As the cryptocurrency economy continues to mature, investors have been funding blockchain startups with millions of dollars through what the crypto world calls "ICOs," or Initial Coin Offerings. To help individuals and institutional investors make informed decisions, U.S. corporation Ambisafe Inc. has partnered with Russian rating agency ICOrating, to analyze the burgeoning ICO market.
The term ICO is an almost direct analogy to the more traditional Initial Public Offering (IPO) of shares or equities on a stock exchange. An ICO involves a blockchain startup releasing their tokens, and listing them on a cryptocurrency exchange. The lower entry barriers, thanks to the underlying blockchain technology and fewer regulations, means that the cost of an ICO can be ten times less than an IPO listed on traditional financial exchanges.
In 2016, there were several very successful ICOs. We saw Iconomi, a crypto-fund management platform from Slovenia raise the equivalent of 17,274 bitcoin, in a single month. Their ICO allowed international investors to buy their ICN token with either dollars, euros, bitcoin, ethereum or lisk.
Iconomi's success set the pace for successors such as the FirstBlood and Golem projects, which both raised over $5 million within minutes of opening their ICOs. It is interesting to note that one of the investors in Golem was Iconomi themselves; via their Iconomi.Performance fund.
Despite the popularity of investing in ICOs, there is almost zero regulation, and very few standards for communicating or assessing an offering's strengths and weaknesses. Ambisafe and ICOrating will attempt to separate out the fraudulent or ill-conceived projects from those that offer serious potential. Instead of the average investor having to piece together information from discussion forums, social media posts and company websites, they will be able to read the objective research and analysis from this new agency.
"To determine the investment rating of a project, ICOrating assesses [the project’s] ability and willingness to fulﬁll its commitment to the development and promotion of their product. In addition, speciﬁc risk factors that startups are subject to, because of the nature of its activities, are also analyzed: the practice of management, the level of developers skills, quality and structure of the code or prototype, marketing, media and more."
Analyzing these risks factor is not an easy task. There is no mechanism for regulation of the cryptocurrency market. By design, coin offerings are censorship- and regulation-resistant. There have been fraudulent offerings in the past, where ICOrating have issued a Negative rating for the Kibo Lottery, a blockchain lotto from Singapore.
Ambisafe CEO Andrey Zamovskiy encourages increased due diligence for ICO investments. He told Forbes:
“From our own experience, we strongly recommend prospective investors that they study the subject of investing in more detail or refer for analysis to professional rating agencies. We and our partners see our goal in making the way of investors and projects towards their goals more reliable, understandable and effective - reducing risks, maximizing the potential profits, increasing market transparency and stability."
Due diligence is an imperative need for all crypto investments. An emergence of rating agencies for the cryptocurrency space, such as the partnership between Ambisafe and ICOrating, will help give investors the information needed to make the right decisions.
Disclaimer: The author owns a small portion of bitcoin and holds a small position with ICN tokens. Readers are encouraged to conduct their own research where ICO ratings may be one aspect of the investment process.