CEO at StartEngine and co-founder at Activision/Blizzard. Raise capital with an ICO or OPO on www.startengine.com
The Days of SAFT Are Over
If you read some of the recent SEC bulletins and confirmation that a flurry of SEC subpoenas were sent to companies, operators and possibly attorneys, that were involved with Initial Coin Offerings (ICOs), you will agree that something needs to change.
The Simple Agreement for Future Tokens (SAFT) was invented in Silicon Valley, and later adopted and improved by Marco Santori, who was formerly a top partner at Cooley. SAFT was positioned as the answer to a unique question: how do you best sell utility tokens when those tokens do not yet exist? Most utility tokens that ICOs sold investors did not even have their service in place, which in essence amounted to pre-selling a service by issuing an ERC-20 token. For context, this takes just 2 hours to code.
The idea behind SAFT was simple: issue a token that has only simple utility: to trade on exchanges. Then later, that token will be replaced with the promised utility token, which would be used for the proposed service. It turns out, this option is a security and the top minds of the marketplace realized they needed something else. Here comes the SAFT, which is also a sweet drink in German, to save ICOs. Not so fast.
The most famous SAFT offering is Filecoin, who issued over $200M in SAFT agreements to investors on CoinList. Filecoin was willing to concede that the SAFT is a security, but the eventual token, they insisted, was a utility. I wrote an article last November called the Great SAFT Magic Trick to alert the marketplace that it is not that simple to accept the idea that a security, the SAFT, will become a utility just because.
It should have been clear to Filecoin, and the other ICOs who used a SAFT, that their future token will be a security token. Of course, this means that the token will only trade on broker-dealer’s ATS platforms, such as tZERO, StartEngine Secondary, and Templum, among others, as well as on registered exchanges. I know this is a sad outcome for investors who were hoping to trade these tokens on the so-called “exchanges” for 5X their investment, but this is the way the game works. Violate the SEC rules and see how the story ends.
There is no reason to use a SAFT if the end result is going to be a security token. There must be a better way. Enter the RATE, a Real Agreement for Tokens and Equity. This new agreement solves the problem altogether by issuing two security tokens.
The first one is an equity token, which can be common shares or preferred with dividends. This token is issued by the company as equity and sits on the capital table. The shareholders of the company will vote on the authorization of the equity tokens, and then the board of directors will write a resolution to sell those tokens. This solves many issues with utility tokens, including governance and voting rights to protect investors. It is analogous to adding a token to a share of stock. A company can also issue a preferred token with a revenue share based on the company’s net revenue.
The second token is the one that will eventually be used to perform the proposed service on the blockchain. This token does not need to exist at the time of the offering. It can be promised with conditions, such as “if and when the token is available,” and it can be considered a perk to the offering. This is important because it means the entire value lies with the equity token because it is not yet clear what value of the utility token will be or even if it will ever be created.
The real question is this: is the second token a utility token or a security token? This depends on may factors, including whether the token will find its way onto an exchange. If it does, then it is a security token. Another example is if a token has an unlimited ability to be issued by the company and does not trade anywhere and can solely be used for the blockchain service, it is a utility token.
The RATE can solve many of the anxieties companies have when venturing into the ICO world. It offers the right protection and value creation for the investors, and it also provides them with a perk (the utility token) for being early investors.
The state of the token sale market as of 31-March-2018
The figures below were sourced via the Elementus Protocol, an expert system that extracts and interprets transaction data directly from the blockchain (full methodology). In contrast, most token sale statistics available online rely strictly on third-party reported amounts, which may be outdated and in most cases will exclude projects that do not report their fundraising.
As a result, the fundraising stats shown on this page are more accurate and complete than any other estimates we are aware of. And the aggregate totals are substantially larger.
Over $23 billion has been raised to date via token sales
In just the first 3 months, 2018 token sale fundraising has already surpassed all of 2017
The first quarter of 2018 saw $14.2 billion raised via token sales vs. $9 billion raised in all of 2017.
