Equally large raises have recently been completed by many other organisations, such as block.one, which raised $185m (£139.3m) at a more leisurely pace of five days, and Bancor, which raised $153m (£115.2m). Many of these raised the funds in an astonishingly short time: days, and in some cases, hours. The ICO market is currently growing at 800 per cent a year.
Contrast this with a more traditional fundraising approach taken by R3, the bank-owned organisation behind the "Wall Street-friendly" Corda distributed ledger, a blockchain-like platform that boasts more than 90 banks as members. R3 took nearly a year to raise funds through the time-consuming, but orderly and regulated, avenue of Series A funding, raising $107m (£80.5m).
What should we make of the contrast in terms of amount raised and the speed of funding? ICOs on the surface appear to be a process-light alternative approach to a Series A. However, a closer inspection demonstrates this asset class presents some significant dangers.
By claiming that they are crowdfunding vehicles, ICOs go around regulations designed to protect individuals and organisations against fraud.
Crowdfunding a village church spire is one thing, raising funds to build a multi-million dollar organisation based on a dubious business proposition is quite another – and is clearly not what crowdfunding was designed for. However, until recently there has been very little clarity from the regulatory authorities, and organisations participating in ICOs have used that to their advantage.
In July 2017, the Securities and Exchange Commission provided some clarity on the back of a ruling concerning a recent scandal involving a hack of a blockchain investment fund where mainstream investors lost millions: the infamous “DAO” hack. The SEC effectively stated that ICOs exhibit all the hallmarks of a regulated security, and therefore should be subject to the same issuance regulations.
This has been tantamount to firing a warning shot over the bows of organisations aspiring to launch an ICO, but it has not provided the market with the level of clarity that it needs. It leaves many ICO investors in regulatory limbo with an asset considered and regulated as a security that has not gone through the necessary regulatory approvals to be issued and traded.
Not only is that a headache for investors but it also poses a dilemma for the regulators: Does the SEC protect the rights of consumers that bought into the ICOs before this most recent guidance, by providing some form of exemption?
Alternatively, the SEC could adopt a laissez-faire approach and let these securities fail, which would be akin to declaring over $1bn (£0.75bn) of assets effectively a worthless pyramid scheme.
Bitcoin, too, remains a risky asset class
