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3 Reasons why Token Sales are raising less funds

Token Sales

August has been an eventful month for the Blockchain and Crypto space with all the recent bullish market events. IBM partners with Chainyard to develop a blockchain for SupplyChain and management sector, Binance announced “Venus” it’s Libra like cryptocurrency, Mastercard developing its own Crypto wallet and the list goes on. But there’s some seemingly bad news as well — Token sales are not raising as much funds as they used to.

Funds Raised by startups through Token Sales hit a yearly low of $100 million, according to Blockchain and Crypto report: August 2019.

Token Sales

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This is the first time since the beginning of 2019 that funds raised have dropped so low. So what’s the reason for this bearish trend? Or is it even a bearish trend or just the market correcting itself?

Token Offerings are raising smaller sums

It’s becoming increasingly rare than we see token offerings raise exuberant sums like it was common during the ICO boom period. The most successful ICO in 2018, ran its token sale for more than a year and raised billions of dollars in funds while there were at least a dozen others who raised hundreds of millions. This wasn’t the case in 2019 as hardly any token sales crossed the $100 million mark. Let’s compare the funds raised during both periods to further gain some insight.

Token Sales

This graph depicts the breakdown of the funds raised by Blockchain and Crypto startups purely through token sales from January to August. And here what we can deduct from the data -

  • The percentage of Token offerings that raised more than $500 million has depreciated by almost half. This again supports the narrative that bluechip token offering is becoming increasingly rare. 

    The one token sale that managed to raise more than $500 million in 2019, was the Bitfinex Unus Sed Leo IEO which reportedly managed to raise $1 billion through a private token sale

  • “<$5 million” was the category with the highest percentage of token offerings in both years. Followed by 5–10 million and 10–20 million. These three categories alone encompass as much 81% of the token sales on average.
  • Except for “<$5 million”, almost every other category witnessed a percentage reduction from 2018 to 2019. With the exception being “$100–500 million” category.

    This supports the narrative token offerings are raising smaller sums and a majority have raised less than $5 million in 2019.

#1 The Shift from ICO sale to IEO sale

If you’re an investor and have been paying attention to the Token offering space, then you’ve likely noticed this shift as well. Initial Exchange offerings (IEOs) are token sales conducted exclusively on cryptocurrency exchanges and they’re the hottest thing in the token offering space right now. How much so?

Token Sales

In 2018, IEOs made up for less than 1% of all token offerings with a whopping majority of token sales being ICOs (~95%). But in 2019, as much as ~37% of all token offerings were IEOs while ICOs made up 52%. Although, still the most preferred way of decentralized fundraising. The pivot towards IEOs is unmistakable. 

So what’s the connection between IEOs and funds raised? IEO token sales often cap their funds raised. The average funds raised by IEO projects in 2019 is ~$9 million. And it’s not just IEOs, the average funds raised by ICO projects in 2019 stands at a cool $11 million. So with more number of token sales limiting their funds raised to relatively nominal sums, it’s not surprising overtime the in 2019 token offerings have raised fewer funds.

#2 The Cryptocurrency space is in the doldrums 

Last year was eventful for the cryptocurrency space as Bitcoin rode a price rally to reach an eye-watering ~$20,000 and almost all the other major cryptocurrencies went for a ride with it. But after the bubble burst and prices went crashing the entire crypto space was in the doldrums for quite some time. It wasn’t until after Q1 2019 Bitcoin slowly started recovering from its downfall.

Token Sales

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#3 The shift in mentality among investors

This is based more on speculation rather than facts but considering the numerous ICO exit scams that popped up in 2018, there’s a good chance that investors have become wary of token offerings. And rightly so as recent report by CipherTrace estimates investors have lost ~3.1 billion in ICO exit scams, so far into 2019. 

They understand the risk involved, that there’s no law currently that protects them from fraud or if the management team decides to spend millions developing a subpar quality prototype.

And this is critical because earlier conducting a successful token sale meant doing extensive marketing, most of the time targeted at retail investors. But now, marketing alone won’t cut it. Investors are more cautious which means startups have to offer something of value which is worth investing in. 

So is this a bearish trend? Not really. It’s more of a natural market correction. 2018 was undoubtedly the year of ICO projects with companies like EOS, Telegram, Pincoin, and a few others raising exorbitant sums of money. This was largely fueled by the FOMO in Blockchain and Crypto companies much like the Dot com bubble. What we’re witnessing right now is the dust settling after the ICO bubble has burst.

 

 

 

 

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