E&Y: Initial Coin Offerings (ICOs) The Class of 2017 – one year later

Check out a real E&Y presentation on Initial Coin Offerings in 2018.

E&Y Presentation: Initial Coin Offerings (ICOs) The Class of 2017 – one year later

Key Learnings from the Presentation

The EY study titled “Initial Coin Offerings (ICOs): The Class of 2017 – One Year Later” provides a critical examination of the ICO landscape following the surge in popularity and investment in 2017. This analysis revisits the performance, progress, and investment returns of ICOs from that period, offering a sobering view on the state of these ventures a year later. Here’s a concise summary encapsulating the main insights and findings from the report:

Overview and Performance

• Poor Performance: The Class of 2017 ICOs, which constituted 87% of ICO funding in that year, showed dismal performance, with 86% trading below their listing price and 30% losing almost all of their value. An investment portfolio in these ICOs as of January 1, 2018, would have seen a 66% loss.
• Limited Progress: Only 29% (25 out of 86) of the ICO startups reviewed have working products or prototypes, a modest increase from the previous year. Furthermore, some of these companies are reducing the utility of their tokens by accepting fiat currency alongside ICO tokens, diminishing token value.

Market Dynamics

• Funding Growth: Despite the poor performance of 2017’s ICOs, the market demand continued to grow, with claims of over $15 billion raised in the first half of 2018. However, this growth was concentrated, with the top 10 ICOs in 2018 raising 52% of the total claimed funds.
• Shift in Funding Sources: The landscape is shifting towards more regulated and traditional forms of investment, like venture capital, partly due to regulatory scrutiny and the high-risk nature of ICO investments.

Key Challenges and Risks

• High Risk of Fraud and Theft: The initial study highlighted significant risks associated with ICOs, including fraud, theft, and inaccuracies in the representations made by startups seeking funding.
• Infrastructure Dominance: Most gains were concentrated in 10 ICO tokens, primarily in the blockchain infrastructure category, without significantly challenging Ethereum’s dominance as the main platform.

Strategic Implications for ICO Startups

• Need for Real Progress: The findings underscore the importance of moving beyond ideas to develop working products or prototypes that offer genuine utility and can attract and retain investment.
• Reevaluation of Token Utility: Projects that detokenize or shift to accept fiat currency may need to reassess the role and value proposition of their tokens to maintain investor interest and support.

Conclusion and Outlook

• The early returns from ICOs, especially from The Class of 2017, suggest a more speculative and high-risk investment environment compared to traditional venture capital. The continued dominance of Ethereum and the concentration of gains in a few blockchain infrastructure projects indicate a challenging landscape for application-focused and ecosystem-based ICOs.

 About Ernst & Young (EY)

EY is a global leader in assurance, tax, transaction, and advisory services. Within its consulting practice, EY focuses on helping organizations optimize their performance and manage risks. The firm is particularly noted for its strong capabilities in digital transformation, cybersecurity, and financial services. EY’s approach is characterized by its commitment to building a better working world through its services, insights, and actions.

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