I’ve been getting a bit jaded in the depths of this correction. With all of the exuberance garnered last year for ICO’s this year has seen many projects fall flat post launch. Just this past week, Atonomi, One Ledger, and Cardstack all launched their token, only to see it trade at 50% of ICO price. Much of this has to do with the repricing that occurred between then and now, as Ethereum has fallen more than 50% in that time period. Additionally, bonuses and discounts drove private investors to sell off to recoup their initial investment for fear of continued bearish market conditions.
Looking back on some of the projects I’ve either invested into or have looked at in the last year, it’s becoming more and more clear how many shitcoins there really are. With the advent of ERC20 tokens, there was an explosion of projects claiming to solve all of our problems with the blockchain, AI, machine learning, etc. Most of the claims were terribly overstated, however, with token prices going 10-100x on launch, who could argue with the reasoning against the fundamentals pricing them vastly lower. Bitcoin failing to break 20k brought the market back to earth, but on the ICO side, valuations for companies have yet to return to normal. Routinely still I speak with founders who want to raise 20-30 million for their project, without even having built an MVP. With the viewpoint of “Raise money now, build it later,” investors are going to be seriously hurt.
I’ve taken a strong stance recently to not invest any more into ERC20 tokens. I’ve yet to see one project utilize them in a way which is not simply for payment, nor has their long term value against Bitcoin proven to be greater. Shitcoins make for great trading. In a day, the price can fluctuate wildly, benefiting those who get in and out quickly. This is a long way from last year when most, if not all of the projects I was reviewing were ERC20 tokens.
Maybe I’m jaded. It’s been a long way down from the top.
I will say that there are diamond tokens in the rough which I believe have lasting long term value (Enigma, Loom, Kyber, Poly, Blockmason, etc). But I balk now at anyone raising funds for a token which doesn’t satisfy the following requirements:
- MVP/Beta published and ready to launch with token
I can’t believe how many projects raising right now have no product to actually ship at the moment. One of the first things I do is open up Github to see what, if any code has been published. Of course many projects hold back their repositories to prevent copying by other projects, but at this point it’s reaching an inflection point where almost no new project is releasing any code at all. Just take a look at this handy list made by Andre Cronje:
- Low Raise
Put simply, if you are raising capital for an ERC20 and the hard cap is over 5-8 million, it’s an instant pass for me. Even that may be too high. Just a few years ago, if I wanted to build an app, the maximum I’d be able to raise would be a few hundred thousand dollars in order to create an MVP. Then, once it launched, the next round would bring in 2-5 million depending on the revenue streams. Now, many of those same app developers are simply adding a token and jacking up the initial raise to 20 million. Having a long runway is great, but at the same time, every dollar the valuation climbs, the less potential for returns are sucked out of the token.
This may seem oddly out of place, but I think many token holders forget that there are businesses underlying most projects and that to survive in the real world, they need to be drawing in revenue. If a company derives their income from the use of a Dapp no one uses, or if they have no product, or if they can’t secure any outside enterprise use, they are going to fail. Traditional business models don’t go out the door when tokens are introduced.
Extra points (Cheating)
Market Makers – I hate to put this here, but without a liquidity provider, tokens die. Just take a look at the three tokens which I listed above, none of them had market makers and are now suffering a slow untradeable death (hopefully short term). It’s unfortunate that I have to list this, but MM’s are now a general requirement for getting listed on most major exchanges. It’s full well known that liquidity and volume heavily play into token price, so artificially boosting it can greatly impact short term price outlooks. Once the MM steps away though, it’s back to low liquidity normalization, thus turning into a highly sophisticated pump and dump.
Don’t get me wrong, I love the markets right now. There is enough liquidity in the top 10 coins (BTC, ETH, EOS) that money can be made everyday with leveraged trading. While I’ve been burned a few times lately, it’s much more enticing to me to have the ultimate say when I cash out, rather than dispensing of my funds for a few months and then hoping on a multiple return. There are always opportunities in the markets, ICO’s just aren’t them at the moment. Let’s see if this changes over the next few months.