Ten Toes Down In An ICO Part 2

Posted By : Neeraj Kumar | 20-Nov-2017

The Risk of ICOs

Consumer protection:

  • Lack of reasonable amount of work: Lack of formal processes to audit ICO organizations. Most of the time, teams conduct token sales before making significant progress in producing a functional product. Before the ICOs the teams may document their technology and business plans in a white paper, but there may be little evidence that the technology can be built as specified or that the business will operate as expected. As a result of that, flaws in certain technologies may not be discovered until significant amounts of money have already been invested. Most of the organizations have a clause in their ICO terms that require contributors to accept the risk of project abandonment.

  • The uncertain evaluation of token value: Token prices may not be based upon their fundamental value and many buyers may be buying tokens for investment purposes on the expectation that market prices will increase. Therefore, investors may value a token primarily based on expected resale profits and not on the basis of the underlying economic utility. This may create a situation wherein older investors obtain trading gains primarily through the capital inflow of newer investors, rather than from legitimate increases in the fundamental utility of the token.

  • Dangers inherent: The ICO model has attracted scammers who lure unsophisticated investors into ICOs that is unlikely to ever generate a return. As ICOs are completely unregulated, investors have no recourse should the project not deliver or simply disappear. Some ICOs do not allow investments through investors from certain countries, specifically the United States in order to avoid coming under the radar of law enforcement agencies. Nonetheless, it is clear that ICOs are an interesting innovation. ICOs allow people (with no access to traditional investment opportunities) a chance to invest in companies that appeal to them, without the requirement of a broker (and broker fees). In turn, this allows companies to bypass the traditional venture capital scene and to get their projects in motion quicker.

Market Risks:

  • Extreme price instability. Token prices are highly instable and dynamic in nature. For example, price of 1 Bitcoin was $4800 approx on 1 September 2017 but it hiked to $15683 approx on 10 December 2017 which shows high volatility even though it shows gud oppertunity for investment.

  • Market manipulation. The token market could be manipulated by doing pumping and dumping, spoofing, front-running and manipulative practices from “whales.”

Regulatory Outlook On ICOs

  • The US SEC and the Canadian Securities Administrators, have released investor bulletins which highlights that some ICOs may need to be categorized as securities in accordance with the nature of the crypto-token offered. They appear to be keen on putting sufficient safeguards for regulating ICOs.

  • Similarly, the Monetary Authority of Singapore has observed that the function of digital tokens has extended from being just a currency and it’s been acknowledged by them that it can take the form of an offer of shares in a collective investment scheme. However, when these tokens became a form of a security, organizations behind them are required to create a prospectus and follow security listing guidelines. Additionally, the online exchanges for the trading of these tokens will also have to be approved or recognized by the Monetary Authority of Singapore as an approved exchange.

  • There are legal and regulatory challenges that need to be addressed for streamlining and regulating ICOs in India. It’s because of this reason most ICOs especially targeting the Indian market and targeting other international markets, are registered in countries such as Switzerland and Singapore where cryptocurrency regulations are more friendly which is not the case in India.

  • With the ICO market matures new changes are also being introduced. Earlier there was no need for a KYC compliance to invest in an ICO, a lot of the projects ask for KYC details as they do not want any regulatory problems in the future. Most of the ICOs are playing safe from regulators by not taking payments in Bitcoin (BTC) and Ethereum (ETH). India’s markets regulator Securities and Exchange Board of India, or SEBI, for instance, has very strict rules on collective investment schemes. The outlook for ICOs is clearly cloudy, then.


Future Trends Of ICOs


In the U.S. alone more and more organizations are considering issuing tokens under the presumption that they are considered securities. These organizations are exploring issuing tokens by following securities exemptions such as Regulation A+, Regulation D and Regulation S in the U.S. Communities in U.S. regulating ICOs are still waiting on a more definitive statement from the SEC, FinCEN and CFTC on regulatory requirements for ICOs.

From the consumers, token buyers are becoming more cautious in buying and trading ICO tokens. The cryptocurrency community has launched efforts to self-regulate token sales and conduct due diligence on behalf of the public. Also, an organization called the ICO Governance Foundation establishing best practices and standards for ICOs, starting by providing and maintaining a public filing and registration protocol.

Like every rose has its thorn ICOs also have pros and cons. Despite all the regulatory space movement, the tech. the community sees strong potential in blockchain technologies, and the demand for tokens is strong. Let’s hope that regulators can structure flexible requirements that reduce risks while accommodating innovation in this young but burgeoning industry. We also hope that industry executives from all around the globe can explore and leverage blockchain technology for applications in their respective industries.

Some Successful ICOs


  • ICO Period: 28 September 2013 -  18 November 2013

  • Funds gathered (BTC): 21 BTC

  • Tokens distributed: 1,000,000,000 NXT

  • Profit percentage (In BTC): 199900%

Ethereum ICO

  • ICO Period: 20 July 2014 - 2 September 2014

  • Funds gathered (USD): $18,439,086

  • Funds gathered (BTC): 31,529.49

  • Tokens distributed: 60,000,000

  • Profit percentage (In BTC): 3900%

Lisk ICO

  • ICO Period: 22nd February 2016 - 21st March 2016

  • Funds gathered (USD): $5,700,000aaats

  • Funds gathered (BTC equivalent): 15,480.52871205 BTC

  • Tokens distributed: 85,000,000 LSK

  • Profit percentage (In BTC): 138%?

About Author

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Neeraj Kumar

Neeraj is a JAVA Developer who possesses skill set in: Data Structures, Core Java, Java Enterprise Edition (Servlets, JSP, Standard Java Beans), Spring (Spring-core, spring-MVC, spring-Data-Access, Spring-Data-JPA), Hibernate, JPA, HTML, CSS, JavaScri

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