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2018 saw the rise and fall of the initial coin offering, or ICO, as the primary vehicle through which billions of dollars in investor capital flooded the blockchain industry. A lack of regulatory oversight, continuous exit scams and Ponzi schemes, and even outright ICO bans, have created an ecosystem in which the contemporary ICO model is no longer viable.
The first quarter of 2018 saw almost $4 billion injected into the blockchain industry via ICOs, with major initial coin offerings such as EOS and Telegram capturing billions. A steady increase in regulatory scrutiny, however, has resulted in steadily decreasing ICO returns.
Data available from ICO tracking platform ICOBench indicates a downward-sloping trend. Despite a greater total number of ICO launches, the total funds captured by ICOs in Q4 2018 reveals that investor interest in initial coin offerings is rapidly declining.
Blockchain crowdfunding isn’t over, though. Interest in security token offerings – the regulatory compliant successor to the ICO – is increasing.
The Secret to ICO Success in a Shifting Regulatory Environment
Regulatory reactions to the “wild west” of initial coin offerings have varied greatly across different countries. China, Korea, and Japan have banned initial coin offerings outright, while more blockchain-friendly countries such as Malta, Belarus, and Thailand have adopted nuanced regulatory stances that are designed to foster innovation while protecting investors.
In January 2019, the Organisation for Economic Cooperation and Development (OECD) published a report calling for regulatory coherence of initial coin offerings, suggesting a supervisory framework that would allow ICOs to “deliver their potential for the financing of blockchain-based SMEs, while adequately protecting investors.”
The OECD’s stance on initial coin offerings is reflected by the development of new ICO regulations in countries that have, to date, remained relatively anti-ICO. Japan’s FSA is currently establishing a new framework for initial coin offering regulation that would see ICO investment amounts limited to protect investors, as well as business registration requirements and mandatory KYC/AML.
The European Securities and Markets Authority (ESMA) is also investigating the integration of initial coin offerings into existing regulations, with ESMA chair Steven Maijoor stating that ICOs can be defined as a “financial instrument” that falls under existing regulatory frameworks.
2019 is shaping up to be the year in which ICO regulation manifests in full force and is driving the creation of an entirely new approach to blockchain-based crowdfunding – the security token offering or STO. Unlike ICOs, STOs are designed from the ground up to conform to existing securities laws, and typically incorporate KYC/AML at a technical level in order to remain compliant.
Marketing Is Driving the Future of STOs and ICOs
STOs may be positioned to replace ICOs as the new method through which innovative blockchain startups are able to capture initial capital, but the way in which these enterprises present their platform to potential investors remains the same.
In the earliest days of the ICO feeding frenzy, hundreds of initial coin offerings captured significant amounts of investor capital with nothing more than a white paper and a relatively active Telegram group. ICOs have evolved beyond simple bootstrap investment vehicles, however, which has increased the importance of public relations in the ICO or STO launch process.
The maturation of the ICO market and the blockchain industry as a whole has created a generation of ICO investors that demand clear communications, key goals, milestones, and accountability from new enterprises. Increasing regulatory scrutiny has also established a need for legally-compliant ICO advertising. These factors have made the ICO and STO industries fertile ground for a rapidly emerging new class of digital marketing agencies focused solely on blockchain crowdfunding.
ICO marketing and STO marketing directories now list multiple large-scale organizations that assist with the end-to-end management of a complete blockchain crowdfunding campaign. Major players such as Applicature, AmaZix, and CoinFabric are behind some of the largest and most successful ICOs of the last year.
As regulatory interest in the blockchain ecosystem grows and the STO model begins to supplant the ICO as the investment vehicle of choice for new blockchain enterprises, marketing is fast becoming one of the most important elements of any launch strategy.
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