The mystery of fundraising through crowdfunding, Initial Coin Offerings, and Initial Public Offerings remain elusive to venture capitalism. Especially with the rise in the number of token sale projects that come up daily. One would wonder where all these monies come from. As of the time of this writing, total market cap for cryptocurrencies is over $400 billion USD, implying that the crowdfunding business is booming.
With over 211 ICOs this year alone, more than $3.4 billion USD have been raised. Ignoring the discrepancies in how much the individual ICOs realized that would be an average of $16 million USD per startup.
Looking back, when token crowdsale convention started with MasterCoin (now known as Omni), the first ICO built on the bitcoin blockchain, raising nearly 5000 BTC in its first attempt ever, amounting to over $38 million USD. In late 2013, Ethereum, the second largest cryptocurrency with the objective of creating a platform dedicated for decentralized applications, raised over 30,000 BTC, approximately 18 million USD as at the time.
Waves, a platform whose solutions provide for storing, trading, managing and issuing of digital assets, easily and securely, raised over $16 million USD in 2016. The DAO (Decentralised Autonomous Organsiation), in 2016 was a decentralized system of digital form of investor-centered venture capital funding, raised over $150 million USD from more than 11,000 investors.
Bancor a decentralized liquidity network raised the sum of $153 million USD in just three hours. Filecoin a decentralized storage network raised the sum of $257 million USD. Tezos, a self-amending crypto-ledger raised the sum of $232 million USD in 2017. The list goes on and on, with crypto projects raising funds in the six to ten figures range.
With each ICO, there are common grounds for which they could be classified. So far in 2017 alone, ICOs have raised per category:
It would be safe to say from the above, that the most ventured category is infrastructural; implying that any new crypto project found within this category, has a success rate of more than 30% with respect to both softcap and hardcap margins.
Indeed, crypto business has truly become lucrative especially for those in the ICO community. As some will like to refer to it as online economy, this industry has shown a remarkable proliferation with new inventions, solutions, products, and services being proposed daily.
Initial Coin Offerings vary from subject to structure but the underlying objective of creating a decentralized system is common to all. The amount of money a particular project can generate depends on its subjective ideology, activity campaign and algorithmic consensus.
The more flexible an ICO, the higher the tendency for it to adjust to the economic impact. Startup conventions are shaping the global financial sector into a new era just as in the days of the dot-com; unlike then, the current system of a decentralized network should make for a smooth transition for Fintech industries.
It is quite the predominant notion among online entrepreneurs that there is a great amount of crypto cash within the crypto community, and it is a serious business to venture into. However, many ICOs and crowdsales events, similar to what was obtainable years before, look like a sale of corporate rights or stakes in a company that often don’t exist, with no legal undertaken for parties to commit, except for a well-crafted whitepaper, a website and LinkedIn profile (in some cases). In other words, it is a world of risky investments and unpredictable outcomes, which ultimately affects the investor’s mindset.
Due to the rapid rise and fall of ICO empires, it has become more crucial for startups to redraft their strategies for fundraising. To attract the kind of investors that will pull in more resources, three very important factors determine the cryptoeconomics of an Initial Coin Offering:
Most of the ICOs currently soaring above their peers have done so because of the demand in their practical use case. This means that these projects present a solution that isn’t virtual alone but tied to real life challenges and prospects show more room for development in the coming years.
While there are different categories, each project within the same category may tackle a little less complex problem than its counterpart in another category; what makes a single startup stand out are its feasible approach to solving problems that investors interact with every day. Also, projects with similar ideology may exist with one modifying a shortcoming in a predecessor. One of the most fatal flaws in ICO conventions.
Technical empathy here describes every detail of the project from the algorithmic consensus to team structure and major sponsorship/partnerships. Within this range are series of media presentations, social media campaigns and incentive motivators that attract investors to the proposed program. Also, the platform on which the entire system is to be built is of importance to this day Fintech investor.
Due to the rapid change in the blockchain industry, with each cryptocurrency evolving to a new prime, more hackers’ attempt of vulnerable projects, it is no wonder investors are now keen to study token projects with an aim to understand underlying functionality and relevance of the crypto project aside from profitable prospects. This aspect of cryptoeconomics relate to the investor on an average level; that is, it isn’t too complex for the layman to understand and flow with, nor is it watered down to disinterest the elite technophiles.
Asset backed digital tokens refers to putting real world assets on the blockchain; like stocks, real estate, gold, oil, etc., becoming commodity exchange through substitution by electronic transfer and documentation on the decentralized ledger. As these commodities have values on the physical plane, the virtual versions (digital tokens) play similar and more efficient roles with smart contract protocols.
In conclusion, token sale events have the potential to raise funds in unimaginable amounts, ranging from low thousands to billions of USD, making them top the watch list of financial regulatory agencies to avoid fraudulent activities, tax evasion and deflationary effects of fiat currencies among others.