By
Bena Ilyas
April 25th, 2024
Initial coin offerings (ICOs), the funding mechanism for releasing new digital currencies, are an enigma. They are at once a vital component for the proliferation of the decentralized economy, and they are one of the most controversial aspects of its development.
Initial coin offerings (ICOs), the funding mechanism for releasing new digital currencies, are an enigma. They are at once a vital component for the proliferation of the decentralized economy, and they are one of the most controversial aspects of its development.
ICOs spawned some of the most compelling technology platforms in the world – for instance, Ethereum launched from an ICO in 2015 – but their legality is frequently questioned, and some countries have even barred the practice entirely. Even so, they continue to demonstrate their significance.
Last year, at the height of the cryptocurrency boom, 209 companies issued new digital currencies that they launched through an ICO. Impressively, those projects netted their developers nearly $3.7 billion, a record at the time. However, as cryptocurrencies experienced a steep downturn in the first half of the year, ICOs surged like never before. In the first seven months of 2018, 638 ICOs launched and collected just shy of $17 billion.
Not only does this enormous investment raise the specter of ICOs as a viable fundraising approach, but it increases these projects’ responsibility to their buyers, and that’s where the problems begin to emerge.
Disturbing Trends in the ICO Industry
In May, The Wall Street Journal released a comprehensive analysis of 1,450 ICOs, and the results were not flattering. The Journal’s assessment found that 271 contained red flags of fraud including serious matters like “plagiarized investor documents, promises of guaranteed returns and missing or fake executive teams.”
That report was followed by a longitudinal ICO study commissioned by Bloomberg and conducted SATIS Group revealed that 78% of ICOs can be classified as scams. This nuanced report reveals that many ICOs fail to achieve the product that they promise, but that these projects also fail to attract significant funding. The report notes, “Over 70% of ICO funding to-date went to higher quality projects.”
Too Critical to Fail
In general, the news headlines related to ICOs don’t tend to be flattering, but the fundraising mechanism is vital to a burgeoning, transformative industry, so its shortcomings must be addressed. Fortunately, the blockchain industry is comprised of a plethora of creative and competent developers, so it’s uniquely positioned to repair its own processes.
In that spirit, many blockchain-based platforms are emerging to provide conflict resolution services that can make the ICO process more reliable and trustworthy. JUR, an aptly named decentralized dispute resolution platform, allows parties to mediate their disagreement though impartial voters on the blockchain. When finances are involved, as they often are in an ICO setting, JUR offers escrow services that automatically enact when a verdict is determined. In addition, JUR’s smart contracts can determine an ICO investor’s capital disbursements as appropriate milestones are reached, which incentivizes developers’ progress and protects investors interests.
In this way, JUR is employing the blockchain’s own functionality to improve the overall ecosystem.
With all the hype and enthusiasm surrounding blockchain projects, users are unlikely to effectively implement conflict resolution platforms if they are difficult to use. As a result, JUR and other projects have a distinct emphasis on usability from the get-go. With just a few clicks, clients can engage is escrow services, mediation management, and dispute resolution. The initiative process is significantly more affordable than traditional legal fees, but it can be as legally binding as a judicial verdict.
Decentralized voting by impartial third parties who are rewarded for their efforts, not their biases or agendas, is a unique approach that only the blockchain can facilitate, and JUR isn’t the only company pursuing this avenue. Augur and Gnosis both employ variations of the voting mechanism to resolve conflicts and to predict user sentiment.
Of course, other platforms are striving to make the ICO environment more investor-friendly. Jury.Online establishes concrete commitments from ICO developers, and it ties their financing to their progress in achieving these commitments. This process is similar to the ICO model envisioned by Ethereum co-founder, Vitalik Buterin.
The blockchain ecosystem is expanding its offerings, and those can be used to develop better ICOs as well. Agrello, a template service for smart contracts, can be employed by ICOs to develop trusted relationships with their investors and can incentivize their progress by automatically dispersing funds when pre-determined stipulations are met.
The blockchain ecosystem is genuinely beginning to flourish. Established enterprises like IBM and Microsoft are making a strong push into the environment, and the rapid proliferation of blockchain-based startups makes it increasingly evident that the future tech landscape is decentralized.
ICOs are too critical to fail because they play an essential part of in this movement. Therefore, it’s profoundly important that some of their most apparent detractions are mediated. The blockchain is providing many of its own solutions to make this capital raising mechanism viable and compelling for developers and investors, which means that the blockchain ecosystem can continue to flourish well into the future.