In the interview with Business Insider, Zeeb compared digital currencies with derivatives trading, claiming that he is "absolutely convinced" that crypto is "where derivatives were in the early '90s." According to Zeeb, digital assets’ adoption will come “a lot faster than the 30 years it's taken derivatives.”

Zeeb said that the upcoming digital assets exchange — currently being developed by SIX — aims to introduce a regulation-focused way of trading ICO tokens in order to enable participation by institutional investors. He stressed that that the main task of the exchange would be filling the gap between crowdfunding and ICOs, which is now usually taken up by venture capital or private equity.

Zeeb stated,

"There is demand from institutional clients to find a way to legitimize and bring asset safety into play.”

Speaking to Business Insider, Zeeb encouraged the digitization of existing securities or exchange-traded funds due to the ability to enable fractional ownership, citing the benefits of turning some exotic assets such as art galleries collections to tokens. In early July, SIX Group first officially announced its plans to launch a “fully-regulated” cryptocurrency exchange next year using blockchain technology to create a “digital asset ecosystem. Later in July, SIX also revealed it has started considering the possibility of launching crypto trading services on its trading platform, which is set to be launched by mid-2019.

Article Produced By
Helen Partz

Helen is passionate about learning languages, cultures and the Internet. She has years of experience working at international online advertising projects. Growing interested in Bitcoin and cryptocurrencies in late 2017, she joined Cointelegraph as a writer.

Indiegogo quietly canceled its first ICO after raising 52 million

Indiegogo quietly canceled its first ICO after raising $5.2 million

Trouble in paradise

Indiegogo’s first foray into the world of blockchain and cryptocurrency has gone awry

– but the good thing is that it appears investors will at least get their money back. In an email sent out in July, Indiegogo’s token brokerage partner, MicroVentures, informed investors they will not be receiving tokens – but refunds instead. From the looks of it, the reason for issuing refunds are recent changes in regulation.

Hard Fork has since obtained a copy of the message, which you can read below:

Thank you for participating in the FCFL pre-sale. If you have been following the crypto and ICO markets for the last 6 months you already know that the regulatory environment has been rapidly changing. The SEC has provided multiple comments regarding security and utility tokens, but has not provided formal guidance or a compliant framework on how to conduct these offerings.

During this time, your investment was not distributed to the company. This was done to ensure that MicroVentures navigated through the regulatory climate prior to finalizing the offering. While we believe the initial path taken was compliant, we have decided the best way to ensure compliance is to unwind the investment opportunity and return investor capital.

We are beginning the return process today.You may hear from someone on our team if we need to verify return instructions on how to return your investment capital to you.

Not to be mistaken with yesterday’s security token offering for the rich, Indiegogo announced plans to branch out into initial coin offerings (ICOs) in a statement last December. Given its success (and some failures) in the crowdraising sector, the expansion into token offerings seemed like a good fit. The guinea pig was the Fan Controlled Football League (FCPL), an Indiegogo alum seeking to raise up to $5 million to build a community-run football league. In return, the company promised to distribute tokens to their investors. The token distribution was to be overseen by Indiegogo’s partner, MicroVentures. The announcement gathered tons of attention from media outlets, securing coverage from Fortune, CNBC, CoinDesk, TechCrunch, and even The New York Times.

“We want to bring a brand of trust to the entire industry, which we think will bring [ICOs] to the mainstream,” Indiegogo co-founder Slava Rubin told The New York Times in 2017. “Now, we’re ready to become the go-to platform for selling and investing in digital tokens and blockchain-based assets, and we can’t wait for you to join us,” Indiegogo’s announcement added.

Indeed, FCFL boasted about exceeding its crowdfunding goals, raising the equivalent of $5.2 million “in Bitcoin, Ethereum, and classic fiat currency.” Unfortunately, the tokens were never distributed to investors. In fact, it appears MicroVentures did not even consult with FCFL prior to informing investors about the botched token sale. According to FCFL CEO Sohrob Farudi, MicroVentures initiated the refunding process without FCFL’s approval. (We contacted MicroVentures for a clarification, but representatives were not available for comment as of time of publishing.)

“We would like to address the recent email that we understand some of you received from MicroVentures,” Farudi said in a July statement, referring to the refund message shared above. “We did not consent to that email being sent out. We have no way to communicate directly with the purchasers who participated in our presale [sic] on MicroVentures platform as MicroVentures has refused to give us any information about who the purchasers are in order for us to communicate with them.”

“If you were a purchaser in the MicroVentures platform offering, FCFL would be happy to hear from you directly,” Farudi added. “We want to ensure that MicroVentures is handling this unwinding that it initiated properly and treating any purchasers in the MicroVentures platform offering fairly.” For the record, other than the St Regis Aspen Resort security token offering from yesterday, FCFL is Indiegogo’s first and only experience in the blockchain funding space. Speaking to The Verge in August, Rubin said the FCFL token sale “went well” – despite MicroVenture’s intention to issue refunds.

