The whole ICO gold rush really looks like a crazy bubble. Accepting for the moment that crypto currencies can have a viable place in the finance system, how many of these do we need? What differential value do these new crypto coins offer that Bitcoin, Dogecoin, Etherium or the other existing coins don’t already provide? Honest question, the articles I can find on this don’t really answer this.
In some cases, they actually contribute a novel feature (e.g. Monero adding features that enhance privacy).
In most cases (all but a handful), they add nothing.
It’s a money grab—so much so, that a somewhat self-aware crypto enthusiast created a parody coin, Useless Ethereum Token, whose sole feature was that it had none. It raised $40k in 3 days and was, at its peak, worth $160k, which is a pretty lofty valuation for a joke.
I tend to say I can't give a FUCK because I don't have any FUCK left to give. So just by existing they already enriched my life, a truly glorious token.
That's not quite true. A lot of these ICOs at least claim to be trying to add some kind of unique features. A lot of them are "utility tokens" which are supposed to be used to pay for the services of a decentralized network. I agree that most of them are garbage, but this isn't like the crapcoins of a few years ago when they were literally just forks of bitcoin with tweaked constants.
Most of the new offerings are tokens. A whitepaper will list the benefits to the user, usually a % of profits of some new product that the team will bring to the market. So they are acting as company shares.
I'm not trying to justify this and I don't buy them myself, but I am watching teams raise serious amounts of cash.
To me this seems an easier way to raise cash than going to a bunch of VC's becuase with the ICO craze the due diligince is negligable.
how do you defraud people by doing an ICO? if you raise the cash and don't attempt to build a business, you will be caught for fraud and go to jail. It doesn't seem like a great vehicle for fraud
You then pay yourself salary for the next three years, as well as a generous contract to your uncle Bob's consulting firm, which is supposed to build the product.
Sometime in 2020, you post about your incredible journey on your blog, say that all the money has been spent, and the project failed. Whoops, sorry guys.
At least, that's a legal way to take ICO money and run. It's not even fraud if you put some effort into delivering on what you promise.
hmmm. then you face a massive class action lawsuit that finds an email or two where you joke about an ICO with friends, you easily spend 20-30 million defending yourself, you win, but you go bankrupt in the process. No, that doesn't work
In order to bring the suit in the first place, you have to have some kind of reason to believe that they defrauded you. That they weren't able to achieve their goal isn't good enough.
>>You then pay yourself salary for the next three years, as well as a generous contract to your uncle Bob's consulting firm, which is supposed to build the product.
That's still fraud, and could invite a criminal investigation and result in a criminal conviction. You could bet on the government not enforcing the laws, but that equally applies if token sales are banned.
Lots? Name one ico over $1m that has run off with others money?
Plenty of raisings based on spurious concepts but yet to see one actually go full scam, essentially these people have bs programming jobs for a few years until they admit their product is not desirable to anyone.
Most will fail, but at the very least the world will get some open source software from it.
More than could be said for all the dodgy mining explorers I've invested in.
Read the terms of some of these ICOs. There are soooo many weasel clauses that they essentially say you're buying tulip bulbs that'll probably have no use and no value.
weazel clauses do not save you from fraud. Meaning just cause you put up a bunch of clauses, that doesn't mean you are then free and clear to commit fraud.
They can though. Some of 'em literally say they have absolutely no obligation to actually develop the thing they are saying they are going to develope.
I think a lot of new precedents would need to be set to get a fraud conviction over an ICO. People trade Ether for tokens, not money. So they paid money for ETH, and got the ETH as promised. They traded ETH for SHT and got SHT as promised. Are these ICOs making any contractual promises that ownership of SHT gives holders certain rights, or obligates the team to do work? Because if I was doing an ICO, I sure as hell would not do that.
Interestingly, the SEC charged two ICOs with violations of securities laws this very day! This is a first as far as I know, and makes clear that the SEC is able and willing to regulate ICOs as securities if they meet certain criteria:
As 1ba9115454 says, most of these ICOs are for tokens. Like the dotcom bubble of 1999/2000, the majority are garbage or pie in the sky but some are interesting and backed by decent teams. A few that are at least plausible (in no particular order and with no implied comment by me on their chances of success/utility):
Sans ethereum what do you think the market cap of all ico’d tokens is? It’s absolutely tiny. Maybe 5-10 billion? This bubble is overstated to extremes imo
This seems like a market reaction to increased SEC regulation that has led a lot of companies to delay their IPO.
