How The Cryptocurrency Landscape Is Evolving

For better or worse, the ICO landscape has changed a lot of the past twelve months. I have been involved in every turn of this tumultuous ride. In the meantime I’ve probably accumulated enough fun stories to write a small book, but for now I’ll limit myself to a brief digest.

It used to be fabulous! You form a team – i.e., a few of your college buddies – you brainstorm, and out of your brainstorming session you pick the most exciting and most far-fetched idea to put in a whitepaper (which might take a couple of weeks to write); then you create a simple website, start a Telegram group, and open a Bitcointalk thread; and voila, you are ready to fundraise millions through ICO.

All irony aside, that is how it used to work. Case in point, Filecoin. Their original whitepaper contained seven-plus pages including references. It was even shorter than the cornerstone of the genre – the Bitcoin whitepaper, which spans over eight and a half pages. In less than one month, Filecoin raised $257 million, $202 million of which was raised in the crowdsale. At the time the company didn’t have a product; no alpha, beta, nothing. A year later, finally, the team presented what they call a “demo of Filecoin”. What I could see on the video looks like a very basic prototype – twelve months after collecting $257 million, it is not very impressive.

The reason why I touched on Filecoin is not to spread FUD (the industry’s jargon for Fear, Uncertainty, and Doubt). However, I believe this case demonstrates very well how the ICO landscape has changed. Had Filecoin started their ICO a year later, not only they would not be able to raise $257 million, but they would also find themselves struggling to raise money, period.   

How the investors are approaching the new ICO landscape

Much has changed in these twelve months.  Ether “mooned” in January to almost $1,500 and then landed in September at around $170; we have seen the emergence of SAFT and STO, the death (or perceived death) of the crowdsale. More importantly, the market sentiment has changed, the indicative investor profile has changed completely, from a crypto “whale” or “hamster” to a crypto VC. And this crypto VC should not be confused with a traditional VC, although some of the crypto VCs may have a traditional VC background.

Nonetheless, the investor approach to potential investments has become more professional and more realistic. No longer do they expect a 100x return, but they do expect a product, financials, and even a business plan. In the words of Justin Jung, put his title here, “The good period when you could raise money based on a whitepaper and an idea had passed. You need to build a company, raise some money, have a team and a product already, then you can start doing ICO”. 

Even though this “professionalization” of the ICO landscape is natural and desired by many, there is something to reminisce about those early days when someone with a great idea could make a pitch to the crowd and raise funds directly from it to turn his idea into reality. In addition, for the first time in history, anyone (at least in theory) could invest into the future and get a piece of the great things to come. Something that was not possible during the dotcom boom or at any other point in time.

This democratization of the investment process was uplifting. No longer did the gatekeepers (investment banks, VCs, PEs, hedge funds and such) have the first night privilege or the tithe. Possibly, this shift has even influenced Jay Clayton and the establishment to reassess who can invest in private companies. The good came with the bad. The easiness with which it was possible to raise millions from the public has led to the emergence of countless scams.  

Even the investment mechanisms have changed. Back then, most of the investments in ICOs were in cryptocurrency, and it was almost unheard of in the ICO landscape for a company to convert their cryptocurrency into fiat immediately. But this has changed. CREDITS, who started its ICO back in the fall of 2017 and raised all of its $20 million hard cap in ethers, had only decided to convert the funds into fiat when the market turned; all the more recent ICOs we have interviewed (AlchemyCoin, Buddy, Yamzu) were immediately liquidating all of the crypto investments.   

Telegram made headways by raising $1.8 billion in fiat only. Nowadays, it has become the norm. All of our interviewees again with the exception of CREDITS received the large majority of funding in fiat. We observe the same change in terms of private sale vs. crowdsale. Here also, CREDITS is the only project on the list that raised most of its funds in a crowdsale (approximately $17 million out of $20 million total raise). And even the $3 million that was raised in private sale did not come from funds or other large investors. This is the very same strategy that Anant, COO of Buddy, who started his ICO in August 2018, considers his biggest mistake:  “We had a strategy that focused on traditional investors rather than funds. When we noticed this being a hurdle, we made a shift in our fundraising strategy and soon after, we witnessed a shift in our fund growth and overall sale advancements.”

The same goes for the marketing strategy. For CREDITS, whose ICO was early enough to catch the hype, the most effective channels to attract investors were marketing and PR. The same channels that AchemyCoin, Buddy and Yamzu named as the least effective.

There are various reasons for that change, but for now I’ll just say there was something genuine about the crypto culture at that time when anyone on Etherscan could trace all the funds raised by an ICO. It also allowed for a certain amount of due diligence and control on the part of the community. A community would vigorously watch any tokens being moved out of the founders’ wallets. It could not prevent fraud, but it could deter it.  

Since this summary of the new ICO landscape is not meant to be just my sentimental journey through time, but also something that the community could benefit from, below I have summarized some of the best advice found in the interviews that we conducted.  Hopefully, this will not deter an inspiring ICO entrepreneur from pursuing his dream, but make his journey less turbulent.

Lessons learned from the changing ICO landscape:

• Team. “ having a highly-experienced team on board during the ICO launch is already a 50% of success” says Igor Chugunov.

• Product: have a product built before the ICO. (This was the number one advice from Buddy, CREDITS and Yamzu founders).

• Vet all ICO service providers. (Yamzu).

• Invest in IR and consider an equity raise instead. Constantin Kogan: “focus on IR and hot intros with equity offering instead of a token sale. Token sale is becoming more expensive, yet generating less investment”. Rudy Kadoch echoes this sentiment: “do not raise money at the moment through private or public sale but raise a small amount in private equity with an opportunity for the investor to transform stock into tokens”.

• Private Sale. Crowdsale hasn’t been working for the past 6 months. Focus on Private Sale instead. All of our respondents agree on this point.

• Avoid adviser/influencers who don’t contribute to the project. (Buddy, Yamzu).

• Hot Trends for 2019 according to Justin, Constantin, and Rudy

• Fintech

• STO platforms

• Cross-chain interoperability protocols

• New more powerful blockchain platforms

• On-chain governance

• Stable coins