Asked about what went wrong with the FCFL ICO, Rubin told Hard Fork “the [MicroVentures] email issued to investors provides all the context for the refund.” “For clarification, Indiegogo partnered with MicroVentures in 2016, an SEC-registered [broker-dealer], to help market and amplify offerings on their platform to our global audience,” he further clarified in an email to Hard Fork. “Indiegogo itself is not a registered broker-dealer, and in the case of FCFL, or any other investment offering, does not participate in investment related activities.”

Meanwhile, Farudi insists FCFL is yet to be “given a valid reason as to why MicroVentures cannot complete the offering.” Not exactly what one would call a smooth execution. In all fairness, Indiegogo is hardly the only company to have back-pedalled on a scheduled token offering due to regulatory crackdowns. Indeed, tons of blockchain startups – including messaging giant Telegram – have had to abort their public token sales.

Article Produced By

Mix in Amsterdam

Mix is a tech writer based in Amsterdam that loves cinema and probably hates the movies that you like. Tell him everything you despise about his work on Twitter or pitch him your terrible ideas via email.

What Does It Take to Create a Good ICO Rating?

What Does It Take to Create a Good ICO Rating?

Some things are easy to rate.

If you go to a movie, you can make a ruling on how good it was based on your own enjoyment of the film, and perhaps on how good the cinematography and acting were. However, some things require some real work to rate accurately. ICOs are one such thing. Let’s take a look at what goes into developing an accurate and reliable ICO rating.

First, You Need an ICO List

In order to rate ICOs, you need to have a list of ICOs awaiting ratings. An ICO list on its own is a valuable tool for the cryptocurrency community, as it collects ongoing and upcoming ICOs in one place so potential investors have a great place to start their research. Especially given the difficulty of advertising an ICO, thanks to ad bans on most major platforms, it could be hard to find new ICOs to invest in without a list. Maintaining a list of ICOs requires having reliable web hosting, a well-designed website, and some method of updating your list, whether via inviting ICOs to submit themselves to your list, using a web crawler, or manually searching and adding ICOs that interest you. If you use user-generated or bot-generated content, you need to have a human on your team overseeing it in order to avoid the sort of sloppy, embarrassing errors that can occur without fact-checking.

Then You Need a Panel of Experts

For an ICO rating to have merit, it needs to have been created by someone with the credentials to judge the trustworthiness of the project. You could have a single expert do all of your ratings, but the staggering number of ICO projects out there might prove a daunting task for one person. Plus, if you have only one rater, they are only drawing on their own knowledge, and the ratings may also be influenced by their own biases. Ideally, you should have a panel of experts, drawn from several industries. Knowledge of cryptocurrency, business, law, and investment could all be beneficial for an ICO rater. Additionally, you might want to have some people on your team who are skilled at research and have a love of fact-finding, as it may take some digging to find all the details about an ICO’s team.

When choosing your panel, it’s imperative that you vet them thoroughly. Be sure that they actually have the experience and expertise that they claim to have. Only hire people who are suitable for the job. Resist the urge to give a job on your expert panel to an old friend or favorite cousin who needs work. Remember that when you make someone an expert on your site, you are vouching for their knowledge. It could reflect poorly on your site if you employ so-called “experts” who proceed to make uneducated comments about cryptocurrency on social media, or use their position at your company to get speaking engagements or jobs for which they are not qualified. There are two approaches you can take to having a rating panel. One is to share the identities of everyone involved, in order to showcase their expertise. The other is to keep your rating board anonymous, in order to protect them from bribery and harassment. Both are equally valuable, and you may want to discuss with your potential raters what they would prefer before making a final decision.

You Need to Establish Your Criteria

To bring it back to the movies, different genres are judged on different criteria. You would judge a comedy on how funny it was, but that’s not really a concern for a documentary. ICOs, on the other hand, should all be judged by the same criteria, and an ICO rating site should apply those standards evenly.

Some sample criteria include the quality of the ICO’s team, the merit of their idea, and how realistic their goals are. A rating might also take into account marketing and social media engagement. While many industries might consider a receptive online audience to be nice but not always necessary, an ICO’s audience says a lot about them. If the project has been received well by the cryptocurrency community, it speaks well to its potential success. On the other hand, if a project appears to only be gaining traction with crypto-newbies who are convinced they’re going to get rich, it may not be a trustworthy ICO. Your criteria should be clearly displayed and explained, so users of your site understand why a particular ICO has been rated as good or bad. After all, different potential investors will be more or less risk-averse, and some may see certain criteria as less important than others.

