Initial coin offerings are becoming an increasingly popular method of crowdfunding capital for blockchain startups.
A study from consulting firm PwC Strategy, in conjunction with the Crypto Valley Association of Switzerland, revealed that the number of ICOs dipped in the first three months of 2018 and quickly rebounded, making rapid gains in the second quarter.
Total revenue collected through ICOs in the first five months of 2018 reached $13.7 billion dollars. Between 2013 and 2017, total revenue collected through ICOs reached $7 billion, according to the report.
There were a total of 537 ICOs registered so far this year compared to 552 total offerings in 2017.
While the US, Switzerland and Singapore remain key global hubs for ICOs, the UK had 507 ICOs and Hong Kong had 223, rounding out the top 10 ICO countries in 2018. The leading ICO countries in 2018 by funding volume are the Cayman Islands, the British Virgin Islands and Singapore, compared to last year when the funding volumes were concentrated in the US, Switzerland and Singapore.
The Cayman Islands and the British Virgin Islands were catapulted to the top of the list by two “unicorn” ICOs – EOS at $4.1 billion, and Telegram at $1.7 billion, respectively.
The study highlights the “top 15” ICOs by funding volume. EOS and Telegram far outpaced the remaining 13. The third, fourth and fifth largest ICOs – Dragon, Huobi Token and HDAC – raised $320 million, $300 million and $258 million, respectively.
ICOs allow companies to cut through the slow pitching and validation process that characterize venture capital and other traditional sources of funding. They remove the need for a project to appeal to a limited number of elite investors. Instead, they can tap into the global capital of worldwide investors through the mass sale of a pre-defined number of cryptocurrency (or digital) tokens for a limited time period.
According to the study, the model is disrupting venture capitalism, which has traditionally controlled the funding of startups across a range of industries, particularly in the tech sector. New companies related to blockchain and digital ledger technologies including digital currencies, blockchain infrastructure platforms, supply chain blockchains, and wallet and payment platforms that are testing the strength of the ICO model, as well as hybrid models.
“ICOs disrupt traditional VC funding – hybrid models are ‘en vogue’ as they combine smart money and community support,” the report reads. “After ICOs went through a hype-cycle in 2017, they are becoming more mature and established in 2018.”
Regarding ICO regulations, the study identifies three main models. In the US, tokens may be considered securities that are need to be registered with and regulated by the Securities and Exchange Commission; in Switzerland, tokens are considered assets, and regulations depend on token function (i.e. payment, utility or asset/ security tokens); and in Singapore, tokens are considered assets where the ecosystem and activities are regulated, not the cryptocurrency.
Among the best practices for ICOs, the report indicates that “less promotion is better promotion” and that companies should focus more on the pre-sale phase with targeted investors. The report concludes that over promoting ICOs can dilute a project’s credibility.