A recent analysis of the 902 crowdsales held last year reveals that 142 failed at the initial funding stage. After a period of time, an additional 276 projects bombed. These numbers account for the 46% of ICOs that did not succeed in moving forward.
Since considerable profit that can be made from diving into initial coin offerings (ICOs), investors are always keeping their eyes out for the next lucrative coin. Nonetheless, embarking on an ICO investment comes with immense risk. The plethora of ICO information available on TokenData.com demonstrates just how big that risk is. According to the data, of the 902 token sales launched in 2017, 46% of them have sizzled out as failures.
Buying into ICOs
Many investors already know to be wary of certain ICOs from the start. Regardless of risk, it is easy to get caught up in the excitement of potentially striking it rich with what could be the next Bitcoin. For this reason and more, ICOs manage to generate large amounts of money, reeling in all sorts of investors from around the world. In 2017 alone, ICOs were able to raise upwards of $4 billion, showing significant growth compared to the $265 million raised between 2014 and 2016.
As for the ICOs remaining in progress, 113 of them are considered “semi-failed” projects, meaning they find themselves on the verge of failing. The conclusion has been drawn either because their social media channels have gradually stopped showing signs of activity or because their chances of success look slim. Taking these additional projects into consideration, the number of failed ICOs could potentially rise to 59%.
Why ICOs Can Fail
Unfortunately, it appears many coins were destined to fail from the start. Of the ICOs on the list, only a handful were able to raise more than $10 million, while others raised a couple of thousand dollars or even nothing at all. Sometimes coins target themselves at narrow audiences such as dentistry or real estate, and the lack of interest prevents the project from really taking off. In other cases, coins simply lack the innovation necessary to attract the right investors.
Of course, it goes without saying that many failed ICOs were outright scams that managed to lure people in with promises of making millions. Despite the large number of failed projects, ICO investments are still going strong and even breaking records. This month, popular messaging app Telegram managed to raise $850 million in a pre-sale for its blockchain platform, Telegram Open Network (TON).
Moving forward, however, it seems the current ICO model may have to undergo some changes to allow more transparency and better protect investors from fraud. Back in January, Ethereum cofounder Vitalik Buterin proposed the Decentralized Autonomous Initial Coin Offering (DAICO) model.
One of the model’s aims is to prevent mismanagement of funds by allowing supporters to determine how much money the project team receives at a given time depending on their progress. While not many ICOs have adopted the model so far, Buterin hopes it will be a step in the right direction for crowdfunding. For now, both numbers and experience show that investing in ICOs is a risky endeavor, perhaps riskier now than ever before.