The Evolution of the ICO, an analysis of the history and trends to date

In 2017 Initial Coin Offerings were a dream scenario where millions of dollars could be raised in a matter of seconds. Like most dreams, however, this could not last.

The market has now matured and ICO investors have become much more discerning. Projects looking to raise seed capital are now having to expend much more effort when preparing their ICOs to ensure that they meet their soft and hard cap milestones.

Touted by J.R. Willett back in 2012, ICOs did not form part of the everyday crypto-lexicon until 2017 when Ethereum based projects began to proliferate throughout the market. This wave of new crypto-projects coincided with a huge spike in interest in cryptocurrencies generally. This meant that crypto-projects began to do exactly what Willett had predicted, that ICOs would:

“provide initial funds to hire developers to build software which implements the new protocol layers, and…richly reward early adopters of the new protocol”.

It is because of the attraction of the “rich rewards” on offer, to both project founders and early adopters alike, ICOs quickly began to flood the crypto-marketplace. 2017 had become the year of the ICO.

However, it became increasingly apparent in the final quarter of 2017 that ICOs were evolving. It was no longer possible for individuals or small teams to simply publish a whitepaper on a crypto-concept and expect that they would be inundated with cash. Teams consisting of only founders were no longer enough. Successful ICOs now had teams of advisers consisting of legal, financial, technological and sales & marketing professionals. The PAICO, the Professionally Advised ICO was born.

As the market had matured individual investors had become much more discerning, institutional investors entered the marketplace and with that, the levels of scrutiny skyrocketed. Additional drivers for this increased scrutiny included the sheer numbers of ICOs on offer as well as the rise of failed projects, scams, and Ponzi schemes. The rise of institutional investors into the market has shifted ICOs from public offerings to mainly private sales involving small numbers of wealthy investors. The increase in these private pre-sales has now almost relegated the public ICO to a mere promotional exercise.

So where to next for ICOs? The early signs of the next of phase of the ICO evolution have come from researchers, developers and influencers within the Ethereum community. The next ICO model will look to increase transparency, accountability and investor protection.

Innovative options mooted recently include the Continuous Token Model and Liquid Pledging. Vitalik Buterin, the co-founder of Ethereum, has proposed a model that would see ICOs incorporate some of the benefits of Decentralized Autonomous Organizations or DAOs into what is becoming known as the DAICO model. The main idea behind the DAICO model is that investors would have more control over how the project funds are spent. If milestones are not met or there has not been adequate progress within the project then the whole project could be shut down and investors would be refunded.

As the safeguards promised by the DAICO model are still some way off, investors have little option but to scrutinise any ICO before they invest. This means that for any project wishing to carry out a successful ICO they will require not only talented founders and an innovative concept but also a diverse team of professional advisors. Successful ICOs will now mean being PAICOs. The advice of these teams of professionals will not only vastly improves the chances of the project and the ICO being successful but their scrutiny of the project before it gets to the ICO stage will also derisk the project for investors. These obvious benefits to both project founders and investors means that 2018 will be the year of the PAICO.

Emmet Creighton is a European Technology Lawyer, ICO Advisor, Entrepreneur and Fintech Advisor.

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