STOs, IEOs to Contend Strongly as ICO Concept Marks Six Years
It’s six years since the concept of initial coin offerings (ICOs) birthed and insiders suggest to expect a shift from the fundraising mechanism to security token offerings (STOs) and initial exchange offerings (IEOs).
J.R. Willett launched the first-ever ICO, Mastercoin (now Omni), on July 31, 2013 to start an idea in the blockchain space that has grown to be an alternative to the traditional capital-raising method for startups seeking funding more easily.
Its craze seems to have died down after the mechanism’s wave broke out in 2017 for startups to raise approximately $4 billion globally according to Ernst & Young (EY). The hype started slowing down by 2018 as early returns from ICOs become less encouraging – about 86% deemed to have failed. Unlike traditional venture capital investing, EY notes that ICO-backed companies tend to “offer more risk” based on factors like the lack of progress towards usable products.
A NEM Foundation report states that STOs are gradually becoming popular. The co-founder of NEM Ventures, Dave Hodgson, says the future of fundraising in the short-medium term “is likely to focus on traditional startup avenues, including crowdfunding, angels, VC and private equity, coupled with the newer IEO and STO approaches.”
He adds: “As we move into the era of Decentralised Finance (DeFi), I believe that a number of very interesting finance raising approaches will emerge and present themselves apart from the more traditional approaches.”
Charles Lu, CEO of Findora, a public blockchain for building financial applications, agrees that ICOs offered a way to jumpstart development of a public shared resource and initialize a diverse global pool of stakeholders but some of their shortcomings – often structured to incentivize project teams, lack of accountability, high degree of speculation and violating local securities laws – were too clear.
“Regulation around blockchain is steadily gaining clarity around the world, and innovations like security token offerings (STOs) are emerging. Because many traditional financial services are inefficient, expensive, and inaccessible, we predict that finance will continue to improve through democratization, interoperability, and automated compliance.”
For Charles Phan, Founding Engineer of Interdax crypto exchange, it will soon become clear that exchanges are the natural place for offerings as the market matures. “It’s only natural for projects to move away from ICOs towards IEOs, as the early landscape saw a failure in terms of due diligence, causing many vaporware projects to be funded,” he says, adding that IEO platforms assure investors of an immediate and liquid market for the new token as well as an experienced team to ensure legitimate projects listing.
The sixth-year commemoration comes as Ethereum, whose platform EY cites as the most being used for ICOs, marks its fourth year anniversary too. Though it was proposed in late 2013 and created in 2014, the Ethereum mainnet launched fully on 30 July 2015. Ethereum is the second-largest cryptocurrency based on market capitalization. Known mainly for its smart contracts and dApps hosted, all eyes are on the platform unveiling Ethereum 2.0 based on a Proof of Stake consensus in two years.