Jan16Feb16Mar16Apr16May16Jun16Jul16Aug16Sep16Oct16Nov16Dec16Jan17Feb17Mar17Apr17May17Jun17Jul17Aug17Sep17Oct17Nov17Dec17Jan18Feb18Mar18$0k$1bn$2bn$3bn$4bn$5bn$6bn$7bn$8bnFunds Raised$300k$0k$12m$500k$171m$2m$3m$11m$30m$13m$20m$8m$6m$23m$7m$80m$238m$575m$954m$542m$1,204m$1,348m$1,429m$2,551m$2,558m$4,835m$6,807mToken Sale Fundraising Volume by MonthTotal funds raised, Jan16-Mar18
After a dip in December, the number of monthly token sales reached a new high in March
Jan16Feb16Mar16Apr16May16Jun16Jul16Aug16Sep16Oct16Nov16Dec16Jan17Feb17Mar17Apr17May17Jun17Jul17Aug17Sep17Oct17Nov17Dec17Jan18Feb18Mar18050100150200Token Sale Count102132257488465132129415785109140140109172174Number of Token Sales by MonthCount of token sales, Jan16-Mar18 (min raise $100k)
Fundraising amounts were sourced via the Elementus Protocol, an expert system that extracts and interprets on-chain transaction data.
Fundraising amounts were converted into USD at the prevailing cryptocurrency exchange rate at the time the sale closed. Contributions to the EOS ICO, which has been ongoing since June, 2017, were converted daily at the ETH-USD exchange rate.
Funds raised through token-convertible securities were sourced from SEC filings and the Petro figures are as reported by Venezuelan president Nicholas Maduro.
That’s because security token offerings will do more than simply provide a legal path for companies seeking to offer new cryptocurrencies. A security token can be linked to virtually any type of investment, such as stocks or commodities.
One of the primary STO platforms, Polymath, estimates that security tokens will soon outdistance the now-dominant “utility tokens” like Bitcoin. Polymath sees security tokens exploding to a value of $2 trillion in 2018 alone and $10 trillion by 2020.
Last year, ICOs drew a lot of investor attention by raising millions of dollars in seconds. Just in 2017, ICOs raised more than $5.3 billion worth of capital. The largest, Filecoin and Tezos, raised more than $200 million each.
But there was a problem…
Where ICOs Hit a Snag
ICOs took regulators by surprise. As something new, ICOs didn’t clearly fall under any existing rules. Even after coin offerings started raising millions of dollars, regulators were slow to react.
That opened the door to scammers, who quickly discovered you could conduct an ICO, pocket a few million dollars, and disappear.
The rise of bad actors drew the scrutiny of the U.S. Securities and Exchange Commission (SEC). The SEC issued a warning about ICOs last July after investigating Ethereum’s DAO fiasco of 2016.
The SEC concluded the DAO was an illegal offering of a security. This was a hint of what was coming. The agency issued further warnings in August and November.
The November warning reminded investors of the DAO investigation, noting “the Commission warned that virtual tokens or coins sold in ICOs may be securities, and those who offer and sell securities in the United States must comply with the federal securities laws.”
By December, the SEC was taking action. On Dec. 11, the SEC announced it had halted the Munchee Inc. ICO; in January, it seized the assets of AriseCoin, calling that ICO fraudulent.
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At a U.S. Senate hearing in February, SEC Chair Jay Clayton summed up how far the agency had come.
“I believe every ICO I’ve seen is a security,” he told the Senate Banking Committee.
At the end of February, the SEC sent subpoenas to as many as 80 companies and individuals involved with ICOs, according to The New York Times. In March, the SEC warned cryptocurrency exchanges against trading “unregistered securities” – in other words, ICOs the SEC considers securities.
The SEC’s hard line could have spelled the end of ICOs, at least in the United States.
But the SEC isn’t trying to ban the use of cryptocurrencies to raise capital. In his December memo, Clayton acknowledges ICOs “can be effective ways for entrepreneurs and others to raise funding, including for innovative projects.”
And the SEC has always offered another, legal option – which is where security token offerings come in…
How Security Token Offerings Solve the Problem with ICOs
These include “Regulation D,” Regulation A+,” and crowdfunding.
The main reasons no one bothered was because using these alternatives:
Required more effort
Required more money
Included various limits and a holding period before the security can be resold on secondary markets (typically 12 months)
But with the SEC cracking down, the JOBS Act options – particularly Regulation A+ – look much more appealing.
