Rehashed - #12 The State of the Initial Coin Offering (ICO) - Part 1

ICOs: Overcapitalised and Overdone

As EOS has just completed its marathon, year-long raise, it seems relevant to survey the current state of the ICO landscape, which by traditional measures, doesn’t seem to be losing steam anytime soon.

EOS raised more than (NZD) $5.6 billion in ether. To put that in perspective, there have been only two IPOs that have raised more capital this year. The market cap of EOS (currently NZD ~$18 billion) puts the cryptocurrency in the same league of established companies such as Westfield, Suncorp and Qantas; businesses that are the culmination of many years of building a product that produces real cash flows and boast large existing customer bases. EOS has yet to prove a working product (at the time of writing, EOS is still in process of launching their network).

Alongside Telegram’s (NZD) $2.4 billion raise completed over the past couple of months, the astronomical size of the EOS raise highlights the fact that the ICO buyer appetite remains strong. In fact, even if we take out the (NZD) $7.8 billion raised by EOS and Telegram alone, the total amount raised by ICOs, year-to-date, is quickly gaining on 2017 levels.

Source: Personal ICO tracker & calculations

Amidst global regulatory uncertainty, and in a market that’s seen nearly 50% of ICOs already fail, the sustainability of the ICO model is questionable.

 

ICOs:“Raise here when you can’t raise elsewhere”

Another concerning trend sees traditional companies turning to ICOs to fund their stagnant businesses. Companies that are often unable to raise through traditional venture capital pathways announce that they are tokenizing some part of their business (usually unnecessarily so) and raise large amounts from the unassuming public.

The latest star of the bunch is Monster headphones, who are looking to raise over (NZD) $400 million in an initial coin offering for their “Monster Money Tokens” (MMNY). These tokens will be used to buy products and services on Monster’s e-commerce platform, the “Monster Money Network.”

One quick Google search and it’s obvious that Monster has had a tumultuous history. The company has been locked in lawsuits with Dr Dre’s Beats-owing as much as (NZD) $100 million according to a PWC audit, and have been grappling at straws for new strategies, exploring opening up gambling casinos on Indian Reservations.

As with many of these strategic “pivots” to blockchain technology/cryptocurrencies, the use case for MMNY is fairly uninspiring.

“We plan to integrate the Ethereum blockchain technology to our E-commerce website to create the new ecosystem, namely Monster Money Network where consumers may use either MMNY Tokens or fiat currencies to purchase Monster products and services.”  -  Monster SEC Filing

As this author aptly points out, “Monster is asking for $300 million to slap a MetaMask plugin on a website and whip up a new ERC20 token.”

Clearly, Monster Money Tokens is Monster’s last-ditch attempt to refresh their brand and spin up new revenue. But as we’ve seen, the ICO frenzy continues to prevail and I don’t doubt that Monster will comfortably reach their target whilst eventually returning little value to their token holders.

Although ICOs are a revolutionary way of raising capital, there are many bad actors which can be hard to separate from genuine projects. The emergence of such trends, that ultimately punish the unassuming investor, demonstrates the need for the implementation of clear and consistent regulatory oversight.

 

It’s not all doom and gloom - next week we will revisit the state of the ICO and offer some suggestions for best practices moving forward.

Freddie Archibald

 

In the News

The IMF released a report stating that crypto assets may reduce the demand for central bank money in the future

Data from Chainalysis, a blockchain research company, found that roughly one-third of bitcoin’s market cap is concentrated between 1600 wallets

Microsoft acquired Github for $7.5 billion in stock

Coinbase prepares to enter Japanese market

Established financial firm, Susquehanna (SIG) has been trading cryptocurrencies for the past couple of years

Orchestrated by parent company, block.one, EOS has completed its year-long $4 billion crowd-sale this week

The Canadian province of Quebec halted bitcoin mining power requests as demand far exceeded its capacity

 

Upcoming Dates

June 21 - Blockchain Summit Auckland 2018

 

View a neat infographic showing the 10 Years of Bitcoin History

View previous issue: Rehashed #11 Utilising the Network Value to Transactions Ratio in Cryptocurrencies

View next issue: Rehashed #13 Cryptocurrencies: Regulations and Cross-Correlations


About the author:

Capital markets to crypto convert. From Christchurch →  Boston → New York, Freddie became intrigued by the potential of the digital asset economy after plucking a book on Bitcoin off a New York library bookshelf in 2016. Her parents are thrilled that she is chasing magic money on the internet.

 

Disclaimer:  The above references an opinion and is for informational purposes only. The opinions expressed by the author do not represent the opinion of BitPrime.

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