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A Guide to Initial Coin Offerings (ICOs)

The ICO Weather Forecast: Sunny to Partly Cloudy

Reading Time: 4 minutes by on December 13, 2017 Finance, News, Tech
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Arguably the hottest topic this year in the crypto world are Initial Coin Offerings (ICO’s). This new form of funding is attracting worldwide attention from investors and regulators alike.

Billions of dollars in money have been pouring into the ICO market this year leading to a cryptocurrency market capitalization that has surpassed $200 billion.

So what is an ICO? In short, it is a mechanism by which firms create their own cryptocurrency and issue it for investors, as opposed to pursuing investment monies directly from traditional markets and venture capital firms. While the vast majority of these monies have come from within the blockchain community, interest has spread to where major financial players are launching their own cryptocurrencies and entering the ICO market.

The Token Report Forecast

Token Report, the world’s largest database of verified information on ICOs, released data this week on shifting trends in ICO funding. According to study findings, the gap between top projects and mid-tier projects is widening, with growing numbers of project leaders abandoning their ICOs altogether. Alarmingly, in Q3 of 2017, about one in five ICOs failed, but that hasn’t dampened hope. In Q4 to date, the rate of new ICOs opening is on pace to reach 500, compared to the 266 that opened in Q3.

Token Report examined ICOs that closed in each quarter of 2017, and ranked them in three tiers by amount raised. The results showed that top ICOs like Polkadot ($142.4 million) and Liquid ($105 million) are pulling away from mid-tier projects like Dragonchain ($13.7 million) and AirSwap ($12.6 million).

Says Galen Moore, Founder and CEO of Token Report:

“Of course, it’s not wise to measure a project’s success by the amount raised, and many projects have come to market with modest fundraising goals. For the cryptocurrency economy, it’s important to keep an eye on these trends so both entrepreneurs and investors can make informed decisions.”

Token Report also found that the number of projects abandoning their ICOs altogether is rising. While new projects list at a rate of five to seven per day and often make it to their live date, many websites or social media accounts are shuttering before an announcement of a successful close.

In Q3, 15 ICOs canceled, and in Q4, 35 more have already canceled. Yet overall, the ICO boom shows no signs of abating. Thus far in Q4, ICOs have raised $1.38 billion, putting them on pace to easily surpass the $1.74 billion raised in all of Q3.

Token Report has made its mark by offering a membership program that delivers actionable ICO updates and research that provides investor insights for newcomers, high-volume traders, and institutions alike. Institutions pay in Token Report’s cryptocurrency, EDGE, for access to the database via application programming interface (API). This allows Token Report’s dollar-denominated revenue to grow with demand, without diluting the value of its research by over-scaling its user base.

Funderbeam Delivers Its Assessment

UK-headquartered investment and trading platform Funderbeam has also released an industry report detailing ICO trends.

The company was awarded the Best European Fintech Company 2017 award at the European Fintech Awards in Brussels early in October. Below is an outline of its assessment:

  • ICO funding began gaining traction in 2016 before exploding in 2017, where funding increased from $228m to $2.8bn. The number of rounds has quadrupled and is nearly reaching 150.
  • Amid a decrease in worldwide funding over the past few years, ICOs have witnessed an enormous increase. The same trend continues with the number of rounds. Whereas worldwide the rounds have been decreasing faster than the rate of total funding, this year ICO rounds have jumped to an all-time high.
  • Although the funding amounts vary on a worldwide scale compared to ICO funding, the average round-sizes are quite similar and follow a trend of increasing round sizes. The average ICO round-size is nearly $19m per round, whereas funding in all round types is almost $24m per round.
  • Europe excelled in 2014 with the highest average round. But so far in 2017, North America and Asia, relative to Europe, have rounds nearly twice as large. In North America, the average ICO round-size soared to $31.5m in 2017. In Asia, it was $30.7m and in Europe $16.7m.
  • ICOs are producing much larger rounds than both early-stage funding (angel, seed, crowdfunding) and even Series A+ funding. Average ICO round-sizes in Europe are the highest relative to all other stages of funding.
  • Out all regions, North America has the most funding raised by ICOs, almost twice as much as in Europe. The overall portion of total funding raised by ICOs is almost twice as high in Europe reaching 3.83 percent compared to just 2.00 percent in North America.
  • In Europe, Switzerland has witnessed the highest number of ICOs, with a total of 13. This is just ahead of the UK, which had eight ICOs and a total of $71m in ICO funding. Overall, mostly Western European countries have begun adopting ICOs, one exception being Estonia with an impressive four ICOs from the tiny nation.
  • The United States is ahead of the curve with the highest amount of funds raised through ICOs, but only 0.45 percent of the total startup funding is raised through ICOs in the country. Out of the top 10 countries with ICO funding, Estonia has the highest percentage of its overall startup funding raised by ICOs. Out of the total $240m, 28 percent was raised by ICOs.
  • The vast majority of the firms raising funds through ICOs belong to financial service and cryptocurrency sectors.
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