30 Jun PwC/Swiss CVA report says ICOs raise record $13.7B Jan-May 2018
A new PwC/Crypto Valley Association (CVA) report says initial coin offerings (ICOs) raised a record $13.7 billion in the first five months of 2018.
More than 537 ICOs were launched and the 2018 total raised is more than the total of all previous ICOs from 2013 through 2017.
ICOs by Telegram ($1.7 billion) and EOS ($4.1 billion) make up 42.3% of the total raised so far.
US, Switzerland, Singapore lead ICO deal traction
The US with 56 closed and 50 planned ICOs leads the countries with the most funding traction followed by Singapore (53/52), the UK (48/51), Estonia (31/40), Switzerland (28/36) and Hong Kong with (20/15).
The UK and Hong Kong are emerging in 2018 as important new players in the global market. Smaller jurisdictions including Liechtenstein, Gibraltar and Malta are also following in the footsteps of Switzerland to position themselves as ICO-friendly hubs.
Who raised the most ICO funds?
Results in 2018 for the Cayman Islands ($4.25 billion) and British Virgin Islands ($2.23 billion) are somewhat skewed by the two large Telegram and EOS ICOs but their favorable tax status is attracting growing attention.
Singapore ($1.19 billion), the US ($1.09 billion), the UK ($507 million) and Switzerland ($456 million) lead the remainder of the countries in terms of ICO funds raised.
Estonia ($328 million), Lithuania ($259 million) and Israel ($226 million) were surprisingly successful despite not being large international financial markets. Hong Kong ($223 million) completed the list of the largest amount of funds raised.
Number of planned ICOs in 2018 so far
The number of ICOs planned is also a useful metric and is led by Singapore with 52 ICOs planned, followed by the UK (51), the US (50), Estonia (40) and Switzerland (36).
For a small country, Estonia continues to impress with both the number of planned ICOs and the amount of funds raised.
Largest successful ICOs in 2018 so far
The large amount of funds raised by the top ICOs in the first five months of 2018 is significant and also a bellwether for future growth, not to mention a potential threat to traditional IPOs.
The nine largest ICOs closed in 2018 so far included: EOS ($4.1 billion), Telegram ($1.7 billion), Dragon ($320 million), Huobi Token ($300 million), HDAC ($250 million), Bankera ($150.9 million), Polymath ($139.4 million), Basis ($133 million) and Orbs ($119 million).
The $5 billion ICO for Venezuela’s Petro coin was not included because of political opposition claims that the funds did not reach Venezuela.
Regulatory trends emerging
The report identifies three emerging regulatory models including:
- a securities driven model in the US
- a balanced model in the EU
- a binary model in Asia – primarily Singapore and Hong Kong.
It also notes ICOs are inconsistently regulated around the world and depending on the jurisdiction may be treated as securities, utilities or digital currencies. All of which makes for a challenging regulatory framework for companies seeking funds through ICOs.
In the US, each of the 50 states has some regulatory oversight while the SEC has overall jurisdiction over ICOs and has taken the position that the vast majority of tokens are “securities.” This has so far prevented international companies from raising funds in the US market.
Switzerland requires no special licenses for cryptocurrency businesses and treats tokens as “assets.” Swiss Financial Market Supervisory Authority (FINMA) reviews new ICOs on a case-by-case basis with a special focus on anti-money laundering and security regulations depending on whether tokens are considered payment, utility or asset/ security tokens.
In Singapore, the Monetary Authority of Singapore (MAS) issued guidelines in November 2017. It does not regulate cryptocurrencies but requires intermediaries to follow strict due diligence and anti-money laundering procedures.
Malta, Gibraltar and Liechtenstein are working hard to position themselves as equally friendly to ICOs as Switzerland. Meanwhile, the European Union is closely monitoring ICOs and working towards a regulatory framework.
ICOs growing as an alternative to traditional VC funding
Launching an ICO is no guarantee of a successful capital raise as only one-third close successfully.
Many ICOs are delayed or lose momentum during preparation caused by legal difficulties, project challenges or problems within the project team.
Another challenge in tracking the initial coin offerings is that often funding is not disclosed, or reporting is delayed.
“Strategically, ICOs continue to crowd out traditional VC funding, especially in technology and Blockchain-related startups. Hybrid models (combining classic VC/PE funding and ICO) are increasingly establishing themselves as a valid funding alternative,” the report says.
It’s hardly surprising that some of the voices most critical of ICOs come from traditional venture capital, private equity firms and bank competitors whose billions of dollars in IPO fees are now less certain.
What happens after funding and what’s ahead?
The majority (65%) of the top 20 concluded ICO projects are on track with a product in development. 20% were reported as struggling with major problems, 5% of projects were dissolved and 10% showed no product completed yet.
The report concludes with several best practice suggestions:
- recommends structured fundraising rounds with caps for more transparency and need-based funding
- combining with VC funding for increased credibility
- avoiding over-promotion as a risk to project credibility
- using interactive protocols with investors to specify purchase quantities and valuations via smart contracts
- lockup periods for tokens
- transparent communication during and after ICOs.
Other factors important to successful fund raising include a strong focus on governance, careful selection of jurisdiction and strong KYC/AML guidelines. PwC also recommends staggered release of funds, voting mechanisms for accountability, a focus on cybersecurity, and building strong ecosystems and communities of interest.
Report makes interesting reading
The 11-page executive summary is a handy update to the global ICO picture and is recommended reading. You can read the PwC/CVA report “Initial Coin Offerings: A Strategic Perspective” here.
Located in Zug, Switzerland, the Crypto Valley Association is an independent, government-supported association created in 2013 to promote Switzerland’s advantages as a leading blockchain and cryptographic technologies ecosystem.