Security token offerings are likely to use Regulation A+ for several reasons:
Two Tiers: STOs can choose Tier 1, with a $20 million limit, or Tier 2, with a $50 million limit. The higher limit comes with stricter filing requirements.
Open to All: Any investor is eligible to participate in a Tier 1 security token offering. For Tier 2, a retail investor is limited to 10% of their annual income or net worth. Most other alternative forms of raising capital are restricted to well-heeled, accredited investors.
No Holding Period: Unlike Regulation D and crowdfunding offerings, Regulation A+ has no restrictions on how long an investor must hold the new security. If a Regulation A+ security is trading on an exchange, you can sell it whenever you want.
STOs will also help weed out bad actors. The filing requirements with the SEC, as well as the cost – in the hundreds of thousands of dollars, depending on the size of the offering – will deter the fly-by-night operators that have plagued the ICO space.
But as I noted earlier, security token offerings are much more than a way for cryptocurrency tokens to become SEC-compliant.
They’re going to open the door to a dramatic shift to the very nature of investing…
ICO is an Initial Coin Offerings. It is a decentralized means by which funds are raised for a new cryptocurrency venture. ICO is a method of raising funds by selling crypto tokens on a project which is empowered by a blockchain. The funds are raised in the form of cryptocurrency such as Bitcoin, Ethereum, Dash, Waves, Ripple and so on.
ICO is a fundraising mechanism in which new projects are sold with their underlying crypto tokens in exchange for cryptocurrencies such as bitcoin and ether. The ICOs are a comparably new phenomenon and have become a prominent topic of discussion in blockchain community. The ICO is utilized by startups for rigorous and regulated capital-raising process which is required by venture capitalists or banks.
As ICO are flourishing in the market it is difficult for ICO owners to list on the leading website. This article recommends top 10 ICO listing company in the market. Before, listing ICO on the website, the users must register their name on the website and proceed with the same. Here is a ballot of top ICO listing companies which is as follows:-
1.ICOClap:– ICOClap is one of the leading ICO listing company. During the process of fundraising, one can list its ICO. The platform provides unique information about all the ICO. The ICOClap has voluminous particulars of the leading ICO’s. The website is giving relevant data of the ICO with reference to their website. The platform equips emblematic information of the ongoing ICO’s; upcoming ICO’s and closed ICO’s.
2.ICO Rating:- ICO Rating is ICO rating firm which aids users to approach a independent analytical research, evaluate ICO projects and then rate the ICO. ICO Rating goals to advance clear assessment standards for projects and assign rating which is based on transparent and standardized scale. It is guiding users to achieve necessary measures of quality, transparency, and accuracy.
3. ICO Alert: — ICO Alert is a trusted ICO disclosure platform for active and upcoming Initial Coin offerings. ICO Alert automatically analyzes individual ICOs and contributors to check the contribution address, and then specifically verifies particular ICO and checks the authenticity.
4. ICO Bench:– ICO Bench is one of the dynamic ICO listing platforms; it has various sources to list ICO in the platform. It rates the particular ICO and monitors the ICO for improving its efficiency. The ICO owner can associate themselves with the ICO professionals that do a thorough research on the graphics, technical, legal and marketing support.
5. ICO Drops:- ICODrops is enclosed in 3 columns such as active ICO’s, upcoming ICOs and Ended ICO. This specifies the status of current ICO and explores every project. The rating system is based on the interest level of the investors. The interest level is a rating system that is designed to inform users about the noteworthy token sales.
6. CoinSchedule: — CoinSchedule is making easy for users to search the genuine ICO. The team provides efficient and translucent information on ICO’s. It aids users to find the project which has a great potential for achieving success. CoinSchedule has a feature called ICOrank, it is an algorithm that provides users to measure the operational risk of ICO’s.
7. Crypto Compare: — Crypto Compare is an interactive platform. The users and ICO owners can discuss latest Crypto trends and audit marketing stream in real time. The company is enclosed with 5 pillars to construct the platform with features like data integrity, easy to use, Scope of Data, Social interactivity, and Design.
8. ICOCountDown: — ICOCountDown throws light on new crypto projects which target on crowdfunding methodology. It also oversights vagueness over to verify the activity of ICO projects. The data and times of crowdfunding are mentioned on the dashboard.
