I don’t think I could’ve picked a better time to give my not-expert opinion around ICOs and what I think to be an insanely over-valued set of companies. EOS managed to raise more than USD 4 Billion during its yearly ICO, continuing the trend of multi-million dollars ICOs, without a stable product or even a widely supported testnet.
The first question I ought to ask everyone is: how are we expecting these projects to be profitable?
If you feel like rating about how it’s normal and for me to look at many other examples, like Tesla, Uber, Facebook and so on, let me give you my view on why I believe this trend can lead to a destructive path of pointless projects and misused funds.
Note: This article shouldn’t be taken as financial advisement as it represents my personal opinion and views. I have savings invested in cryptocurrency so take whatever I write with a grain of salt. Do not invest what you cannot afford to lose and always read as much as possible about a project before investing. Never forget: with great power, comes great responsibility. Being your own bank means you’re always responsible for your own money.
I don’t think I know any market, especially surrounding technology, where the price matches the technology utility. I can pick tons of examples outside the Internet bubble era, like Tesla, Uber, the entire 3d Printing industry or even AI.
The fact is there little connection between price and technology due to speculation. But speculation affects everything, even traditional markets.
What I rather want to focus on, is not the fact price and technology do not walk hand-to-hand, but the rather epic amounts being poured into cryptocurrency related projects.
When you value many of the existing platforms you should ask yourself:
“Do I think this project has the chance to achieve a positive ROI?”
From protocols to platforms, this is what really matters. I don’t care how many of the world problems product X or Y is trying to solve or how many years of experience the team has.
The first thing I ask myself is why a certain project needs X amount of money.
How is the money being spent? What Am i buying and what are the risks? How much are the team and founders risking?
Am I being fairly rewarded for the brutal risk of investing?
When a company like Bitclave or Cardano raised millions of dollars, although I personally invested in them, I always wondered if they could ever achieve a profitable ROI. Because the market is so young, it doesn’t really matter, as people will pour money into brilliant new concepts, usually caring little for a fair return on their investment in the long term.
Well, because most expect to sell those tokens immediately after the company is listed in some big exchange. This is, a insanely high percentage of investors do not care about product, team, roadmap, or even company values. If you don’t believe me take a look at the many examples on Coinmarketcap. They show what happened immediately after projects hit exchanges.
Something like this.
What you usually see is a pump and dump of those tokens. Meaning, investors were simply speculating and taking advantage of being early. Is there something wrong with that? Of course not, except in the long-term my personal bet is that people will get burned.
To explain why, we need to analyse the anatomy of ICOs.
The reason why I personally invest in any given project is always linked to the medium and long-term expected gains. So I need to worry about how much money Company X is raising, what is their core product and idea, who is leading the project and how good I think the team is, plus how do they expect to spend the funds raised.
Don’t get me wrong, there are many criteria to choose from and this is my personal view. As time goes by it’s always about the survival of the fittest: are the tokens being used properly? How are the company and team values represented? Are they following-up with their roadmap?
More importantly: how are the economic incentives for users being applied? Does the project really need a blockchain?
The goal is to learn which projects will actually benefit from blockchain and which won’t. To do that just check if said project uses tokens as a means to distribute rewards among users and if the overall goal is to decentralize the market in some way.
To me, the really key feature I always try to look at, is how tokens are used. There is no purpose in using blockchain technology if you simply wish to store data in a distributed manner.
Any agent who interacts with your business must be rewarded with tokens or use tokens to make the initial interaction. At a high level there are two different trains of thought regarding token’s utility:
The key here is understanding the difference between governance and infrastructure. There are way too many projects focused in great platforms and awesome APIs, without a real need for their intrinsic token (ahem, stablecoins I’m talking to you guys). If you do not need to decentralize your business infrastructure, which I completely understand given the lack of scalability so far, then governance is definitely the only way to properly create an incentives system.
If the platform you’re considering investing in doesn’t want to give you back tokens in any way, forget it.
There are exeptions like protocols (ethereum, IOTA, cardano, etc), although I tip my hat to NEO (previously Antshares) for creating an ecosystem where users get rewarded for keeping tokens, while being a protocol. It needs some improvement in terms of decentralization, sure, but at least they’ve figured out a way to incentive token holders to keep tokens. That’s a huge win and more projects should take the same approach.
Don’t do an ICO if you cannot offer anything new with your tokens, like decentralized governance or infrastructure; that’s the underlying message here.
