ICO

Bitcoin and blockchain investor @dcgco Travis Scher on ICO funded open source blockchain protocols (Oct 27, 2016):

I believe open source blockchain protocols may be transformative over the long-term

However, none of this will happen if the issues of regulation, valuation, and controls are not addressed, or if blockchain entrepreneurs fail to use these new protocols to solve actual problems in a user-friendly way.

Apart from this wiki page: a good jump off point article is Business Review article by Richard Kastelein MARCH 24, 2017

What is ICO

Initial Coin Offering - Also known as “token sales,” this new fundraising phenomenon is being fueled by a convergence of blockchain technology, new wealth, clever entrepreneurs, and crypto-investors who are backing blockchain-fueled ideas. ICOs present both benefits and disadvantages, as well as threats and opportunities, to the traditional venture capital business model. Why VC firms care

How an ICO works

A new cryptocurrency is created on a protocol such as Counterparty, Ethereum, or Openledger, and a value is arbitrarily determined by the startup team behind the ICO based on what they think the network is worth at its current stage. Then, via price dynamics determined by market supply and demand, the value is settled on by the network of participants, rather than by a central authority or government.

BREAKING DOWN 'Initial Coin Offering (ICO)'

When a cryptocurrency startup firm wants to raise money through an Initial Coin Offering (ICO), it usually creates a plan on a whitepaper which states what the project is about, what need(s) the project will fulfill upon completion, how much money is needed to undertake the venture, how much of the virtual tokens the pioneers of the project will keep for themselves, what type of money is accepted, and how long the ICO campaign will run for. During the ICO campaign, enthusiasts and supporters of the firm’s initiative buy some of the distributed cryptocoins with fiat or virtual currency. These coins are referred to as tokens and are similar to shares of a company sold to investors in an Initial Public Offering (IPO) transaction. If the money raised does not meet the minimum funds required by the firm, the money is returned to the backers and the ICO is deemed to be unsuccessful. If the funds requirements are met within the specified timeframe, the money raised is used to either initiate the new scheme or to complete it. info

Why is an ICO interesting

1. One is profits — cryptocurrency investors made some massive returns in 2016

2. Liquidity of cryptocurrencies

more details on Why

Why an ICO scares off

1. regulatory uncertainty;

2. the high valuations;

3. over-capitalization;

4. the lack of control over financials, strategy, and operations;

5. and the lack of business use-cases;

6. And like any industry, the ICO arena has had its fair share of outright scams, pump and dumps, and blatant Ponzi schemes.

Why ICOs are eels

ICOs are the Wild West of financing — they sit in a grey zone where the U.S. Securities and Exchange Commission (SEC) and many other regulatory bodies are still investigating them.

1. The main problem is, though, that most ICO’s don’t actually offer equity in start-up ventures; instead, they only offer discounts on cryptocurrencies before they hit the exchanges. Therefore, they don’t fit into the current definition of a security, and are technically outside of traditional legal frameworks.

2. They are global instruments — not national ones — and they are funded using bitcoin, ether and other cryptocurrencies that are not controlled by any central authority or bank. Anyone can invest, and they can even do so pseudonymously.

What is an ICO and what is a DAPP/Appcoin

For the uninitiated, an ICO (short for “initial coin offering”) is a crowdsale of cryptographically secured blockchain-native tokens to fund the development and operation of one of three types of blockchain projects:

1. a platform-layer blockchain (such as Ethereum, Lisk, or Tezos);

2. an organization that operates on a blockchain (known as a Decentralized Autonomous Organization, aka a “DAO”, or a Centrally Organized Distributed Entity, aka a “CODE”); or

3. a decentralized application (a “Dapp”) that runs on a platform-layer blockchain.

A token that fuels a Dapp is sometimes referred to as an Appcoin, while tokens that fuel DAOs and platform-layer blockchains are simply known as tokens or cryptocurrency. In a typical ICO, new tokens are issued in a crowdsale in exchange for Bitcoin or Ether, and then, if sufficient demand exists, digital currency exchanges such as Shapeshift, Kraken, and Poloneix will make a market so they can be traded.

Regulatory Naivety

First, the creators of these new tokens seem to broadly underestimate the regulatory risks associated with ICOs:

1. [[#Howy test | Did they perform the Howy test?]

2. Unregistered ICOs may very well be deemed broadly illegal.

3. Investors in these tokens should understand that they could lose most or all of their investment in these project with the swipe of a regulator’s pen.

More details

Howy test

A company offering securities that are not exempt must register them, a process that also involves disclosure of certain information, including:

A. A description of the company's properties and business purpose

B. A description of the security being offered

C. Information about the company's management

D. Financial statements about the company, certified by independent accountants

Under the Howey Test, a transaction is an investment contract if:

1. It is an investment of money

2. There is an expectation of profits from the investment

3. The investment of money is in a common enterprise

4. Any profit comes from the efforts of a promoter or third party

If an investment opportunity is open to many people, and if investors have little to no control or management of investment money or assets, then that investment is probably a security.

MORE INFO ON HOWY TEST

Easy Money

Second, the implied “valuations” that these DAOs are raising at are, in my view, unjustified, and the amounts being raised in these token sales are alarming.[2] Founders with ideas that would struggle to raise a $500k seed round from experienced venture capital funds are raising millions in token sales. More details

Lack of Controls

Third, I’ve been shocked by the lack of controls governing how the decentralized organizations issuing new tokens can use the proceeds of ICOs, and how revenues and/or profits associated with the projects are to be shared with token holders. In many cases, it is totally unclear what rights the token holders have. More details

No Business Case

Fourth, and perhaps most fundamentally, I have not yet come across a blockchain-based Dapp that is providing a solution to a real problem on a significant scale. Is the market really demanding a decentralized Uber or more ways to gamble? Dapps can theoretically provide lower costs, enhanced privacy, and greater security by cutting out middle-men. But privacy and security won’t drive mass adoption. In my view, to really go mainstream, these Dapps must provide meaningfully lower costs without compromising user experience — and providing a first-rate user experience will be extremely challenging without a normal organization consisting of responsible employees. More details