What should be done to restore trust in ICO?

The co-founder of decentralized accelerator “Rocket ICO” Gabil Tagiev speaks on ICO’s market transformation

Nowadays there are hundreds of teams running an ICO, but only a few provide an actual result. Consequently, returns drop. Lately we often hear the news about one or another project, which after raising millions on ICO removes website and vanishes with all the money.

Investors can no longer count for 500-1000 percent, and shouldn't expect more than 30-70% within a few months. More and more often we hear about fraudulent projects who try to disappear immediately after fundraising.

Despite a currently negative climate, it is expected that upon the recovery ICO market will still be able to grow faster and attract more funding than the traditional VC market.

The first unicorns have already appeared on the market. For example, “Coinbase” - cryptocurrency's broker was valued at $ 1.6 billion. In the summer 2017 funds raised through ICO has exceeded global seed investments achieved by venture capital.

This mechanism (ICO) elicits considerable interest. The only question is how soon the market will mature and who will help it to do it. A number of experts of crypto community conclude that it’s impossible to achieve this state without governmental intervention in the form of regulation.

Otherwise changes may take too long due to a rapid decline of trust.

Death on-air: how does hype kill ICO?

Projects are created by blindly applying the following formula: “X + Blockchain = Start-up”. Currently there is still no appropriate mechanism to evaluate projects. Very few ICO projects do at least something.

Failures of previously ‘successful’ ICO projects are pretty disappointing. Not to mention fraudulent stories when investors lose their money and confidence in ICO.

Michael Jackson (partner of venture firm “Mangrove Capital”) in an interview to “Business Insider” said that ICO-companies increasingly resemble offices that used to sell securities over the phone, while often using illegal methods.

These illegal methods are in depth shown in the movie "The Wolf of Wall Street". It must be said that the real prototype of the main character- Jordan Belfort recently stated that ICO is much worse than anything what he has been doing as a broker.

Where should we expect help from?

Ironically, plenty of scam on the market contributes to its slight recovery. Now investors are more interested in learning about the projects unlike in the spring of 2017 when people invested in tokens to quickly make profit through speculation as soon as the coins entered exchange.

Nowadays people invest more and more in products that will benefit them in the future. At the same time there are only a few ICOs on the market that offer such products. Most teams are still preparing their projects to address outdated market requests in hope to catch the ‘hype’ trend. So far the most part of released tokens have no real value.

According to “Bloomberg”, only every tenth released token can be used somehow, the rest remain on release stage.

In October, the London-based “Z / Yen Group” think-tank published manifesto that calls to introduce new standards for ICO. Experts fear that many ICO projects are driven by founder's greed which results in a fraud on the market.

Authors note that blockchain’s technology risks to get a bad reputation because of the chaos that prevails in the crypto currency market and ICOs.

According to the manifesto, companies that launch ICO must take into account investors’ interests, comply with laws and clearly announce their token’s value. More than 30 representatives of British crypto-community have signed the document.

Rather than waiting for state regulation, responsible market parties can really do a lot to return the trust in ICO to its initial level. Back then project’s ideas have been originating within communities and were thoroughly discussed while founders highly valued their reputation.

How an ICO 2.0 should look like?

ICOs allow start-ups to attract investments in a relatively short time without losing control of the project and this to be said is a great tool without unnecessary bureaucracy.

However, total lack of regulations doesn’t lead to anything good and reasonable self-regulation will help to avoid catastrophic effects in the future.

Today, the vast majority of projects that receive funding through coin’s initial placement are not supported by real operating model, teams often lack skills and as a result, they will never make profit.

Instead of launching one-day start-ups, the aim is to ensure selection of projects with strong ideas, teams and background.

Now ICOs need a round system of attracting investment, which will cut off nonviable projects at every stage. Real investors and community members should evaluate projects rather than state organizations or rating agencies.

Passing through rounds team will receive an adequate community assessment and commensurate investments in appropriate stages of project development. The system will not allow going to the next stage of the project, unless one has passed previous round.

It really does look like acceleration and evidently weak projects for sure won’t get a place in the sun. This system creates barriers to those who love easy money and spoil ICO’s and blockchain’s reputation.

Investors' money should be protected at the level of smart contracts, as well as project’s spending must be visible in real time. Thresholds to enter the project must be canceled, and conditions should be equally beneficial for all investors.

It is impossible to achieve such transformation in a conditional vacuum, therefore community must become its driver. Couple of things have already shown their effectiveness, namely: principles of open-source software, expert’s rating list, participant’s enthusiasm. Communities have proved that they can be very effective. A vivid example is crypto community.

In this case, investors will be able to work with a selection of projects that have been evaluated by the expert community and are at the stage of an idea, prototype, product or scaling, thereby increasing percentage of correct investment’s allocation in portfolio diversification.