9. Token Market:- Token Market is a consolidated platform for research, purchase and trading tokens in the blockchain market. It is a marketplace for listing token, blockchain and digital assets which are based on investing. The user can thoroughly research the site and invest in the tokens or launch a crowdsale for given project. Token Market provides information about the decentralized funding projects
10. CoinGecko:- CoinGecko is a cryptocurrency chart app which grades digital currencies by a developer activity, community, and liquidity. CoinGecko gathers relevant data which is required to quantitatively and qualitatively rank the competence of cryptocurrency. The team is planning to benchmark the coins which are based on the algorithm and determines the value of a coin when compared to its peers.
There are many ICO listing companies growing in the market, but these organizations are considered to known as Top ICO listing companies. They properly research, analyze and then list the ICO on their website. Nowadays, ICO owners, Users find it difficult to check the authenticity of ICO, So this article will help them to invest in accurate ICO.
Scam: Expressed availability of an ICO without any intention of following through, or was determined by communities to be a scam.
Failed before launch: Did not complete the ICO process, either because it failed to hit the soft caps or otherwise was abandoned before reaching targets.
Dead pre-launch: Succeeded in raising funding, but has not had a code contribution on Github in the three months since.
Of those that made it into exchanges, they were categorised according to three success criteria and only included tokens in the $50m to $100m range. Dwindling coins achieved none or only one of the following criteria, promising coins managed two and successful coins managed three.
Beta, at least, deployment of a distributed ledger or product.
Posted a transparent project roadmap on the website.
Had Github code contribution activity in a surrounding three-month period.
There are different ways of studying and categorising ICOs, and this might be one of the more thorough examinations of ICOs from the initial announcement.
Others have found that most projects die within a year of launch, but put the rate of outright scams much lower. The exceptionally high number of scams uncovered by this study is probably because it counts all projects that were announced, rather than the ones that actually raised some funds.
The success rate of ICOs might be slightly lower than other measurements here because it only measures coins with a market cap of $50m to $100m. If there were any exceptionally successful ICOs in this study period they might not have been accounted for. Similarly, neither are the unsuccessful ones.
Disclosure: At the time of writing the author holds ETH, IOTA, ICX, VEN, XLM, BTC, XRB
This information should not be interpreted as an endorsement of cryptocurrency or any specific provider, service or offering. It is not a recommendation to trade. Cryptocurrencies are speculative, complex and involve significant risks – they are highly volatile and sensitive to secondary activity. Performance is unpredictable and past performance is no guarantee of future performance. Consider your own circumstances, and obtain your own advice, before relying on this information. You should also verify the nature of any product or service (including its legal status and relevant regulatory requirements) and consult the relevant Regulators’ websites before making any decision. Finder, or the author, may have holdings in the cryptocurrencies discussed.
FinCEN’s letter to Congress asks for ICOs and supporting entities such as exchanges to be classed as money transmitters
This classification would place the majority of ICOs in violation of federal law
Money transmitters have to comply with multiple AML and KYC laws
FinCEN (Financial Crimes Enforcement Network) a U.S. agency has stated in a letter, published Tuesday, that suggests they will apply existing regulations to all ICO participants.
The letter was sent to the Honourable Ron Wyden – FinCEN’s assistant secretary for legislative affairs – and it suggested that developers and exchanges that interact with ICOs should register as a money transmitter. This would involve complying with a lengthy list of AML (anti-money laundering) and KYC (know your customer) regulations.
The implications of money transmitter law are arguably greater than U.S securities law as money transmitter law applies to a greater number of entities than securities law. An excerpt from the letter reads:
“Generally, under existing regulations and interpretations, a developer that sells convertible virtual currency, including in the form of ICO coins or tokens, in exchange for another type of value that substitutes for currency is a money transmitter and must comply with AML/CFT requirements that apply to this type of MSB. An exchange that sells ICO coins or tokens, or currency, would typically also be a money transmitter”
The upshot of this proposal would mean any entity that helps facilitate an ICO or its secondary market trading (exchanges) would be breaking felony laws if they fail to register with FinCEN as a money transmitter. The issue is these regulations are time consuming and expensive to comply with, which risks stifling innovation.
