The ICO market has reached a peak. The number of projects and the funds being raised are increasing each month. You can find our monthly ICO analysis here.
But what will happen next? What nuances direct the ICO market? What problems do ICOs face? What should a startup consider before launching an ICO campaign?
In this article, we will try to answer these questions.
ICO Trends for 2018
The market will see massive regulations
Next year, we will see a few huge waves of regulations in the crypto-market, triggered by the increase of ICOs failing to fulfill their promises to investors. Several lawsuits have already added volume to this wave, the most recent case being BitConnect.
- Many startups that have launched ICOs will not be able to fulfill their obligations and will go bankrupt. This will cause a wave of state regulations and a tightening of the entire ICO procedure.
- The ICO market growth will slow down, but in the long run, scam projects will be cleared out and the market will continue to grow.
- Regulations will increase the demand for ICO lawyers and create new precedents for regulation processes.
- These measures will protect investors from potential fraud and set preemptive limits for small businesses to raise initial funds for MVP development.
- There are no clear regulatory frameworks for utility tokens. SAFT (Simple Agreements for Future Tokens) can offer some protection from the SEC (Securities and Exchange Commission), but it’s still not enough. We expect additional legal instruments to enter the market.
- In 2018, we can see the breakout of fully compliant security tokens. There are some projects already working on this, such as Polymath, Templum, TrustToken, Securitize, etc.
- As a side solution to regulations, we have seen the rise of crypto-offshores, where countries and jurisdictions compete to attract crypto funds using local infrastructure. Crypto projects may be drawn towards tax havens and incentivized business schemes, which are already popping up in Belarus, Estonia, and Kazakhstan. Similar conditions will likely be proposed by the big players in the global economy.
Traditional investors and financial institutions will join ICO funding
For a long time, blockchain technology was developed by and for geeks and did not overlap with traditional business.
After all the regulations are set, we might see ICOs rise from traditional sectors, with investors swarming in from financial institutions. Huge enterprises such as Telegram, Kodak, Hyundai are already entering the market with a blockchain “extension” for their products.
- Huge enterprises will start joining the market by implementing blockchain solutions on top of their existing business models, which will bring a lot of corporate funds to the crypto-market.
- Traditional financial institutions will continue to accept and work with digital assets. As an example, we can look at Bitcoin futures from CME (Chicago Mercantile Exchange) and CBOE (Chicago Board Options Exchange).
- Venture capitalists will begin actively participating in crypto projects through private funding and by creating their own crypto-funds.
- Closed pre-ICOs and regulated ICOs with large entry barriers will attract more funds than the main ICO rounds. This will apply to projects with cemented reputations and functional products.
- Some ICOs don’t actually need wide token distribution, depending on the token economy (e.g., B2B usage, service tokens, region specifics, etc.). These ICOs are better off focusing on medium- and long-term holders (institutional investors in most cases) and partnerships than short-term speculators.
- ICOs will become more like traditional venture investing, where most of the funds come from large investors.
- As has always been the case, the big investors will primarily focus on infrastructure projects that will serve as the basis for future applications built upon them.
ICO campaigns will require much more preparation
To meet their goals, projects will need to adjust their strategies. We hope to see some decent projects come into play with strong products and all the necessary compliances.
- More ICOs will start with solid working products and a well-designed token economy. These projects will pay additional attention to consensus mechanisms and to creating infrastructure for their community, measures that will make the projects more flexible in the long run.
- In addition to the presale stage, ICOs will be divided into key phases, collecting funds for specific purposes pre-defined in the roadmap. In general, we will see longer ICO durations, as the procedure will be stretched into several phases.
- Projects will set more realistic or lower caps for ICOs. In addition to hard and soft caps, we will see target caps being set, with predefined commitments.
- Conservative investors joining the market will require more formal documentation in addition to white papers. This will encourage projects to commit to thorough preparation.
- ICOs will increasingly conform to KYC and AML procedures to guarantee the trust of potential investors and regulators.
Investors will become more astute to crypto, backed by regulatory norms
The investment climate will improve for the average investor, with regulations clearing the market of illegitimate ICOs and ultimately making investments in crypto assets more reliable.
Investors will review ICOs more thoroughly before making a move. Although ICOs will primarily focus on large investors and private sales, there will still be room for small investors. The average ROI will drop but remain much more lucrative than the stock market.
- The whole procedure will become easier and more secure for small investors.
- We expect the emergence of simplified services for non-professional investors, such as simplified exchanges, wallets with better UI/UX, and easy-reading media portals. These instruments will target newcomers with little knowledge about the industry.
- The quantity and quality of the rating agencies and ICO aggregators will increase, becoming the main source of information for small- to mid-sized investors.
- Contributors will start evaluating post-ICO traction – the team’s compliance with the declared roadmaps.
- More participants will begin to enter ICOs for the utility of the token itself rather than waiting for speculative price growth.
- We expect to see alternative token-distribution models incentivizing utility usage and cutting speculations, like faircoins (cryptocurrencies with a large distribution through rewards or airdrops), and more creative models like Earn, Gems, SteemIt, Golos, etc. These platforms incentivize users by rewarding them for leaving reviews and product insights, etc.
