Where Did the ICO Go? The Perspectives of Blockchain Fundraising
CryptoBit News Today2 min read
In 2019, initial coin offerings (ICOs) experienced a dramatic decline as equity financing overtook them as the blockchain sector's primary funding method. According to a report published by research firm CB Insights, equity funding emerged as the dominant force, raising $2.8 billion in 2019 compared to the $371 million generated by ICOs—a drop of more than 95% from the $7.8 billion raised in 2018.
The drop in overall funding stemmed from a lack of major late-stage rounds compared to 2018, which featured Bitmain’s $400 million equity deal, Coinbase’s $300 million Series E, and Hyperchain’s $234 million Series B; by comparison, 2019's top raises were Ripple's $200 million round and Figure's $103 million Series C. Corporate venture capital has also expanded to claim a 20 percent share of the funding total, rising 9 percentage points above its 2015 level.
Kern observed that institutional investors have grown more comfortable allocating capital to the sector, while angel investors "falling off" indicates the market is maturing. The report noted that crypto companies are becoming more committed to funding their own ecosystem, with NEO Global Capital and Coinbase Ventures being the two most active VCs in 2019.
This shift is also driven by an intensified regulatory crackdown on ICOs. The SEC has published guidance warning both individuals and organizations against taking part in or conducting ICOs. Commissioner Hester Peirce proposed safe havens for companies launching token sales to nurture early-stage blockchain growth, but the frequency of ICO-related charges continues to rise. From 2016 through 2020, the commission brought formal charges against 27 completed token sales.
The SEC has three main monetary weapons at its disposal, including disgorgement (repayment to investors of gains from illegal actions), civil penalties, and prejudgment interest. In September 2019, the regulator imposed its largest civil fine for an ICO—a $24 million penalty against Block.One, which had generated $4.1 billion selling its EOS ERC-20 tokens between June 2017 and June 2018.
In response to regulatory scrutiny, new funding models have emerged, such as Security Token Offerings (STOs) and Initial Exchange Offerings (IEOs). STOs are regulated and approved sales of tokens comparable to normal securities, while IEOs are conducted exclusively on cryptocurrency exchange platforms. Another model, Consumer Token Offerings (CTOs), aims to provide consumers with utility tokens rather than investment instruments.
Token advisors, who mushroomed during the crypto boom, have had to adapt to the evolving landscape, finding new ways to stay compliant with SEC regulations. The future of token offerings remains uncertain, with these new designs representing the latest in the ever-changing world of blockchain fundraising.