Lack Of ICO Taxonomy
The letter did not go into any detail as to how they plan to define which ICOs would classify as a money transmitter. The letter has left this broad and it was mentioned that each ICO was unique:
“ICO arrangements vary. To the extent that an ICO is structured in a way that it involves an offering or sale of securities or derivatives, certain participants in the ICO could fall under the authority of the SEC… or under the authority of the CFTC”
Switzerland has taken a different approach in its report published by the FINMA (Swiss Financial Market Supervisory Authority) where it laid out a framework for categorising ICOs. As payment, utility or asset tokens.
The Swiss report gave a wide definition for asset tokens which they classed as securities. Importantly they also clarified that each ICO could be a hybrid token that resides in multiple categories, therefore ICO reviews should be carried out on a case by case basis. For all intents and purposes the report classifies the majority of ICOs as securities.
Currently the ICO regulations are hugely varied across the major financial jurisdictions. It is clear that a great level of understanding and an effective taxonomy of ICOs is required before hard and fast rules are created.
An initial coin offering (ICO) is a fundraising method that trades future crypto coins for cryptocurrencies which have an immediate, liquid value. Usually, a percentage of the tokens is sold to ICO participants and a percentage kept for the company’s needs (private investors, etc. Terms differ from one ICO to another). An ICO allows both big and small investors to fund the projects they like. The recent year carried thousands of successful ICO stories. The motivation for the project is obvious. The motivation for the investors of the ICO is that the price of the token would be higher (or much higher) than the token’s price during the ICO.
ICOs are really hot among the crypto investors. Recently, Hdac and Filecoin collected respectively astonishing amounts of $258 and $275 million. The success of an ICO is influenced by many aspects. Investors should bear in mind following key elements discussed in this article.
At this point it is right to mention less successful stories like the Mycelium ICO. Its team members just disappeared after raising the money, and later it was reported they used the funds to pay for their own vacation. The lack of regulation might be one of the reasons it happened. Just days ago, $7 millions were stolen as CoinDash’s ICO started. Right before the start of the token sale, their website was hacked and the ICO wallet address was changed to the hacker’s address.
This article will discuss the main keys to pay focus on when evaluating an ICO investment.
* Important warning before we start: ICOs are a high-risk way of fundraising. Never invest anything you can’t completely afford to lose. Keep in mind that due to a lack of regulation, you will have difficulty getting back your lost money in case of any failures.
1 – Team Composition
Find out everything you can about the team, especially the development team and the advisory board. Look up each team member for relevant experience. Google their names. Visit their LinkedIn profiles. Look for famous names among the advisory board of the project. Find out if the team has any crypto experience and more importantly – in which projects, or ICOs, they were involved with and the impact they had.
2 – Bitcointalk.org Thread
A good starting point is the project’s announcement (ANN) thread on BitcoinTalk.org, as Bitcointalk is the biggest forum for Bitcoin and crypto related issues. It is strongly recommended that you read the messages carefully. Investor’s concerns will be answered (or may be unanswered) in this thread. It is a bad sign when the developers avoid answering certain questions or aren’t collaborating. Sending devs a personal message to see how responsive they are is also a good idea.
Each message on Bitcointalk contains the rank and activity degree (number of past messages) of the sender. Be aware of newbies and low-ranking writers. Reputation has become very important and significant.
Be aware of experienced writers comments, and also look for negative messages, sometimes it could be a warning sign. Use Select [All] to see all comments in the thread and use CTRL + F (Windows) to search for red flag words like ‘scam’, ‘con’, ‘MLM’. See the relation between the search results and the total number of replies as can be seen in the following live example:
3 – Stage of the project and VC investments
Evaluate the stage of the project. Does it only have a whitepaper? A beta version? Is there a launched product with limited functionality? Prefer projects which have “some lines” of working code, however, many ICOs have proven they can become success stories without any code written.
VCs (venture capital) tend to invest and support projects from early stages. Look for this information usually on the main page of the project’s website. It’s likely to be considerable if a well-known crypto VC is involved, like Blockchain Capital or Fenbushi (belongs to Vitalik Buterin – founder of Ethereum).
4 – Community and Media
It is crucial to have a wide open supporting community like a public Slack for all investors. Openness is as crucial in gaining our trust as the Github code. Try to grasp the atmosphere within the community. Look at the size of the community and its activity.
