Crisis: After 30 Billion Invested Most Crypto ICOs Have Nothing to Show

Crisis: After $30 Billion Invested, Most Crypto ICOs Have Nothing to Show

Over the past two years,

initial coin offering (ICO) projects in the crypto market have raised more than $30 billion. Yet, most ICO projects have little to show, especially pertaining to user growth, blockchain adoption, and overall user activity on decentralized systems.

It Will Only Get Worse

A handful of tokens have demonstrated success in establishing clear vision, growth paths, and valid use cases of blockchain technology that benefits users. Binance Coin (BNB), for instance, which already operates as the base cryptocurrency of the Binance exchange, will be extensively utilized to process peer-to-peer trades upon the launch of the Binance decentralized exchange (DEX). Tens of thousands of merchants have also recently started to use BNB to accept crypto payments.

0x (ZRX), the native cryptocurrency of the 0x decentralized exchange protocol, is necessary to facilitate liquidity amongst many decentralized exchanges that operate on top of the 0x protocol. While there are several tokens in the market that represent viable applications of the blockchain, the vast majority of projects have ambiguous roadmaps and long-term strategies.

As Uber’s Sam Gellman said:

“After $30 billion invested in the past two years in ICOs there still isn’t a single crypto app with a real user base for anything other than speculating on crypto. The BTC price movement is tough, but the lack of real user base for anything they’re investing in is tougher.”

With regulatory hurdles set forth by the U.S. Securities and Exchange Commission (SEC), the ICO ecosystem will become even more difficult for both innovators and projects. This week, the U.S. SEC cracked down on two ICO projects called AirFox and Paragon, characterizing their token sales as unregistered security offerings and requesting the two tokens to refund all of their investors. “They have also agreed to compensate investors who purchased tokens in the illegal offerings if an investor elects to make a claim. The registration undertakings are designed to ensure that investors receive the type of information they would have received had these issuers complied with the registration provisions of the Securities Act of 1933 (“Securities Act”) prior to the offer and sale of tokens in their respective ICOs.”

The U.S. SEC emphasized that it is in support of the blockchain and the usage of newly emerging technologies. But, the commission said that market participants must acknowledge and adhere to local regulations. “We wish to emphasize, however, that market participants must still adhere to our well-established and well-functioning federal securities law framework when dealing with technological innovations, regardless of whether the securities are issued in certificated form or using new technologies, such as blockchain.

Importance of Bear Market

The bear market of 2018 will filter good projects from the bad, and those that survive will be projects that have a clear vision, roadmap, active user base, and a competitive model. As the capital in the market drops, investors who previously invested in every new project in the market will become more cautious and it will be challenging for token sales without competitive strategies to appeal to the public. Over time, as investors learn to conduct due dilligence and the market evolves into a more competitive sector, underperforming projects will naturally see a decline in investment opportunities, user activity, and demand.

Article Produced By
Blockchain News

https://www.ccn.com/crisis-after-30-billion-invested-most-crypto-icos-have-nothing-to-show/

University of British Columbia Study: Compliance Trilemma’ Limits Potential of ICOs

University of British Columbia Study: ‘Compliance Trilemma’ Limits
Potential of ICOs

Initial Coin Offerings (ICO) are facing a regulatory
“compliance trilemma,”

according to a recent study released Nov. 19. The research, funded by regtech platform iComply and “supported by” Canadian non-profit national research organization Mitacs Canada, was carried out by the University of British Columbia (UBC).To prepare the report, UBC’s research team investigated the ICO space over the course of six months, focusing primarily on North America, but also delving into some other countries and jurisdictions. The team conducted 45 qualitative interviews with individuals in the ICO space, including representatives of the finance, law, and science sectors of the field.

Per the study, ICO issuers face a “trilemma,” wherein they can only address two of three objectives at a time, those being “having a compliant offering,” “reaching a distributed pool of investors,” in a manner that is “cost-effective.” The researchers define compliance as following regulations in the home jurisdiction of both the issuer and investor. While a broadly distributed pool of investors is said to be the principal benefit of an ICO as a funding mechanism, the cost of complying with financial regulators becomes “much greater” if the investor pool becomes more distributed.

“If issuers forgo these costs, the risk of being non-compliant rises significantly. The result is a trilemma, whereby issuers currently must forgo one of these goals to realize the other two, or to compromise on all three,” the study explains. The trilemma further reveals four basic approaches available to ICO issues, which are “the Maverick ICO,” “the Private ICO,” “the Hybrid ICO,” and no ICO at all. The first option refers to ignoring compliance for maximizing ICO reach and cost effectiveness, which reportedly runs a huge risk of regulatory enforcement.

The second approach focuses on targeting only accredited and institutional investors by sacrificing distribution, which may not affect cost-effectiveness but raise challenges in secondary market trading control. Regarding the Hybrid ICO, the report reads that it “compromise[s] on all three dimensions by issuing in select markets, resulting in bounded cost effectiveness, compliance and investor scope,” resulting in a combination of risks.

The researchers found that companies wishing to undergo an ICO sought relief from the trilemma through relevant regulatory authorities. Participants in the study reportedly called for amendments to regulation, including clarifications of existing regulation and development of “fundamentally new” regulatory definitions and frameworks. The study concludes that this “trilemma” has “substantially limited [the] potential” of ICOs,

noting:

“Many actors with legitimate ventures that could benefit from ICOs are likely holding back, due to combination of confusion over how exactly they might comply with financial regulations within and across jurisdictions, and the prohibitive costs of doing so manually.”

As Cointelegraph recently reported, ICO performance in the third quarter of 2018 was in part characterized by “overall disappointment," in comparison with previous quarters. Last week, Cointelegraph reported that in a self-described “first,” the U.S. Securities and Exchange Commission (SEC) had imposed civil penalties against two ICOs over their failure to register their token sales with the agency.

Article Produced By
Ana Alexandre

Total change in her career took Anastasia into the world of analytics and business information as a researcher and translator in 2010. Some time later she got into FinTech, a dynamically developing segment at the intersection of the financial services and technology. Ana joined Cointelegraph in September 2017.

https://cointelegraph.com/news/study-compliance-trilemma-limits-potential-of-icos