The ICO Market Is Getting Leaner Some Startups Prove ICOs are Still an Effective Fundraising Tool
While many believe ICOs are dead, the market is in fact just getting leaner and there is still room for projects with solid potential.
By the end of 2018, even the most adamant crypto enthusiasts began claiming that Initial Coin Offerings (ICOs) were dead. In December 2018, over 110+ active ICOs raised about $500 million. In June, just six months earlier, 100 ICOs had raised nearly $6 billion. That means a greater number of ICOs only managed to collect 8.3 percent of the funds their predecessors had just half a year before.
Comparing the numbers paints a bleak picture for the fundraising format. During the height of crypto fever, everyone and their grandmother seemed to be participating in the mad scramble to purchase as many digital tokens as they could get their hands. Once the hype dissipated due to a combination of regulatory crackdowns and general disillusionment with phony projects, the piles of cash that could previously be obtained by conducting an ICO quickly disappeared.
It would be easy to agree with the critics and proclaim that ICOs are truly dead, but that conclusion is misleading and short sighted. Even the chairman of the SEC, Jay Clayton, who has often been painted as the greatest obstacle to ICOs, called the format, “an effective way,” to raise capital. So why all the negativity?
ICOs are “dead,” because they were misused by greedy opportunists to ride the cypto hype wave and make a quick buck, which in turn derailed the strategy in the long run. Let’s take a look at ICOs intended purpose and why the original format is still viable.
ICOs are designed to sell utility tokens for use on future blockchain networks, functioning akin to a pre-order for a good or service, not as an investment. Unfortunately, public naivety allowed scammers and half-baked businesses to take advantage of the mass confusion surrounding all cryptographic tokens (explained here) and roll out what were utility tokens only in name.
Regulators shut down tokens functioning as unlicensed securities and companies conducting ICOs panicked, worried their own tokens would be categorized as such. Token buyers soon realized their tokens were not going to skyrocket in value and turn them in to overnight millionaires, so they closed up their wallets and headed for the sidelines. However, when an ICO is conducted by a legitimate company with a sound network and functional token, ICOs can still be an incredibly useful tool to raise funds and onboard users.
Projects like the German blockchain and energy startup Lition are effectively using the ICO model to raise funds and develop their network, but why are they able to do this when so many other ICOs have failed? It comes down to a concrete blockchain vision and a working, live business model.
The energy sector has the advantage of being one of the most natural use-cases for distributed ledger technology. Lition was able to examine the industry and develop utility token use-cases that allow users to reduce their energy bill and support renewable energy producers. The startup is also pushing blockchain forward, improving the tech’s energy efficiency and ensuring regulatory compliance. Instead of setting a top a blockchain platform and profiting, Lition is innovating to become a leader in the space.
Lition’s other key distinction is that they already have a live customer network, serving a 41 million household grid in their home country of Germany. So many blockchain startups made sweeping promises based of lofty ideas and pipe dreams. Lition built their network first, brought it online and is only now conducting an ICO.
Unsurprisingly, by deploying a live network, making swift progress and having an ambitious vision, Lition has caught the eye of several major partners and investors. Software giant SAP partnered with Lition to help further develop their blockchain network and recently, institutional investment firms LD Capital and Long Hash came on board, providing capital, advice and support.
Lition is proof that the ICO market isn’t dead, it is just getting leaner. Only the most elite projects with working business models can collect funds via the model. The gross oversaturation of the market warped the world’s perspective on ICOs. The market is not in decline from its lofty $6 billion peak less than a year ago, it is in rebirth, shedding its excess and only supporting projects that solve real problems and offer real value.