As others have said, there are pink sheet OTC stocks and then there are companies like Snap and Square that only IPO so private equity can make a profit. For average joe investors looking to find opportunities like in the late 90's tech bubble, ICO's seem to be the answer.
ICO investments are inherently flawed. I simply do not understand why anyone would throw significant money at a startup without them providing legal equity in their company. Sure, the value of their coin may rise for a while, but if they are successful enough, some of them will get acquired by a large corporation with no interest in their cryptocurrency; and they may even get absorbed into an existing product of the corp. This would leave a coin on the market with the name of a company that doesn't even exist.
is quite hard if not impossible to buy bitcoins without kyc/aml not to say all transactions will stay forever, I think people who buy bitcoins buy for inflationary risks.
You can make that argument about regular stocks too. When you buy a stock, you're not really getting any equity, not any share of the profits. You do get the indirect benefits, mostly through other people believing in the success of the company, buying the stock, and pushing its price. And occasionally dividends, but not many companies distribute them.
You're confusing common stock (what most people buy) and preferred stock. The common stock doesn't entitle you to the dividends of the profits, it only gives you the voting rights. The preferred one does.
Common stock is also shielded against liabilities, as in it can go to zero, but can't go negative. Equity can.
Common stocks are really strange, they are much closer to tokens, than to actual pieces of the company.
This isn't exactly like trading the common stock of Exon or IBM; ICO purchases are early investors pouring money into completely unknown companies. If you're about to put in $100k into a seed-round startup, you should require a convertible note, or major shares (since pre-money the company should be valued near zero). I can only think that people pouring tens of thousands into an ICO and only want tokens, which are legally meaningless, are either seriously misinformed or they are laundering cash.
But to your point about common stock, even when a publicly traded company undergoes a buy-out, they will require their purchaser to pay a premium on their current stock price ('current' typically meaning average over the last few months). As an example, if they are currently trading at $20 per share, they will require the purchaser to pay $30 per share to acquire. Once this is announced the common stock price will jump to the buyout price; at which point major investors of even common stock get a significant return. The reason for the jump is because the purchasing company will either payout cash or the stock will convert into the new parent company's stock. On the other hand, who knows what happens with tokens upon acquisition; there is no legal obligation whatsoever.
Why do people trade OTC penny stocks of small companies that are almost all deeply flawed with continual share dilution and little to no prospect of future viability?
I see ICOs as the more hip cousin of the OTC penny stock. 1 in 50 will turn into a real business and support the narrative that this is legitimate investing and lottery-style wins are possible. The rest will be traded up and down for speculation and entertainment, most eventually headed to 0, to be replaced in a continual cycle by new ICOs with new operators, new narratives, and new speculators. The tech is different but the human nature it taps into is the same.
Right, at best this is gambling. At worst, it is a pyramid scheme in the offerings that never intend to ever really even try to make something of value.
At best it's seed investment. You seed 100 projects that show promise and hope one of them is a home run. VCs do something similar, with 90% of their investments failing. The quality of token investing really depends on the due diligence done and the investment strategy pursued by the token buyer.
The problem is when you have 100,000 amateur investors, the likelihood of due diligence drops pretty dramatically and the strategy usually consists of "this looks good".
The idea is that the tokens you're buying have a purpose in the product that the ICO is for. You're mostly speculating that the product will become popular in the future, and so there will be a demand for these tokens.
That's an assumption. For some companies such as Augur, this is true and they even enforce that the tokens be used for placing predictive bets. You can't just buy the token and keep it in cold storage. I don't see how a crypto token can be associated to something like a browser. Someone is betting that the browser becomes a sellable product. Very unlikely. I am surely missing something, because Brendan Eich is no ordinary person.
Bitcoin is an example of a coin 'left on the market' in such a state that the original author maybe does not 'exist' anymore. If the codebase is open source, if there is a decentralized autonomous organization behind the project, or even just some kind of community, then the protocol can live on. Cryptotokens will not be companies. They will be some combination of companies, religions, protocols, memes... (Maybe churches are similar?)
Reading the comments here I find that what most people do not understand is that the fact that 99% of ICO-s at the moment are crap does not really matter. What matters is the innovation that the 1% of the cryptotokens bring. If you follow the spce closely, you will see that there is plenty of innovation in the space both technical both organizational (like the DAO of DASH).
Some years later dumb investors will give up investing in the space and only the sophisticated projects remain with sophisticated smart contracts and oracle networks so that for smart people I think there will be even more guarantees than in today's venture investing.