You Need to Research, Research, and Research Some More

Remember that team of experts you hired earlier? They’d better enjoy researching, because there are so many things that need to be investigated before rating an ICO. Just considering an ICO’s team, you first have to determine if the people who are listed as being involved in the project are actually involved in it. If they don’t list the project on their LinkedIn profiles, are they not actually affiliated with the program, or are they ashamed of their involvement? Either one is a definite red flag. It’s not enough to just discover if someone actually works for an ICO, though. You also have to follow up and see if they actually have the experience and skills they claim to have. Are they qualified for their role at the ICO?

Beyond that, your team will need to read the whitepaper to determine its quality and the validity of the proposed project. They’ll have to check GitHub repositories to inspect the project’s code. Someone will need to have a look at how well the project is engaging with investors on social media. Of course, if all of that seems like too much work, you could just do a surface-level amount of research, make a rating based on your initial impressions, and then suffer the fallout when you inevitably give a good rating to an obvious scam.

You Need to Choose an ICO Rating System

How will your ratings be expressed? The most popular options appear to be rating them on a scale of 1-10, or 1-5, or using letter grades. However, you could come up with your own unique rating system if you wish to stand out. Whatever you use, it’s important to make it clear and easy to understand if you want your ICO listing and rating site to be popular. It’s also beneficial to prominently display the rating, as we live in the “too long, didn’t read” era. Many people will simply scan the ratings without reading the more detailed information. Additionally, the crypto community is international and multilingual. You may have visitors who have only limited literacy in your native language, so be sure your ratings can be understood even through a language barrier.

You Need to Stand By Your Ratings

If you’ve chosen a good team, a good set of standards, and good research procedures, you should be confident in your ratings. You shouldn’t change them based on how other sites have rated the same ICO, pressure from the ICO’s team, or a discreet payment under the table. This means you need to own up to your mistakes, too. While most scams can be spotted with proper research, the crypto community has been rocked by a few instances of legitimate-seeming, promising projects turning out to be well-executed exit scams. When this happens, some sites are quick to rush in and change their ratings to lower than before, so they can pretend that they saw it coming all along (as long as no one has any pesky screenshots to prove them wrong).

Admitting your mistakes is an important part of growth. If you give a good rating to a project that your team couldn’t find any flaws in, and it turns out to be a scam, use this as a learning experience. Was there some area of research you had neglected that could have turned up some dirt? Did the scammers use some particularly clever ruse that you can look out for from now on? Integrity stands for a lot in this industry. Stand by your ratings, and stand by your team. That said, also expect the best from your team. If you discover that someone is accepting payments to change their ratings or otherwise engaging in shady behavior, you are responsible for cleaning house. Even one corrupt rater on a team of dozens can tarnish your sites reputation.

Finally, You Need to Spread the Word About Your ICO Listing

There are already a lot of sites out there which list and rate ICOs. If you’re new to the field, you’ll have to work hard to establish a good reputation. The same bans that stop ICOs from being able to advertise on the major social media platforms may impact you as well. In fact, before you expend all the effort to make a rating system for ICOs, ask yourself… “What am I bringing to the field?” Do you have a special area of expertise, or a great idea for how to improve on the existing model? Then go for it! Otherwise, you may want to ask yourself if your talents might be better applied to some other aspect of the crypto industry.

Article Produced By

Yavin is the Founder and CEO at Cointelligence, the data layer for the crypto economy. He has extensive experience as a serial entrepreneur and an angel investor, as well as more than 20 years of experience in the tech industry. Having earned the reputation of crypto expert, On continues to contribute to this industry in ways that advance cryptocurrencies and blockchain technologies. On uses his deep hands-on experience and knowledge of SEO, PPC, and ORM to create successful online marketing strategies for ICOs, crypto, and blockchain companies.

4 Founders Reveal Secrets Behind Wildly Successful ICOs

4 Founders Reveal Secrets Behind Wildly Successful ICOs

ICOs can be daunting to execute, so it’s best to learn from founders that have been there, done that.

Launching an ICO is a Daunting Process

                                   4 founders that have run successful ICOs

We spoke to 4 founders that have run successful ICOs about what they deem to be important when launching ICOs, how
to best go about approaching such a gargantuan task and some of the issues they encountered when doing so. (From left
to right, top to bottom: Jack Yeu, Co-Founder and CCO of Switcheo Network; Christel Quek, Co-Founder and CCO of BOLT;
Val Yap, Founder and CEO of PolicyPal Network; Stephen Hyduchak, Founder and CEO of Bridge Protocol)

Private sales and making sure you have the right investors onboard

Having raised US$8.7 million in their March ICO, Switcheo Network chose to hold a private sale as they had “a small following from the start”. Feeding off of the buzz surrounding competing product DEXs on NEO like Neon Exchange (NEX) and Aphelion, they consulted with one of the founding partners of NEO Global Capital, Roger Lim, to accelerate their fundraising process. Jack Yeu also highlights the importance of networking within the crypto world,


The advice and connections [Roger] brought to us proved to be invaluable.