- Vitalik Buterin’s DAICO and similar interactive coin offerings that protect investors could come to fruition.
Companies will seek to optimize marketing expenses
ICO marketing expenses have already come closer to IPOs, but additional costs will be required to cover legal risks. The entire ICO market will become more organized, so we won’t see the majority of projects collecting millions for a shoddy white paper and landing page. The enormous ICO boost overwhelms all traditional marketing channels. Facebook banned ICO advertising, which will encourage ICOs to search for alternatives.
- KPI-tracking marketing activities will emerge as opposed to over-the-top spending. ICOs will try to understand what generates the actual sales leads (token purchase, brand recognition, etc.).
- Community management will be essential to bring in investors; providing users with a good explanation about investment guides and additional info about the product is essential for converting leads.
- The focus may shift from niche crypto-channels to traditional publishers and agencies. These promotions will target mainstream audiences, not just the crypto community.
- ICOs will commit the majority of their budgets to roadshows and crypto events. The increasing number of closed sales with private investors will require face-to-face communication.
- Crypto will engage with celebrities to promote ICOs via their personal social handles, as seen with Dennis Rodman and PotCoin.
- Projects will continue to shift their marketing activities to bounty campaigns — whenever possible — for significant rewards with tokens.
- Marketing will focus more on the future value of the product rather than just selling tokens.
- ICOs will dedicate a large portion of their budgets to safeguarding against security threats. There will also be an increased interest in external audits and gaining trusted ratings.
- We expect more airdrops in the future, which will become an easy way to invite newcomers to ICO projects and a good way to showcase utility.
The ICO market will continue to grow in 2018
The market will continue to grow throughout the year. We expect projects to create even more innovative services and solutions.
- The total number of ICOs will grow.
- The median value of collected funds will increase.
- The number of successful projects (i.e., projects reaching their goals) will increase.
- Bitcoin dominance may continue to decrease. More altcoins, backed by good products, will become more independent from major currencies. This may incentivize BTC and ETH holders to invest more in upcoming ICOs, expecting higher ROI than from main cryptocurrencies.
The backbone of successful ICOs in 2018
Based on the trends above, we identified the most important factors to be taken into account when starting a new ICO in 2018. Investors can evaluate ICOs according to the following metrics.
The team is always the most important asset. Apart from tech professionals, each ICO should consider inviting industry experts and blockchain advisers to ensure trustworthiness. ICOs should also focus on celebrity endorsements to build brand awareness. The following should be incorporated into an ICO team:
- Team members with a proven track record of expertise in traditional business.
- A diversified engineering team.
- Reputable advisers and brand ambassadors.
There have only been a few real blockchain use cases so far. To succeed, ICOs should provide well-designed MPVs with the token economy essentials. Token necessity should be justified. The below elements should be considered and incorporated:
- The business’s background and a functioning product.
- A concise white paper and technical specifications.
- An assessable MVP or at least a high-fidelity prototype.
- A well-designed token economy with a justified need for tokenization.
- Examples of real-world implementation.
- Realistic soft/target/hard caps.
- Open-source code and activity on GitHub.
- An external project and code audits.
- An asset that does not go against major compliance obligations.
There is lack of trust in the overall ICO market. Many teams do not provide any information or status updates after raising funds. Projects should maintain communication with the community and provide guarantees of proper fund usage.
In such a dynamic market, system updates will inevitably be required, so ICOs should provide communities with a clear definition of forking procedures and update when necessary. ICOs should put the following things forward to give investors peace of mind:
- A self-sufficient business model developed on top of the token model.
- A well-defined approach to working with forks and software updates.
- A clear consensus mechanism and governance procedure for PoS models.
- Future funding plans.
- A roadmap with different scenarios depending on the amount of funds raised.
- Team-share freezing period.
PR / Marketing
PR still means a lot for every ICO project. Up to 80% of funds raised in preliminary rounds go toward marketing. As an overall market, ICOs should choose KPIs and the marketing channels that are best-suited to their projects. The most effective marketing efforts are the following:
- Community management.
- Personal blogs and other social media activity of project leaders.
- Digital marketing and advertising.
- Roadshows, crypto-events, and meetups.
- Partnerships with huge companies, opinion leaders, and celebrities.
- Communication with large investors before the ICO/pre-ICO.
- Bounty campaign and airdrops.
- Listings in trusted aggregators; external analysis of the project.
We expect the ICO market to continue growing despite regulatory issues. Although the enormous profits from last year will decrease, ROIs for ICOs will still be stronger than the stock market because of the several major players from traditional markets investing substantial capital and thus boosting market capitalization.
Regulation will also be advantageous to small investors, as their funds will be protected by local laws. We also note that projects’ marketing should focus more on creative and PR channels.
From this, we can predict two major trends:
- Private pre-ICOs will start collecting more funds than the main ICO rounds. This will be mainly achieved by enterprises who already have functioning products.
- We predict an increasing number of small, successful ICO campaigns with low caps. These funds will be sufficient to launch a blockchain business with a real need for tokenization. There will be space for small investors from all over the world.
Some ICO mechanics will be changed to fit these new procedures, and we will see better products with real business applications. On average, projects will be more successful. You can check out our approach to evaluating ICO success in our monthly ICO reports.