Source: Slack community QRL – #trading channel
Other sources like Reddit, Twitter or Facebook can be relevant when evaluating the project. Be aware of bounty posts. It is a common practice to launch a bounty thread to reward users for spreading positive information about the project to increase media coverage, or to help out with translations. These bounty threads can stimulate the hype around the project but they are not very objective. On the other hand some investors participate only for some tokens.
5 – What do they need the token for? Is the blockchain necessary?
ICOs mean the creation of a new dedicated token for the project. One of the most important questions each project needs to answer is what is the token for? Why isn’t Bitcoin or Ethereum enough to serve as the project’s token? Yes, many projects just make up a scammy story. Hey, an ICO can’t be an ICO without a dedicated token. The same question needs to be asked regarding the use of the blockchain technology behind the project.
6 – Unlimited / Hard cap
In the early days of crypto ICOs, the difference between open and hard cap didn’t have the same impact as today’s ICOs. An open cap allows investors to send unlimited funding to the project’s ICO wallet. The more coins are circulating, the less unique your tokens become for the trading afterwards – through less demand.
As ICOs become mainstream within crypto land, enormous amounts are collected. Take a look at Bancor, this project raised an astonishing $150 million in just three hours. This resulted in no percentage gain for the investors. Keep that in mind when participating in ICOs with no cap.
On the other hand, you don’t want to be the only one investing in the project. Exchange’s have much less interest in projects that raise very little, which makes it harder to sell these tokens after release.
7 – Token distribution – when and how
Greed can be defined by a high token distribution to the team members, let’s say, more than 50% of the tokens is suspicious. A good project will link its token distribution to the roadmap. Because each phase or milestone of the project requires a certain amount of funding.
Watch for the token distribution stage. Some projects just release their tokens hours after the ICO has ended. Some projects need to develop a beta version before sending out the tokens. If you look at the percentage gain of Etherium (one year between ICO and token distribution, around 500% gain), Augur (1+ years, 1500%) and Decent (8 month, 350%), sometimes this break creates a very positive hype around the project.
8 – Evaluating the Whitepaper
Most typical investors actually don’t read through the whitepaper, even though it contains all the necessary information about the upcoming project and the ICO.
Don’t hesitate to read it, or at least the majority of it. Note the strong and negative aspects and add in some of your own research. In the end, the whitepaper is the silver platter to potential investors. After reading it you should be able to answer a simple question – what kind of value does this project bring to our world? You’ll also learn what you’re investing in.
9 – Quality of the code – Meet Github
If you have a little bit of programming experience, you should be using it here. The quality of a developer can be understood by analyzing some of their code. As a non-techie, it is still possible to evaluate their quality by looking at the consistency of the code. Another good indicator, is the usage of proper commenting. Avoid messy developers. A piece of code reflects the attitude of a developer.
Next, the length of a function is another indicator. A function containing more than 50 lines of code should raise a red flag. Modularity is important and makes the code more readable and maintainable.
Crypto projects tend to have open-source code. This creates trust among the project’s community, encouraging devs from the community to make suggestions or improvements. An open-source project provides the opportunity to look at the commit logs. A commit is essentially developer slang for pushing a piece of code to the Github code repository.
You can see each commit by clicking on the text saying “366 commits”. This allows you to investigate each change. The “Insights” tab gives you a more general summary of the developers activity. This tab shows a graph with the amount of commits daily. Beneath the graph, you can see the activity of each developer individually. This information is key for investigating the development team.
It is even possible to see how popular the project is by looking at the amount of stars it receives.
Bonus: Ask yourself why the project chose to run on the specific blockchain. Whether it’s on the Bitcoin’s blockchain, Ethereum’s (smart contract), Waves, and more. Recent months have shown the rising popularity among the ERC-20 Ethereum based smart-contract’s ICOs. These tokens can be stored easily on Ether’s based wallets (like MEW – Myetherwallet), sometimes they don’t require exchanges to be traded, and they usually have high liquidity.
10 – The Bottom Line
ICOs will become more and more ‘mainstream’ as a method for raising funds. There will be plenty of projects to choose from, hence it will become even harder to assess these projects.
It is key to investigate and read as much information as possible and write down all the important aspects, positive and negative, before making an investment decision.