Contributed by Lee Swee Siong
In the tiny island of Singapore, it seems to me these days that many have been swept up in the hype of cryptocurrencies and Initial Coin Offerings. A couple of months ago, I attended a conference where several SMEs were launching their ICOs in one big bang. It was very well attended. What struck me though was the demographics of attendees. Instead of tech savvy crypto-heads and finance savvy institutional investors, we had Rolex-bearing SME “towkays”, well-heeled “Tai Tais” and your typical retired mom and pops.
This is hardly surprising for several reasons:
1) The sharp increase in cryptocurrency prices in late 2017 had gotten onlookers/ speculators curious (never mind that it has corrected significantly since). Early movers have made handsome returns, some fast followers have perhaps gotten their fingers burnt, but a vast majority of laggards have suddenly woken up to the possibility of buying “low” with the hope that value of crypto currencies will eventually appreciate to late 2017 levels.
2) Singapore is one of the most progressive countries in the world when it comes to regulating ICOs. There has been several high profile successful ICOs in 2017 raising multi-million dollars.
Combine these two factors together, and you have a situation where many enterprising Businesses and start-ups are exploring how to “Blockchain” their businesses or ideas, and tap on the ready pool of speculative investors who are willing to invest.
I get particularly concerned when I hear assertions and conversations made in relation to ICO launches. Amongst them, this one trumps it all:
“You can join our priority investor club if you commit to invest $XXX,XXX per year in ICOs. We have our ICO experts who handpick those which are sure to make money”
And this is coming from the same group of people who are behind the structuring of various ICOs for existing SME businesses, many of which in my opinion, will not even benefit from blockchain.
I am seeing a worrying trend of businesses considering putting a “Blockchain” label on anything, package an ICO and hope that speculative investors will part with their cryptos or cash. Better still, there is no dilution of equity and minimal governance on ensuring that the funds raised are put to good use as promised.
This reminds me of the dot.com frenzy of late 1990s. Put a dot.com behind everything and suddenly, the business became sexy and venture capitalists were queuing up to throw money at you. Well, we all know how it went by the year 2000. I was one of the dot.com casualties.
I must clarify at this stage that with Blockchain, I am neither a skeptic nor an eternal optimist, but more of a realist. I believe that blockchain or distributed ledger technology is a transformative technology in its nascent stages, which given time and space, can fundamentally make the world better in terms of efficiency and democratization of data, wealth and assets.
And as such I would like to lay out what I think are the Good, the Bad and the Ugly in the Wild Wild West of the current ICO market, and what would be needed for us to avoid a “Great ICO crash”, but rather a soft landing to achieve a more sustainable environment where good ideas are supported, funded and executed paving the way towards the utopian state in the longer term. I call this ICO 2.0 (I know…there are several others who have already used this term, albeit in different context).
▪ Greater public awareness of cryptocurrencies and blockchain use cases.
▪ Proliferation of ideas on how blockchain can be deployed to improve the way things work, particularly in addressing issue of trust, tracing provenance and removing friction created by middle-men.
▪ Technology readiness and real world change inertia. Some use cases will be more likely than others to be successful.
▪ Many ICO issuers will fail. Investors will get burnt.
▪ Unclear regulations and lack of self-governance.
▪ Outright scammers and opportunists with no real intent of delivering on real use cases.
▪ Speculative investors with no clear understanding of blockchain and what constitutes good use cases, but seeking only returns.
What is needed from a macro perspective for a more sustainable path to greater blockchain adoption funded through ICOs:
▪ Greater public education through public and private platforms: Investors need to be able to discern good ICOs from bad ones. Establishment of more structured, credible and independent ICO analysis for investor education.
▪ Greater self-governance imposed by ICO issuers to protect investors: This could take the form of self-enforcing smart contracts for release of funds upon achieving committed milestones, or through a trusted 3rd party validator (e.g. custodian agents)
▪ Commercial Application by Established Ecosystems: As ironic as it is, it may take the successful adoption of blockchain by established businesses or centralized authorities with existing ecosystems to increase the confidence in blockchain use cases.
▪ Regulation on Securities Tokens: Based on existing securities acts, ensuring compliance is a big hurdle for businesses to overcome. Questions need to be asked if such acts should be reviewed for applicability in the blockchain domain and whether all security assets need to be regulated with the same extent of rigor.
One may argue that many of the points I am suggesting above runs counter to the purist view of the utopian state of a decentralized, democratized blockchain ecosystem. But again, this is where my realist view rears its head. And I would use a Star Wars analogy to end this….
Whilst the Jedi fight their battles to establish a new world order, the evil empire will try to exterminate them, and if unsuccessful, they will fight back, adapt and at least protect their current position. I believe an equilibrium will be established. Some Jedi will find their place in the new world order. Some Sith lords will go the way of the dinosaur. Others, they simply evolve into Grey Jedi…..May the Block be with you.
Original Article (https://www.linkedin.com/pulse/ico-funding-blockchain-projects-good-bad-ugly-swee-siong-lee/)
Also published on Medium.