ICO Boom: Amidst the Hype, Experts See a Need for Caution and Regulation
The Initial Coin Offering (ICO) boom has captivated the financial world, but amidst the hype, expert voices are calling for caution and a focus on proper regulation. Andy Bromberg, CEO of CoinList, a platform dedicated to helping legitimate ICO projects, warns that the vast majority of ICOs are of “low quality, scams or frauds.” While recognizing the potential of the technology, Bromberg emphasizes the crucial need for due diligence.
“The hit rate is very low in this industry,” Bromberg states, revealing that CoinList has only approved three ICOs out of over 900 applications. “These are incredibly risky early-stage investments,” he cautions, adding that investors need to “figure out how to diligence these ICOs.”
Bromberg also touches upon the SEC’s position on ICOs, noting that SEC Chairman Jay Clayton has stated that “he has yet to see an ICO that’s not a sale of securities.” This highlights the inherent risk that many ICOs could be classified as traditional securities, increasing regulatory scrutiny.
“When we look at it, we look at it a lot like an early-stage investment in any company,” Bromberg suggests, emphasizing the importance of evaluating the team’s “integrity, technical expertise, and track record.” Only after thorough due diligence on the team and their product, can investors move on to evaluating the specifics of the ICO’s structure and token economics.
CoinList’s focus on working with ICO projects that prioritize building “something really meaningful,” reflects a growing concern within the industry about projects aiming solely for a quick profit, then abandoning their development. “It’s a long process,” Bromberg explains, “not trying to make a quick buck.”
Given the recent decisions by Twitter, Facebook, and other social media platforms to ban cryptocurrency advertising, Bromberg sees this as a positive step. “Evaluating these sales is really hard, it requires a great deal of expertise,” he notes, highlighting that the newness of the ICO landscape makes it challenging to assess projects. “I think it’s actually a good move for the industry and a good move for those companies,” he asserts.
Bromberg also acknowledges the ongoing evolution of the ICO model, pointing to the recent controversy surrounding the Tezos Foundation, where the foundation controlled the funds while the co-founders held control of the source code. “We’re still figuring out what these structures should look like”, he admits. While acknowledging the challenges, Bromberg is optimistic: “We’re gonna see a lot of innovation and a lot more tight governance controls in the year 2018 and beyond.”
The increasing regulatory scrutiny is also a key factor influencing the ICO landscape. “Regulation is coming,” states Bromberg, “and the regulators have been very reasonable so far.” He emphasizes the importance of continuous dialogue between the industry and regulators, contributing to “an understanding of the nitty-gritty of the industry” and ensuring that regulations are tailored to the unique challenges of the ICO space.
While the allure of quick riches continues to entice investors, the ICO landscape is undergoing a period of rapid evolution, characterized by a focus on stricter governance, more transparent practices, and increasing regulatory oversight. As the industry matures, the need for cautious evaluation and responsible investment will continue to be key for investors venturing into this evolving world.
The ICO Boom: Navigating a Sea of Scams with CoinList CEO Andy Bromberg
The initial coin offering (ICO) boom has been a wild ride. Promises of quick riches and revolutionary technologies have lured investors, but the reality has been fraught with scams and questionable projects. To get an inside look at this volatile landscape, we brought in Andy Bromberg, CEO of CoinList, a platform that assists token creators with the ICO process while simultaneously weeding out potential scams.
Key Takeaways:
- The vast majority of ICOs are low-quality, scams, or frauds. CoinList has only accepted 3 out of over 900 ICO applications, highlighting the need for rigorous diligence.
- Regulators are coming. The SEC is actively examining ICOs and believes that most of them are selling securities, though the long-term status of tokens remains unclear.
- The ICO industry is still young. Early structures and incentive models are still being developed, with many companies learning as they go.
- Governance is a critical concern. The Tazz incident, where the foundation controlled funds and the co-founders managed the source code, raises concerns about transparency and accountability.
The ICO Landscape: A Minefield of Opportunities and Risks
Bromberg paints a stark picture of the ICO landscape, calling it a "minefield". He emphasizes the need for extensive diligence, comparing it to early-stage venture capital investment. "When we look at it," he says, "we look at it a lot like an early-stage investment in any company — looking at the team, deciding if they have integrity, if they have a high-quality technical team, if they’ve built real product in the past."
He continues, " Once you get past that, then you can look at the details of the ICO — how the sale is structured, what the token economic model looks like. But at the beginning, you have to do the same team evaluation you would for any startup."
He argues that even though ICOs involve investments in cryptocurrencies, they are not just a gamble. "It’s not like you’re going to Vegas and gambling your money away," he says. There are ways to identify high-quality projects and separate them from the scams.
The SEC’s Scrutiny and the Future of ICOs
Bromberg acknowledges the SEC’s increasing involvement in the ICO space and reveals their stance: "SEC Chairman Jay Clayton has said that he has yet to see an ICO that’s not a sale of securities." However, he clarifies that this doesn’t necessarily mean that tokens will always be considered securities. "It’s very early in the game," he says. "We’re still figuring out the regulations and how they apply to this new technology."
CoinList is actively engaged in conversations with regulators to help them understand the nuances of the ICO world. "We’re seeing the best people in the industry taking that time to speak with the regulators and make sure that things come out correctly," Bromberg says.
Lessons from the Tazz Incident and the Evolution of Governance
The Tazz incident serves as a stark reminder of the importance of robust governance structures for ICOs. The controversy surrounding the project, where the foundation controlled funds while the co-founders oversaw the code, highlighted vulnerabilities and raised red flags about transparency and control.
Bromberg acknowledges that the industry is still in its infancy: "We’re still figuring out what these structures should look like. Should it be a foundation structure? Should it be a corporate structure? Who should have control over these distributed networks?" He points to Blockstack as an example of a company that is implementing strong incentives and governance structures to ensure long-term success. He expects to see "a lot of innovation and a lot more tight governance controls in the year 2018 and beyond."
The Impact of Social Media Bans on ICOs
Social media platforms such as Twitter and Facebook have imposed bans on ICO advertising, citing concerns about scams and lack of sufficient expertise to effectively evaluate projects. Bromberg believes this is a positive move in the long run, stating that it’s better to limit advertising until companies have a more thorough understanding of the industry.
"It’s a really smart move by those companies because evaluating these sales is really hard and requires a great deal of expertise," Bromberg says. "If I were Twitter, Facebook, Google, these companies that are banning… I’d be looking at it and saying, ‘Listen, I don’t know how to evaluate these yet, we don’t have the expertise internally. Let’s take a breather here, take a minute to figure out how this industry is going to work, and then come back at it once we have that expertise internally.’ But I’d rather have no ads on there than ads for scams and frauds alongside legitimate companies."
Navigating the Future of ICOs: A Call to Action for Investors and Developers
The ICO landscape is constantly evolving. As ICOs continue to attract more attention and investment, the need for thorough due diligence, responsible governance, and clear regulation becomes paramount.
Bromberg concludes by urging both investors and developers to take an active role in shaping the future of the ICO market. "We’re going to see a lot of innovation and a lot more tight governance controls in the year 2018 and beyond," he says. "This is an exciting time for the cryptocurrency industry."
The future of ICOs remains uncertain, but by taking a proactive approach to navigating the challenges and embracing the opportunities, the potential for positive change and growth is undeniable.
