The initial coin offering (ICO) model seems to be facing strong headwinds, after about a year during which almost any crypto project could easily raise thousands of Ethereum (ETH). But following a number of fraudulent ICOs and increased regulatory efforts to protect investors, as well as the recent crash in ETH prices, the model seems to be on the way out.
The most evident sign is the fact that September is well along the way, but so far, fundraising seems to go even slower compared to August levels. Based on data from IcoData.io, in September, ICO projects have raised around the equivalent of $17.5 million. This number is surely calculated at much lower ETH prices. However, there are other signs of a slowdown.
The first decline was noticed in retail interest in ICOs. While in 2016 and 2017 ICO purchases led to exorbitant gains of up to 80,000 times the initial investment, soon after that, ICOs crashed way below the token sale price, and never recovered. More projects started to rely on private placements, seeking out large Bitcoin or Ethereum holders to quickly meet their funding targets.
In the past six months, the another trend accelerated - airdrop, or giving away tokens to the wider public, as interest in buying crypto assets dwindled after prices started to fall.
But in 2018, the time of the red-hot public sale of tokens, getting sold out within minutes, is certainly in the past. Now, projects are becoming more conservative, as the easy securing of funding has dwindled. Startups using the blockchain model are either wildly successful, or fail in raising capital, based on GraySparks analysis. The latest state of the ICO sector was gleaned from data gathered on IcoData.com, as well as ICO-Check.com.
There is also a large divide between mammoth ICOs, such as those belonging to EOS, Telegram, Tezos and other highly hyped projects, and smaller projects raising a few thousand ETH. On the consumer side, interest in ICO and token sales peaked at the end of 2017 and the start of 2018, and has dwindled ever since, as Google Trends shows.
Several reasons put off retail investors from buying into ICOs. Exit scams like Centra caused extra vigilance, as well as the crash of the Confido ICO, when the team simply disappeared and the price tanked by 99% overnight. The stricter KYC procedure also made consumers skeptical of sending their personal data to startup projects.
Limitations for owning certain ICOs, such as Tezos, for US-based investors, also put a hamper on the enthusiasm for new tokens. The discussion about security tokens, as well as the matter of determining whether a token is a security, was yet another obstacle. Additionally, the hundreds of new tokens could not manage to get on exchanges soon enough, and traded with extremely low liquidity, on obscure marketplaces.