Christel Quek of BOLT shares that of the US$12 million raised in a combination of Ether and NEO, approximately US$9 million was raised through a private contribution round that was completed in 2 months. She also shares that BOLT were very strict in ensuring that they had

strategic investors on board.

We would assess their contribution to our project, including introductions to key partnerships, that they would trade our BOLT Tokens diligently (vs a pump and dump situation).

Community, engagement and transparency

How a project’s team presents itself and interacts with the community is key in ensuring interest, a point that Stephen Hyduchak of Bridge Protocol raises. Through AMAs (Ask Me Anything threads on Reddit) and community influencers, Bridge Protocol aimed to be fully transparent in their project’s progress. As a testament to his team’s commitment to transparency, he tells us of a time in which “the team stayed up throughout the night to make sure users received their NEO back within 48 hours” while their token sale was ongoing. Val Yap of PolicyPal Network adds that Community Managers were key in maintaining interest in their project during

the ICO period.

They share all our projects on Telegram and Twitter, and also frequently engage the community to address any concerns they might have.

For her, Telegram engagement is especially important as it provides a means of instant and direct communication with the community. She boasts that at one point in time, the PolicyPal Network Telegram channel had over 23,000 members actively participating in the discussion.

Use the whitepaper to showcase your project and any working products

The whitepaper is often seen as an integral piece of the ICO pitch, allowing the project team to showcase their vision and the technology behind it. Val Yap tells us that the whitepaper is “important in getting interest from investors during [the] public crowdsale”. Christel Quek goes a step further by telling us that while the whitepaper is a good reflection of what a project has to offer, what it really boils down to is the “delivery of results”. Amid a bearish market, investors have rightly become more cautious when approaching ICOs. What matters most is having a working product and to inform potential investors of

your mission.

What matters is to start from the mission and to articulate it in a narrative that anyone in the market can understand, before going to work on deal-making […] to make the project a wildly successful one.

There’s no need to run a 6-figure ICO

Most ICOs run into high 6-figure sums and in some cases 7-figures. Knowing how much you need to spend, and how to avoid the 6-figure pitfall can go a long way when planning your ICO. For BOLT, the entire ICO (including legal, accounting, operational and technology fees) ran them just under US$500,000, all of which was borne out of the founders’ pockets. Having these funds in place as an investment is key to making sure the ICO is successful.

As Christel puts it,

Good things take time and money, especially if you want the process to be rigorous and done to a high standard.

Mint what you need and keep your Token Economics simple

Token economics refers to the model and implementation of cryptocurrency systems based on blockchain technology. As such, they’re an important part of attracting investors, providing a way to show both speculative and utility value. Stephen Hyduchak shares that Bridge Protocol based their token economics on the needs of their platform, ensuring “Bridge Protocol users wouldn’t need to buy more tokens than needed”. Of the total 1 billion tokens available, 500 million was offered to the public, while the other 500 million was retained by the company to provide incentives to potential partners.

For founders like Jack Yeu, ensuring their token economics were as simple as possible was a means to make sure “[the] project and token was easily understood by the masses”. Having distributed 1 billion Switcheo Tokens (SWTH) during their token sale, SWTH provides a discount on trading fees – operating similarly to the Binance token. It also serves as a trading pair to “potentially facilitate the transfer of value across different blockchains in the future”.

Article Produced By
Eugene Cheng

About the author

Eugene is Partner and Creative Lead at HighSpark – a strategic training and presentation design company that works with Fortune 500 companies and blockchain startups to communicate more powerfully. Eugene writes about blockchain trends, business and marketing for leading publications like Lifehack, Techinasia, e27 and more.

Despite What You Hear The ICO Is Not RIP

Despite What You Hear, The ICO Is Not RIP

The big news in cryptoland in 2017 was the rise of the Initial Coin Offering.

The knowledge that something like this could be possible dates back to the early years of Bitcoin, but the dawning of the reality was quite awesome to behold. Anyone with an entrepreneurial idea could float a token and invite people to invest. The investment vehicle was not a broker or bank but a distributed platform that connect buyers and sellers. What they got in return was not a stock or share in the profits but the rising value of the token itself. It’s a highly liquid stake in a protocol. Small businesses, churches, schools, websites, and charities of all sorts could raise money this way.