And the real win will be the awful amount of middlemen eliminated. (All kind of lawyers, VCs, accredited investors, etc...). Venture funding will finally become meritocrtic, and not the privilege of some already well connected rich people.
This sounds like typical utopian thinking, "Most of the present is an atrocity, but the future will be bright and perfect, so no sacrifice is too great today!"
Who cares if 99% of ICO's are scams, and people get ripped off if it drives innovation you believe will change the world?
Not bright and perfect, just more efficient and meritocratic in most regards. (Similar to pre-internet vs. post internet: we made progress with the internet, and we will make even more progress with blockchain tech.) The reason that so many people are ripped off with scammy ICOs is that they were not allowed to invest into early stage stuff up until now, and they are extremely thirsty because of that. I don't think the solution is to filter by the old model. I don't think that filtering by any means is morally correct: people above 18 years should not be disallowed to invest into whatever they want. Our moral obligation is to warn them and teach them, but it is not ok to forcefully disallow them. Especially because some of them might be actually smarter then some of the VCs out there.
>>I don't think that filtering by any means is morally correct: people above 18 years should not be disallowed to invest into whatever they want. Our moral obligation is to warn them and teach them, but it is not ok to forcefully disallow them. Especially because some of them might be actually smarter then some of the VCs out there.
Very well put. The temptation to regulate really represents the temptation to force one's will on other people (for their own good of course) using political means.
This seems really great, but the reality is that centuries of market failures can be traced to herds of people making foolish decisions. 2008 has been at least partially attributed to the repeal of Glass-Steagal. You can look at how successful multilevel marketing schemes are even today. Opening this stuff up more is just going to lead to a fragile economy.
If those people are actually smarter than the VCs, they can probably find some other way to sustain themselves than ask for $30 million without having anything to show, which shows a lack of imagination.
I don't think that filtering by any means is morally correct: people above 18 years should not be disallowed to invest into whatever they want.
The main problem is that's never been true and never will be true in any economy which has the smallest amount of oversight, and for good reason.
Specifically we are talking about ICO, not generalities of blockchain innovation. I want to make that clear.
So first, I think you are making our point for us. Left completely unregulated, ICO is inticing people into making terrible investment choices. And lets be honest, people are not investing in in these companies because they care deeply about their success, and have been pitched with a complete business plan, a go-to-market strategy, show promising traction. They are doing it because they think they can make a quick buck. It’s just a matter of time before the SEC steps in an imposes the necessary regulations.
The risk of that happening depends on how dependent the functioning of the token is on the company that held the ICO. It's precisely why the effort to decentralise governance for the project and give token holders influence is such a crucial consideration when investing. Unfortunately it seems there has not been too much pressure recently for projects to incorporate decentralised governance models.
ICOs — a form of business model — are not inherently flawed. What is flawed are people's abilities to separate signal from noise, which given the technality and speculation of these projects make sense.
Additionally, ICOs are not necessarily for companies. That seems to be a recent trend. Before that, ICOs were for protocols or open source projects to raise funding for development. For example, Ethereum is not a company but had an ICO. People participated because they wanted the protocol construction to continue.
One possible loophole: You can give away all your tokens for free... So if you want to get your new coin into circulation, you can donate some to open source projects or charities.
The citizens of South Korea love to trade financial instruments. The KOSPI 200 index future used to be the most liquid equity index future in the world - mostly fueled by Korean retail traders [0]. Eventually, then, as now, the government had to step in to prevent things from getting too out of hand.
You don't need ICO. Bitcoin started from scratch and it's still #1! Crypto currency is software which is very cheap to make and distribute(compare to hardware). Also the most of internet startups get seed money under $200K, so I don't understand why are ICO's designed for $1M and more?
There's really no evidence at all to support your claim. I wouldn't throw the word 'scam' around so lightly. You're essentially libeling anyone who has organized a token sale. I can only think of one group that has disappeared after raising millions.
You can caution people about tokens being overvalued without making baseless accusations of outright fraud.
Off topic, does everyone who used to have an MT Gox account get spammed with ICO crap almost daily? Losing money on their exchange was bad enough, but now getting spammed constantly is salt in the wound.
Never used mtgox, still get ico spam daily. It's useful, though. Anything I receive any notable amount of spam advertising is very likely to be some kind of scam.
The amount of misinformation in this topic is frightening. Guys, most of the serious cryptotokens are about making some markets more efficient, eliminating lots of middlemen.
