Predictions held that 2018 would be the year of the ICO. But it may be that the glory days of token sales are over, as backers are growing more skeptical.
According to recent research by Ernst&Young, the climate for ICOs shifted in just a few months. The peak of 2017 came in the summer, when 90% of ICOs reached their rather ambitious targets for funding. The summer of 2017 was also the time for some of the largest, most prominent projects. But in November, after China banned ICOs, the inflow of funds had cooled. At the end of last year, just 40% of ICOs managed to get their intended funding.
Granted, ICO projects are not shy about their demands, with token sales regularly aimed at above $10 million.
In addition, according to an Ernst&Youg report, around 10% of funds for ICO backing are lost or stolen.
«The volume just exploded, people raised their fundraising goals, and the quality just dropped,» said Paul Brody, global innovation leader for blockchain technology at Ernst & Young.
The research and audit firm believes that token valuations are haphazard, mostly fueled by greed. With the rise in the price of Ethereum, a lot of ICOs are rethinking their funding targets. Others are turning to other sources of funding, opening wallets for Litecoin, NEM (XEM), NEO, or other valuable digital assets.
Besides phishing, which often diverts funds to a fake hacker account, fraudulent ICOs are also cropping up. There are two types of these ICOs: those that speak directly to the crypto community, but run away with the funds. Then, there are scams like Arise Bank, which advertise themselves directly, avoiding the scrutiny of the crypto community.
In the past months, the token sale of Confido was the most prominent example of a fraud ICO, where the founders disappeared with the funds. In addition, the Prodeum ICO, a failed project that drew in less than $15, disappeared with an obscene prank. The Benebit ICO also turned out to be a scam, busted by vigilant users who noticed the stolen photos.