Most importantly, the ICO illustrated the hope that anyone could be involved in both soliciting and investing in enterprise while bypassing the hugely regulated, bureaucratized, and impenetrable apparatus of traditional financial markets, including rarified venture capital funding. It seemed like we were watching a beautiful future unfold, the democratization of investment and fundraising. The possibilities are without limit. We’ve never seen anything like it in the history of finance.

This year, matters have been different.


  • Only 7% of ICOs from Q2 have been able to secure listings;
  • 55% of all ICOs from this period failed to hit their funding target;
  • 15% of projects already had a working business, versus 6% in Q1, and whether or not this was the case had no effect on fundraising success.

So I decided to take a closer look at the very detailed report being cited here. The actual facts show a different picture that do indeed point to long-run success, even if the markets seem rather stalled at this moment. What we see is a spectacular increase if looked at year-over-year. In 2018, compared with a year earlier, the report finds the that ICO market has more than doubled. Collectively, ICOs of 2018 have already raised $11,690,981,663 of investments, which is 10 times bigger than the cumulative sum of investments from ICOs of Q1-2 2017. Excluding EOS, the cumulative amount of funding received from ICOs of Q1-2 2018 is 6.4 times bigger than the one of Q1-2 2017.

The total amount raised in the second quarter of 2018 is: $8.4 billion dollars. That doesn’t sound like a dead market to me. It’s true that half the new ICOs in the second quarter were unable to raise more than $100K in funding. But this suggests a downgrade in the quality of listings. That is no surprise to anyone who has watched this sector over several years. A market with virtually no barriers to entry for upstarts is going to attract…well, just about anyone. It’s for this reason that only 7% of new tokens have managed to obtain listing on established crypto exchanges. But judging by that standard is an extremely high bar. The exchanges are listing thousands of tokens, and even people who obsessively follow this space have to admit that they can no longer keep up with the volume, variety, and frequency of listings.

It’s too much for anyone.

In that same vein, 55% of all ICOS in Q2 2018 failed to complete crowdfunding. But that is only 5% more than the first quarter, and this is in a period of notable pullback in the markets. And also note that there was an 11% increase in the quantity of projects choosing this funding route.

The report further says:

On average, the top projects for Q2 raised 50 million USD. Only 3 mentioned projects attracted all their funds in the course of 1 day. On average, these projects raised their money within 63 days (the average campaign duration time is the same as in Q1, but there is an evident tendency for an increase, at least by 10%). Compared with Q1, the number of projects offering tokens with service characteristics decreased by 24%. The share of projects that offer security tokens decreased by 8%. The number of projects with utility tokens increased by 32%.

What about geography? Despite all the talk of crypto-utopias being set up in far-away lands, North America is still king of the ICO, with 64.7% of all funding attracted. Second is line is the Singapore, then UK, and then Switzerland. Asia showed an increase in funding but a decrease in the number of new projects. In terms of sheer numbers of business registrations of high-value tokens, the geography is very different: Malta, Gibraltar, and Singapore rank as the top three. “We attribute this to an openness to blockchain projects and the legal changes enacted by financial authorities in Malta and Gibraltar,” says the report.

Keep in mind that all this happened despite true setbacks in the markets as a whole. The median return on tokens in the second quarter was a dismal -55%. The average number of investors per token was 7,871, showing what a truly thin market we are really talking about. The great exceptions to the general pattern were Telegram (a communications platform) and EOS, which sports a new governance model for decentralized applications.

The least successful ICOs were cryptocurrencies. In that sense, Q2 was the quarter of burnout on this asset. We have more than enough monies, markets seem to be saying. The success leaders were service and utility tokens, which is to say protocol assets not designed for monetary exchange but rather assets backed by new services that exist apart from their fundraising potential. What industries are we talking about? “Following Q1 trends, the most popular industries with the largest number of projects were finance, gaming, and infrastructure. The number of gaming projects doubled compared with Q1.”

In general, the report has vastly more information and detail than any normal person would ever need to evaluate this new sector of financial life. What it all points to is precisely what many of us came to believe in 2017. Something truly spectacular is taking place that could change finance, investment, and entrepreneurial innovation forever. So why the long faces? It has something to do with the short-term temperament of the investor community as it developed in 2017. This community became addicted to extremely high returns, fast progress, and the belief that everything was changing much sooner rather than later.

History shows a different reality. Railroads in the 19th century had a long and rough start, and the markets were replete with frauds, mishaps, booms and busts, and hence skepticism. The internal combustion engine for tractors took a whole generation to be widely adopted. Internet commerce experienced a spectacular bust in 1999 that traumatized a generation of investors, and we are only now seeing that anti-digital bias fade from people of a certain age. In the end, crypto markets can’t be about this quarter’s prices, this year’s high-flying coins, or this or that company’s fate. The confidence that one has in crypto traces to a conviction concerning the technology itself and what it can and is doing for the well-being of the human experience.

