In December 2017, Ernst & Young (EY) issued a report on the state of Initial Coin Offerings (ICOs) that highlighted trends, noted significant data points, and provided useful analysis. Below we highlight EY's notable headlines and offer our insights:
- ICOs vs. VCs: The total amount of funds raised via ICO is approaching $4 billion, twice the volume of VC investments in blockchain projects. (Report at 2)
- The volume of ICO capital raising as compared to VC investments suggests two possibilities: 1) the potential that irrational exuberance among non-professional investors is driving the ICO market, or 2) that ICOs are having the desired effect of democratizing early stage capital raising.
- ICO hacking thefts: More than 10% of ICO proceeds are lost as a result of hacking attacks. (Report at 2)
- If this alarming level of ICO hacks continues or even increases, companies building blockchains may consider performing a hard fork after a hack (as Ethereum did to return DAO investor funds).
- ICO originating location: The top four originating locations for ICOs are (in order): United States; Russia; Singapore; and mainland China. (Report at 7)
- The import of this statistic is unclear because it does not specify the jurisdictions from which ICOs attracted investors. Rather, the "origination location" was based on either the location of the founders or the location of the issuing entity's registration.
- Decrease in ICO Cap Outs: Whereas 93% of ICOs reached a hard fundraising cap in June 2017, only 23% reached their cap in November 2017. (Report at 8)
- Although companies may not be reaching their hard caps as often, there is no indication that they are raising less money in their ICOs. It is possible that the early success of ICOs led more recent vintages to set caps higher than they otherwise would have.
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Blockchain technology utilizes a distributed digital ledger to record and track information, and can be leveraged to gain transparency and certainty in transactions ranging from cryptocurrency to supply chain tracking. This blog provides information on the legal developments surrounding implementation of blockchain technology, with an initial focus on the financial services sector.