ICOs continue their fall from grace

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Earlier this year, when the cryptocurrency market was stronger, initial coin offerings (ICO) raised, on average, tens of millions of dollars for the creation of decentralized applications (Dapps) and other systems. In retrospect, those investments may not have been the smartest investments to make. Most of the projects – those that haven’t already fizzled – either have no working product to speak of or have such a low number of users that it’s difficult to rationalize their existence.

Dapp ICO projects attracted a great deal of attention last year and in the beginning of 2018. A handful of them were able to collect as much as $4 billion in investments, but the return has been anything but successful. With the exception of ForkDelta and IDEX, none of the Dapps currently in the market has more than 600 users, according to DappRadar.

Only a small number – such as Augur, Decentraland, Wanchain, ICON and a few others – have been able to survive and find a large developer community. Those that have been able to achieve a strong foothold are actively used in the Ethereum ecosystem for a variety of use cases, but they are in the minority of the Dapp projects that have been launched in the past year.

The majority of ERC20 ICOs, as well as tokens, in the top 100 crypto projects don’t have a working product. Martha Bennett, an analyst with Forrester Research, points out that the bear market is one of the factors. In an interview with Bloomberg, she asserted, “Sooner or later, this would have led to a contraction anyway. The crypto crash acted as both catalyst and wake-up call.” This contraction is giving cause for investors to consider seriously any investment of a project that does not offer a working product or long-term vision. 

Autonomous Research’s global director of FinTech strategy, Lex Sokolin, believes that new investors and fresh capital could counterbalance the sector in the next several months. He adds that commercial companies that have strong profit margins, such as exchanges, would more than likely see the most growth. Sokolin states, “I’d be comfortable saying that the pricing pressure on digital assets in 2018 is likely to lead to 25-50-percent shutdowns and layoffs for current projects based on historical comparisons. However, the pace of new entrants and capital could counterbalance this contraction and still grow the sector overall.”

In order to lead a successful ICO, companies are going to have to show that they have a useable product for both crypto and mainstream users. Short of this, the chances of the market being able to make a recovery are going to be extremely small.