Article Produced By

Jeffrey Tucker

I write about the upheaval in monetary technology in our time. I head editorial at the American Institute for Economic Research founded in 1933. I've written 8 books and speak regularly worldwide on topics of money, trade, and innovation. Disclosure: yes, I have personal investments in the cryptoasset sector.

How The ICO Has Totally Changed In 2018

By establishing a direct connection between the everyday investor and entrepreneurs,

initial coin offerings (ICOs) were supposed to revolutionize fundraising for startups. As things have turned out, however, that revolution can wait. Per the latest statistics, ICOs have become vehicles for accredited investors to make bets in the market for blockchain and cryptocurrency startups. A significant portion of the $18 billion raised by blockchain startups this year has gone to “blockbuster sales” aimed at accredited investors rather than mom-and-pop investors. (See also: The Rise Of Initial Coin Offerings.)

According to data from Coinschedule, an ICO listing and cryptocurrency portal, the top five such private sales accounted for $2.6 billion of the total amount raised. The portal also found that 18% of overall ICO sales are through private sales and 37% were exclusively through private presales. Those numbers have come down from earlier this year, but they are still further confirmation of the increasing hold private players have on ICO blockchain projects. Earlier this year, research firm Token Data revealed that approximately 58% of all ICOs had raised their full fundraising amount through presale rounds, which is to say, by approaching private investors for funding instead of doing a public sale of their tokens. (See also: What Crackdown? ICOs Have Raised $2 Billion This Year.)

Why Are ICOs Becoming Private? 

The answer to that question lies in a single word: regulation. Regulatory scrutiny, whether in the form of pronouncements by SEC and Fed officials or a crackdown by law enforcement authorities, has spooked entrepreneurs. Previously, the rapidly-proliferating ICO landscape was a free-for-all ecosystem, where talented engineers and scammers set up shop. However, the constant media spotlight on cryptocurrencies has attracted the attention of regulatory authorities. The SEC has already issued multiple warnings against ICOs and cracked down on dubious offerings, even those that were endorsed by high profile individuals. 

The overall effect of increased scrutiny by authorities has been to multiply regulatory hoops for entrepreneurs wishing to do a public offering. For example, there has been considerable controversy over the status of utility tokens, which require fewer disclosure forms and checks from the SEC and which are favored by most startups opting for an ICO. But SEC chief Jay Clayton sounded a warning to startups when he asserted that most ICO tokens he had seen were security tokens, or ones that require greater disclosure. His statement introduced uncertainty in cryptocurrency markets as the agency has not clarified its stance regarding ICOs. (See also: SEC Chair Warns Cryptocurrency Investors To Beware.)

Lex Sokolin, global director of fintech strategy at Autonomous Research, told Bloomberg that the (cryptocurrency) space went from three things to think about (before an ICO) to 30 things to think about, and those 30 things are very analogous to traditional finance. Uriel Peled, co-founder of Orbs, raised $120 million from private investors earlier this year and told Bloomberg that private sales are the best kind of ROI because they come with the least uncertainty and least risk for regulations. Preparing for a security token sale is also costlier and takes more time as compared to an ICO for utility tokens. Sokolin estimates an average cost of $1 million to $3 million for a security token sale.  

Private sales to accredited investors also shift costs of conducting a public ICO. Entrepreneurs have increasingly begun issuing a bonus (or discount) on their tokens to private investors. A pop in the token’s price upon listing at a cryptocurrency exchange enables these investors to exit their position at a profit. It also helps bankroll the increased costs for compliance and operations at the startup to conduct a security token sale. In some cases, private sales are also a method for venture capitalists and institutional players to invest in the startup. As such, they may not exit their position during a public token sale.

Investing in cryptocurrencies and other Initial Coin Offerings ("ICOs") is highly risky and speculative, and this article is not a recommendation by Investopedia or the writer to invest in cryptocurrencies or other ICOs. Since each individual's situation is unique, a qualified professional should always be consulted before making any financial decisions. Investopedia makes no representations or warranties as to the accuracy or timeliness of the information contained herein. As of the date this article was written, the author owns small amounts of bitcoin and litecoin. 

Article Produced By
Rakesh Sharma

Rakesh Sharma is a freelance journalist interested in the intersection between business and technology. An alumnus of the Medill School of Journalism at Northwestern University, he has written for Active Trader, India Abroad, InvestorPlace, and Forbes.


What to do with your ICO Funds

What to do with your ICO Funds

Among the considerations when planning the launch of your ICO

is where your target raise figure should be set. Too many startups do not approach this question with enough thoroughness, instead of establishing a fairly arbitrary figure that leaves them either over-leveraged or high and dry when it comes time to pay operating costs.