Economic incentives means redistributing rewards for all agents, keep that in mind!
This is my favourite point as I consider it to be one of the major reasons why ICO projects tend to raise way more money than needed.
Yes, I’m saying it.
Product development and user interface are currently the bottleneck, not marketing and PR.
The reason is quite obvious: if you don’t have a bloody working product, you don’t need hype and awareness. What you need is to make sure whatever “next big thing” you’re building actually works.
Because funds are easier to find and due to the decentralized nature, these companies tend to treat them irresponsibly. Just consider the many examples of crazy events and insane amounts spent on PR stunts while road-maps keep stretching as development cannot keep up with hype and users’ expectations.
If your argument is saying how the important thing is to grow your user-base, let me remind you that we’re talking about people’s hard earned cash. Founders, CEOs and Managers of ICOs should realize this. I don’t think it is ok to pay hundreds or thousands of dollars for weekly marketing campaigns.
No, I really don’t think it’s OK to bluntly accept pricing for most ICO trackers and Advisory teams.
We all want to make money, I get it. However, we must understand decentralization also means white-label corporate bullshit is not the way to go. If you’re investing your personal money on these startups, be demanding.
Make sure your money is not going to the wrong people, being spent on crappy online marketing campaigns and mailing lists. Pressure ICOs to invest more into product and business development, instead of draining crowdsale funds into beautiful marketing events that generate high social media content engagement.
Demand more transparency on funds allocation and business expenses. Don’t forget any project that raised a couple million during an ICO should answer to you. Not having contractual rights doesn’t mean companies can do whatever they want. There are moral obligations and values to respect.
Decentralization means everything happens at a slower pace and that’s ok. We cannot have both an increased effectiveness and efficiency.
It’s either one or the other.
What I can say is I used to be more positive around ICOs until I really dug deep, met some founders and key advisors, looked-up rates asked by most ICO trackers for PR, reviews or overall exposure and realized most are too accustomed to traditional businesses and don’t really get the aim of cryptocurrency: to decentralize.
My advice? Forget most YouTube reviewers, ICO trackers, expert advisors and Telegram channels.
99% is crap.
Reviews are paid, ICO trackers charge insane amounts to list projects and give priority to the ones who pay more, independently of the underlying project or idea and advisers care more about BTC and ETH pre-payments than doing some actual work.
Good values like giving honest reviews not based on payments (much like the Weiss model) or being transparent about projects you have personally invested in, especially if you’re an influencer, are just two quick fixes that could potentially help out.
At this point, this conclusion becomes obvious.
The hard question to ask yourself is which projects will remain, as to me that is not so obvious.
Many smart people say there’s going to be a killer app that will tip the scale.
Except, I already know a killer app doing exactly that: Bitcoin;
We still need better wallet apps that connect every blockchain, I know, however there are many already deployed. The problem now seems to be which one will live.
Maybe adoption hasn’t taken place, not because people can’t spend the coins, but because they cannot earn them. Yes, great UX/UI for wallet apps and ways to spend tokens are important, nonetheless we’ve been going on and on in circles around that point. If you don’t have a way to distribute tokens to people as a reward, for participating in your network, there is no incentive to use tokens.
Having a way to spend tokens is meaningless if I cannot earn them.
My point of view is for you to focus your attention, not only in protocols, but also in any project which aims to distribute tokens to users as a reward for participating in the network.
Any way you can think of: as a miner, as a staker (hodler) or as a user. Projects like Steemit, Bitclave, Neo or Status – which offer an actual incentive to use the network – are great examples because any agent who interacts with the network gets richer for participating.
As you enrich the network, the network enriches you.
This is, to me, the true meaning of decentralization: competition and cooperation come hand-to-hand. It’s not only about your own gains, but also the network gains and how you contribute to its improvement and growth.
The cryptocurrency ecosystem will change how we deal with data, information or even time. Our attention will be the new oil as we now, too, have a way to monetize it.
Do not stop investing in ICOs because some are scams or because they’re too risky. It’s the only way to keep the system running. Be smarter about it and think of ways a business could potentially benefit from distributing rewards to its network of users and put your money into ICOs doing exactly that.
Don’t lose your faith on the market and let it mature; some projects will eventually rise to the top.
The only remaining question is: will you be riding them, or what?
Featured Image from Shutterstock
Last modified: March 4, 2021 5:08 PM