January 6, 2019 by Paul de Havilland
Binance’s recent efforts to breathe life into the crumbling ICO market with Binance Launchpad are admirable, but will they be able to resuscitate the ICO market? Many list ICO mania and the subsequent token collapse as at least partially responsible for the price meltdown 2018 bore witness to.
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Binance Not Taking a Step Backward in Propelling the Industry Forward
Binance announced on January 3rd that it plans to create a platform for ICOs, which will have significant documentation requirements and a grueling vetting process by the exchange itself. The project, which aims to re-legitimize the much-maligned, token-driven startup funding method will list new token launches monthly, beginning with BitTorrent and Fetch.AI.
2018 was not kind to ICOs–the craze of 2017 which was responsible for much of the hype surrounding crypto that drove prices to all-time highs in December of that year. And rightly so. A late December article in The Wall Street Journal found 16 percent of all cryptocurrency projects–not limited to, but including ICOs–were in one way or another fraudulent.
ICOs fared even worse in the Satis Group’s assessment, with a whopping 81 percent defined as “scams”. (Satis defined “scam” more broadly.) The common theme among cryptocurrency over the past 12 months had been that 2017 was the year of the ICOs, and 2018 would be the year institutional money flowed to crypto.
While there is some evidence institutional money has begun to enter the space, ICO fraud was probably largely responsible for the dent in enthusiasm for digital assets, and the year-long bear market.
Goldman Sachs and its ilk are unlikely to tweet their intentions for public consumption. They are also likely to use over-the-counter markets, so it is largely a matter of guesswork as to whether institutional capital entered the space quietly during the slump, or steered well clear. Either way, it failed to drive up prices of cryptocurrencies as many had predicted and hoped for.
ICO FOMO Caused Immense Harm to the Crypto Arena
If Binance Launchpad can integrate the initial coin offering into a mainstream funding mechanism, it will have done an incredible service to the crypto ecosystem. But too much damage may already have been done by the breathtaking level of fraud that took place during the 2017 ICO boom.
Some may compare it to the .com bubble, but there is a distinct difference. ICOs offered no equity. At least in a speculative IPO investors received equity in the company they were investing.
Too many ICOs have been little more than kickstarter campaigns on speed–aspirational products, with widely inflated valuations based on a set of metrics they themselves had the luxury of making up, ranging from the sublime to the ridiculous, and conducted all-too-often by people doing little more than trying to extract unsophisticated investors’ hard earned money from them.
This was especially true of ICOs purporting to offer a service that did not actually require a token. The “greater fool theory” was the only thing driving demand for initial coin offerings. No regulation, internet enabled anonymity, and greed drove the industry to absurd highs.
Will Binance Launchpad Offer a Solution?
While not the first venture to try to impose standards on the ICO arena, Binance Launchpad at least provides some chance genuinely valuable companies will be able to use the mechanism to raise funds.
Bit it faces a significant uphill battle. If the industry remains unregulated, it will remain susceptible to market manipulation and “pump-and-dump” schemes. If it becomes regulated, most ICOs fit the definition of securities, and will have associated compliance costs and expectations to contend with.
And with regulation, trading in most ICOs as they stand will become illegal, causing a flight from them by law-abiding citizens and their immediate delisting by exchanges–causing their prices to fall to zero.
Binance, and CZ himself, deserve respect for trying to rescue the industry from itself and bring legitimacy to the digital asset economy. Sadly, they may have arrived at the party a little too late.
One can’t help but wonder if Binance is trying to reach out to people whose fingers have already been burned. About a year too late, at that. If it does succeed, regulation–which is coming whether we like it or not–will act as yet another roadblock.
Having said that, if anyone is capable of legitimizing ICOs, Binance is it.
Have your say. Will Binance Launchpad bring legitimacy to a sub-sector scarred by astonishing levels of fraud?
Images via Pixabay