The Rhyme and Reason of Setting a Target Raise Figure

Whittling down a target raise amount that is both justified and sensible should be a levelheaded process. Those motivated by greed or grandiose visions of what their post-ICO operations will look like are liable to set their target too high. Buyers and investors must feel that they are getting strong value for the money they put forth in exchange for a token, regardless of whether it is a security or a utility token. Establishing a soft cap and correlating target raise figure that does not reflect the company’s value is unlikely to attract the token buyers necessary to get the project off the ground.

Conversely, being too conservative in setting the fundraising target for an ICO is futile. Failing to raise the sum that will be necessary to fulfil daily operating costs defeats the purpose for which the ICO was established. In other words, taking restraint to an extreme can be just as harmful as showing not enough restraint. For these reasons, thoughtfully outlining your future costs and nailing down a vision that is neither grandiose nor spartan is a must before launching an ICO.

What is the Purpose of Your ICO?

Have a clear vision of what the purpose of your ICO is. Remember, it shouldn’t be to pay yourself or to renovate the company’s office space unless that is going to lead to a tangible payoff in terms of token value. Making the difficult decisions regarding what ventures are worth funding via an ICO — perhaps it’s marketing, advertising, strategic expansion/relocation, strengthening a blockchain, improving functionality, or something else — is an initial step toward setting a sensible target fundraising goal.

Establishing the Hard Cap

The hard cap, the term for the dollar amount needed to completely launch your project, should be seen as a first-phase investment, considering that setting this figure too high can scare off potential buyers. However, the hard cap represents the figure you will need to deliver an ideal version of the project, so giving yourself some leeway for expenses is important. Setting this figure appropriately requires detailed foresight into the various costs that will be required to complete the project, and complete it right.

Establishing the Soft Cap

The soft cap represents the minimum amount of fundraising that will need to be raised from the ICO in order for the most basic acceptable version of your project to be delivered. Far from ideal, you must still set your soft cap in a range that is high enough to deliver the Minimum Viable Product (MVP) without cutting critical features or compromising the integrity of the project. However, this figure must also be set reasonably low as to be attractive to investors seeking a good deal.

How to Proceed Post-ICO

Again, it’s important to note that the hard and soft caps are determined by what you plan to do with your ICO funds. Justifying the fundraising to potential investors by convincing them that you won’t be using their money to take upper management on a cruise, but instead will use it in a way that effectively grows the company, is critical to establishing trust and attracting buyers. So establish how you’ll use those funds before you begin establishing targets, and then once you have those funds, do as you say. Trustworthy companies are able to establish more funding rounds in the future, so it’s important to remain within the parameters of the project at hand so that you can set yourself up for even more success.

Article Produced By

Adrian Guttridge

Beyond the ICO Part 2: Regulation Breeds Specialization

Beyond the ICO Part 2: Regulation Breeds Specialization

Fraudulent ICOs have stolen billions in investor capital,

damaging market sentiment and capturing negative attention from strong-handed regulators around the world. There’s no doubt that the shape of ICOs is changing–but what role will regulators play in the future development of the ICO model? As market participants begin to adapt to exit scams, a set of de facto requirements have emerged that ICOs must follow to succeed—rules that government regulators have begun to adopt while a legal scaffold is quickly constructed around the out-of-control ICO industry. In this three-part series, CryptoSlate will assess the current state of the ICO ecosystem, analyze the regulatory shift that is making the “traditional” ICO model untenable and take a look beyond the ICO at the future of a decentralized capital generation.

The ICO is Dead. Long Live the ICO

The hand that will drive the final nail into the coffin of the traditional ICO model is directly attached to the arm of regulation. Upcoming regulatory changes to the definition of what constitutes a security will see scores of the ICO ecosystem fall to the tyranny of financial watchdogs–which is, in some cases, necessary. The core appeal of the ICO model, which democratizes access to growth capital, is how it opens up participation in the market of ideas to anyone, anywhere–free from restrictions such as the U.S. SEC’s limitation on pre-IPO sales to “accredited investors.” A small oversight, however, is arguably necessary to safeguard the interests of ICO investors.

ICO regulation hinges on the separation of the sale of utility tokens, which provide investors with access to future products or services, and security tokens, which represent ownership of an asset, with functionally equivalent to equity or debt. The SEC’s position on ICOs, however, appears to place all tokens sold in ICOs in the latter category and, therefore, under the jurisdiction of the SEC.

