Investors will consider ICO-projects as long-term and thoroughly study the experience of founders and possible ways of development. Emerging barriers can potentially correct the market and lead to an improvement in the quality of projects. This will attract more institutional investors into the crypto industry.
In the early days of the ICO, many had high hopes for a low tokenization barrier, designed to democratize access to finance. Indeed, tokenization implies that any entity can freely issue its own currency, which can be supported simply by the idea or the reputation of the founders. Once issued, tokens can easily trade in open markets, which makes ICO an excellent form of financing compared to traditional VC.
However, by the end of 2017, which we can call the “ICO Year”, we must admit that something went wrong. Instead of the ambitious and promising projects that many of us expected to get, the crypto currency market was flooded with projects that use Blockchain’s artificially integrated technology in trivial business ideas. Ironically, the first to flourish in the ICO market were fraudulent projects that had never been implemented, and scammers who were looking for easy money.
Legislative bodies and the SEC, in particular, are trying to protect unqualified investors from losing money. However, they slowly pull ICO out of the gray zone, and all their current efforts only worsen the situation.
Their legal measures led to the appearance of several hidden rules that are spreading in the market of tokens:
- Not allowing American residents to gain access to the sale of tokens to avoid prosecution by the SEC. (Although no one can regulate the use by Americans of the possibility of using VPN).
- Do not issue tokens that can be classified as securities that give holders dividends. (The Howey test is a widely used tool to qualify a token, although it has no legal effect).
- Call the utility. If everyone pretends that the token is a prepayment for Blockchain-based services, then perhaps this will not attract the attention of the authorities