I have no time to go into details, but some coins I am currently invested in:
iExec
BAT
DASH
Factom
These (and some others) are serious projects with huge potentials. I am not only speaking about huge investment potentials. I am speaking about potentials to add value to society, make markets more efficient. 99% of the tokens out there are crap, but why is it important? 99% of startups are also crap, but nobody cares.
I am also very sad that most people here are against making the investment landscape more meritocrtic than it is currently with all the privileged VCs, angles and lawyers born into lucky countires.
There's also lots of hype from people reassuring everyone that the coins they just happen to have invested in are rock solid, with nothing to back their arguments up.
In my opinion none of the coins I mentioned is rock solid, but I have researched lots of coins, and currently these are the ones which I find most valuable compared to market cap. 3 years ago I made a very good bet with Ripple (almost exclusively invested in Ripple for 3 years, and achieved more than 30x returns), now we will see.
"Guys, most of the serious cryptotokens are about making some markets more efficient"
I'm willing to bet those are probably a tiny fraction of the cryptotokens out there.
"I am also very sad that most people here are against making the investment landscape more meritocrtic than it is currently with all the privileged VCs, angles and lawyers born into lucky countires."
That's not the case at all, and to try and phrase it like that is quite dishonest.
>>I'm willing to bet those are probably a tiny fraction of the cryptotokens out there.
And a tiny fraction of tech startups succeed.
>>That's not the case at all, and to try and phrase it like that is quite dishonest.
If a law is passed to treat token sales like how securities offerings are currently treated, that is indeed what it will be like, given that is how the venture capital market operates.
The only precedent we have with cryptocurrency regulations is New York's BitLicense, and that resulted in $60,000 in compliance costs and only two very well capitalized companies getting legal permission to operate in New York. The vast majority of cryptocurrency players are essentially banned from New York, and now you need lawyers to get past the ban.
FUD? You want the general population to gamble away their life savings in what effectively are some shiny slides? Completely unregulated? Would you like to invest in this bridge I have here for you? Hey, you want to get in now before everyone wants in and the prices go 10x.
I have a feeling this is going to start happening more and more. The golden age of the ICO's was over a few months ago before everyone and their dog started one.
Crypto has unleashed an epidemic of greed. Only people with a feeble understanding of the world, economics and finance will seriously engage with the idea one can make money out of thin air, wasting electricity.
The only way crypto gains value in the world we live in is if established interests decide to support it, at which it point it perpetuates entrenched interests and is subsumed into the whole.
So bitcoin is not going to disrupt anything. And all the 'revolutionaries' and 'liberatarians' who spend hours sitting idly in front of their PCs mining and then let loose periodic outbursts on 'freedom' and 'innovation', will happily cash out to the devil himself quietly burying their incredible claims.
97 comments
[ 5.1 ms ] story [ 168 ms ] threadIn most cases (all but a handful), they add nothing.
It’s a money grab—so much so, that a somewhat self-aware crypto enthusiast created a parody coin, Useless Ethereum Token, whose sole feature was that it had none. It raised $40k in 3 days and was, at its peak, worth $160k, which is a pretty lofty valuation for a joke.
Making it possible to give a fuck or give no fuck digitally.
That's what the world has waited for!
/shill mode off
I'm not trying to justify this and I don't buy them myself, but I am watching teams raise serious amounts of cash.
To me this seems an easier way to raise cash than going to a bunch of VC's becuase with the ICO craze the due diligince is negligable.
Sometime in 2020, you post about your incredible journey on your blog, say that all the money has been spent, and the project failed. Whoops, sorry guys.
At least, that's a legal way to take ICO money and run. It's not even fraud if you put some effort into delivering on what you promise.
Remember, in this scenario, you don't really have any knowledge or suspicion that they are just ripping you off.
That's still fraud, and could invite a criminal investigation and result in a criminal conviction. You could bet on the government not enforcing the laws, but that equally applies if token sales are banned.
Plenty of raisings based on spurious concepts but yet to see one actually go full scam, essentially these people have bs programming jobs for a few years until they admit their product is not desirable to anyone.
Most will fail, but at the very least the world will get some open source software from it.
More than could be said for all the dodgy mining explorers I've invested in.
The SEC statement on this was “Buyer Beware.”
http://consumer.findlaw.com/securities-law/what-is-the-howey...
https://funfair.io https://omg.omise.co https://cosmos.network https://0xproject.com
As others have said, there are pink sheet OTC stocks and then there are companies like Snap and Square that only IPO so private equity can make a profit. For average joe investors looking to find opportunities like in the late 90's tech bubble, ICO's seem to be the answer.