As expressed by SEC Chairman Jay Clayton in April:

“I believe every ICO I’ve seen is a security”

Regulators are Stepping in—and Why That’s a Good Thing

If the SEC does not step in to “stop the fraudsters,” states Clayton, there is a serious risk that the regulatory response to fraudulent platforms will be so severe that they will restrict the capacity of the entire crypto asset class. The SEC, it appears, will no longer tolerate the “wild west” environment of the ICO ecosystem. While the SEC has recently softened its stance on ICOs, it’s clear that the classification and regulation of ICOs are soon to change. At the Yahoo Finance All Market Summit: Crypto in San Francisco, June 14, the SEC’s corporate finance division head, William Hinman, admitted that it’s possible for a token sold as a security offering, as defined by the SEC,

to be reclassified:

“Can a digital asset originally sold in a securities offering eventually be sold in something other than a security? How about cases when there’s no longer a company? I believe in those cases answer is a qualified yes.”

According to SEC, cryptocurrencies that lack a centralized governing body and operate in a similar manner to commodities like Ethereum or Bitcoin are definitely not securities. Tokens sold in crowdsales that function as investments, however, unequivocally are. If a decentralized blockchain-based growth capital generation is to continue to thrive, a paradigm shift in the structure and execution of ICOs is essential.

Article Produced By
Sam Town

About Sam

Samuel is a freelance journalist, digital nomad, and crypto enthusiast based out of Bangkok, Thailand. As an avid observer of the rapidly evolving blockchain ecosystem he specializes in the FinTech sector, and when not writing explores the technological landscape of Southeast Asia.

Beyond the ICO Part 1: Adapt or Die

Beyond the ICO Part 1: Adapt or Die

The intoxicating, late 2017 cryptocurrency market run-up fired blockchain technology

and digital currencies directly into the nucleus of the global financial ecosystem–demanding the attention of regulators, speculators and innovators. The culmination of the blockchain led to the widespread realization that virtually everything could be decentralized including the creation and funding of blockchain platforms themselves.

Thus, the year of the initial coin offering (ICO) was born, catalyzing a gold rush of ICOs that cumulatively generated more than $5.6 billion, an exponential increase over the mere $240 million raised the year prior. A loose regulatory environment paired with quixotic market sentiment led to a frenzy of token sales, spawning more than 900 individual offerings that ranged from highly successful to outright scams.

In this three-part series, CryptoSlate will assess the current state of the ICO ecosystem, analyze the regulatory shift that is making the “traditional” ICO model untenable and take a look beyond the ICO at the future of a decentralized capital generation.

The End of the ‘Wild West’

The rapid development of blockchain-based crowdfunding has resulted in a series of successful platforms such as NEO, Storj and even Ethereum; however, the speed in which ICOs propelled into the international crypto market has made it nearly impossible for regulators to create nuanced, regulatory frameworks that are able to protect investors from scammers and fraudsters. The total lack of oversight within the ICO ecosystem has resulted in swift and furious action from regulatory bodies around the world, and with research hinting toward prolific fraud in the ICO market, countries like China and South Korea have completely banned ICOs. However, despite regulatory crackdowns and dwindling investor trust, ICOs have already generated $6.3 billion in 2018.

Statistics released by TokenData, however, reveal that 46 percent of the ICOs launched in 2017 have failed–suffering from economic asphyxiation, exit scams or condemned to development hell. With the SEC hinting toward further crackdowns on the ICO model, it’s becoming apparent that the window of opportunity in which entrepreneurs are able to generate hundreds of millions in unregulated startup capital is rapidly drawing to a close.

Exit Scams Keep Happening

Data published in July by ICO advisory firm SATIS Group also reveals high levels of fraud present in the ICO industry. In addition, the Wall Street Journal has previously reported statistics that indicate up to 20 percent of all ICOs are fraudulent in nature; however, STATIS maintains that nearly 80 percent of ICOs can be classified as “scams.” In 2018 alone, the cryptocurrency community has been rocked by a score of ICO exit scams that have separated investors from more than half a billion dollars in invested capital. For example, the Vietnamese cryptocurrency platform Modern Tech launched an ICO called “Pincoin” that defrauded investors of nearly $660 million in April.

More recently, the ACChain project allegedly executed an exit scam, vacating offices and taking off with more than $60 million in investor capital. With investors warier than ever before, and regulators poised to take drastic action, the ICO model as it existed in 2017 is dying. However, the future of decentralized startup capital generation is, indeed, bright. In part two of CryptoSlate’s “Beyond the ICO” series, we’ll examine the regulatory response to the ICO crisis and how regulators plan to address growing concerns regarding unregulated crowdfunding events.

Article Produced By
Sam Town

About Sam

Samuel is a freelance journalist, digital nomad, and crypto enthusiast based out of Bangkok, Thailand. As an avid observer of the rapidly evolving blockchain ecosystem he specializes in the FinTech sector, and when not writing explores the technological landscape of Southeast Asia.