Despite the failure in 2018, Initial Coin Offering (ICO) remains a popular fundraising method for technology projects. After more than 80% turned out to be a scam in 2018, the ICO procedure was changed to protect the interests of investors. Additionally, other formats appeared, such as STO (Security Token Offering), IEO (Initial Exchange Offering), IDO (Initial DEX Offering). Some platforms offer other fundraising options as well.
ICO is still an easy way to raise funds and investors believe this method is a good opportunity to profitably invest and get the desired Xs.
Tozex is promoting an innovative alternative to a crowdlending P2P investment system based on stablecoins called BRO (Believers Reward Offering).
Tighter regulation
The largest number of ICOs are launched in the USA, therefore the American regulator (SEC), wanted to ensure that ICOs are safe for investors and decided to change the laws regarding ICO. Regulators of other countries accept SEC’s decisions as a precedent. This strict regulation despite reducing the opportunity for US citizens to join ICO results in a significant decrease of the number of scams. In 2021 the total number of ICO projects decreased, and their quality improved. The safety of ICOs has also increased due to the KYC (Know Your Customer) procedure. Indeed, according to Foundico, 65% of ICOs completed KYC in 2021.
ICO’s Shares by Country
The largest number of ICOs (over 36%) is launched in the USA. The US ICOs also have the largest amount of funds raised. Companies launching an ICO in the US meet an active technology community and a developed blockchain industry. This provides good prospects and liquidity. Other popular countries for ICOs in 2021, as in 2020, are the UK, Canada, and Hong Kong. These are countries with a high level of financial infrastructure development and digitalization of the economy and also a legal culture. Here, the rules for conducting ICO and circulation of tokens are developed.
ICO’s Shares by Country (based on Foundico data)
Favorable conditions for ICOs have been created in Singapore, Switzerland, Japan, and the Cayman Islands, where tax preferences for cryptocurrency projects are granted. Since China’s 2020 lockdown, many Chinese teams have relocated to Taiwan and Hong Kong. Experts note that offshore territories have a high percentage of successful ICOs, it reaches 40%. In the US, this figure is just about 36%. On average, an ICO in the United States raises about $10 million, and, for example, in Taiwan, more than $47 million. According to TokenData Research, Africa leads in the number of unsuccessful ICOs.
ICO’s Share by Funds Raised (according to ICObench and Foundico)
ICO’s Share by Industry
The dynamics by the industry have remained almost unchanged over the past 10 years. Technology, business, entertainment, and education are the most popular industries. The number of main industries in 2021 reached 25. In 2021, the number of ICOs from the gaming industry has increased. This is due to the popularity of GameFi, Play-to-Earn concept, and metaverses.
ICOs by Industry (according to ICObench and Foundico)
In addition to the leading industries Finance, Infrastructure, and Payments, Infrastructure projects have shown a good level of development (4th place). In this area, DAO (Decentralized Autonomous Organization) projects stand out. The activities of the DAO are governed by a smart contract, including the distribution of profits and the use of funds. In 2021, the largest ICO, BitDAO (BIT) raised almost $400 million. BitDAO is created to use investments to buy tokens of promising projects, as well as to finance startups developing blockchain infrastructure.
The Tozex platform is also developing blockchain infrastructure with its Tokenpad. Tokenpad provides an easy way to issue tokens without pegging to any particular blockchain. It is fully automated and regulated for ICO & STO.
Tozex also has a Believers reward offering (BRO), the first crowdlending protocol created on the blockchain using the smart contract. This is an investment system based on stablecoins to allow a company to finance its development by borrowing cryptoassets from around the world.
Risks during ICO and their reduction
Despite the tightening of regulation in 2020–2021, the risks of participating in ICOs still remain. They can be divided into Analytical Technical and Financial risks.
Analytical risks mean choosing a failed startup with not enough information about the project and the team. Technical risks are connected with the careless handling of funds including fraudulent actions, hacker attacks, and the use of the Pump & Dump schemes. The financial risks of ICOs are the least predictable, which is due to the high volatility of cryptocurrencies.
Risk reduction can be achieved through the close examination of the project, and its documentation (Whitepaper), as well as through the KYC procedure and diversification. Investors should also pay attention to alternatives.
In particular, Tozex offers the Believers Reward Offering (BRO) as a sustainable alternative to Initial Coin Offerings. The BRO allows to sharply decrease the Pump & Dump phenomenon, limit volatility, and foster growth by providing equal treatment to all contributors (believers).