Common stock is also shielded against liabilities, as in it can go to zero, but can't go negative. Equity can.
Common stocks are really strange, they are much closer to tokens, than to actual pieces of the company.
But to your point about common stock, even when a publicly traded company undergoes a buy-out, they will require their purchaser to pay a premium on their current stock price ('current' typically meaning average over the last few months). As an example, if they are currently trading at $20 per share, they will require the purchaser to pay $30 per share to acquire. Once this is announced the common stock price will jump to the buyout price; at which point major investors of even common stock get a significant return. The reason for the jump is because the purchasing company will either payout cash or the stock will convert into the new parent company's stock. On the other hand, who knows what happens with tokens upon acquisition; there is no legal obligation whatsoever.
I see ICOs as the more hip cousin of the OTC penny stock. 1 in 50 will turn into a real business and support the narrative that this is legitimate investing and lottery-style wins are possible. The rest will be traded up and down for speculation and entertainment, most eventually headed to 0, to be replaced in a continual cycle by new ICOs with new operators, new narratives, and new speculators. The tech is different but the human nature it taps into is the same.
Who cares if 99% of ICO's are scams, and people get ripped off if it drives innovation you believe will change the world?
Very well put. The temptation to regulate really represents the temptation to force one's will on other people (for their own good of course) using political means.
If those people are actually smarter than the VCs, they can probably find some other way to sustain themselves than ask for $30 million without having anything to show, which shows a lack of imagination.
I don't think that filtering by any means is morally correct: people above 18 years should not be disallowed to invest into whatever they want.
The main problem is that's never been true and never will be true in any economy which has the smallest amount of oversight, and for good reason.
So first, I think you are making our point for us. Left completely unregulated, ICO is inticing people into making terrible investment choices. And lets be honest, people are not investing in in these companies because they care deeply about their success, and have been pitched with a complete business plan, a go-to-market strategy, show promising traction. They are doing it because they think they can make a quick buck. It’s just a matter of time before the SEC steps in an imposes the necessary regulations.
Additionally, ICOs are not necessarily for companies. That seems to be a recent trend. Before that, ICOs were for protocols or open source projects to raise funding for development. For example, Ethereum is not a company but had an ICO. People participated because they wanted the protocol construction to continue.
[0] - https://www.ft.com/content/231fa13a-e4f4-11de-817b-00144feab....
You can caution people about tokens being overvalued without making baseless accusations of outright fraud.
https://en.wikipedia.org/wiki/History_of_bitcoin
iExec BAT DASH Factom
These (and some others) are serious projects with huge potentials. I am not only speaking about huge investment potentials. I am speaking about potentials to add value to society, make markets more efficient. 99% of the tokens out there are crap, but why is it important? 99% of startups are also crap, but nobody cares.
I am also very sad that most people here are against making the investment landscape more meritocrtic than it is currently with all the privileged VCs, angles and lawyers born into lucky countires.
I'm willing to bet those are probably a tiny fraction of the cryptotokens out there.
"I am also very sad that most people here are against making the investment landscape more meritocrtic than it is currently with all the privileged VCs, angles and lawyers born into lucky countires."
That's not the case at all, and to try and phrase it like that is quite dishonest.
And a tiny fraction of tech startups succeed.
>>That's not the case at all, and to try and phrase it like that is quite dishonest.
If a law is passed to treat token sales like how securities offerings are currently treated, that is indeed what it will be like, given that is how the venture capital market operates.
The only precedent we have with cryptocurrency regulations is New York's BitLicense, and that resulted in $60,000 in compliance costs and only two very well capitalized companies getting legal permission to operate in New York. The vast majority of cryptocurrency players are essentially banned from New York, and now you need lawyers to get past the ban.
The r/ethereum post has link to translated announcements, etc [0].
[0] - https://www.reddit.com/r/ethereum/comments/734qv4/south_kore...
The only way crypto gains value in the world we live in is if established interests decide to support it, at which it point it perpetuates entrenched interests and is subsumed into the whole.
So bitcoin is not going to disrupt anything. And all the 'revolutionaries' and 'liberatarians' who spend hours sitting idly in front of their PCs mining and then let loose periodic outbursts on 'freedom' and 'innovation', will happily cash out to the devil himself quietly burying their incredible claims.
You don't need an econ degree, to understand fiat money multipliers but it helps, https://en.wikipedia.org/wiki/Money_multiplier
> wasting electricity
Is it fair to cite this as a blanket criticism, given the number of projects seriously looking at non POW consensus?