launching Successful Initial coin Offerings in 2022 and beyond

2022-09-15, 09:58

[TL; DR]

Initial coin offering can enable crypto projects to raise funds to sustain themselves.

Inexperienced team members, poor quality products and uncoordinated marketing efforts lead to low success rate of IC0s.

Many investors have lost interest in IC0s because of rampant rugpulls and scams.

Projects with well-articulated whitepapers, marketing strategies, quality products and innovative teams succeed in raising funds through IC0s.

Introduction

The funding models of blockchain based businesses have been evolving over the years. Initial coin offering (IC0s) is an example of a funding model which many decentralized organizations use. This model was very popular between 2014 and 2018. However, several analysts have pointed out that the success rate of IC0s was around 0.3%. All the same, a question remains whether or not the IC0 business funding model can become successful in 2022 and beyond.

Initial coin offering

Initial coin offering is a method of raising funds through selling the project’s token. IC0s are a form of crowdfunding because many people around the world buy the token at a discounted rate. What this means is that the project gets funds from its community and gives tokens to the investors.

For this to happen, the crypto project develops its token on the blockchain. However, before launching the token, the development team announces the plan to have an IC0.

Risks of IC0s

IC0s have many risks to the project and the investors alike. First, there is no guarantee that there will be many investors to purchase the cryptocurrency. As a result, the developers may lose many funds in creating the project. On the other hand, some projects scam the people who invest in the purported token.

Success rate of Initial coin offerings

According to analysts IC0s had very low success rates, a reason which led many projects to shun them. A renowned analyst and co-founder of Nansen CEO, Alex Svanevik said that the success rate of IC0s is around 0.3%. This gives us a good picture of the reason why there are very few IC0s at the moment.

Other analysts have also indicated that most IC0s perform poorly through their various stages. Crypto experts Hugo Benedetti and Leonard Kostovetsky, researchers from Boston College, reported that 44.2% of most IC0s are active up to the fifth month after their launch. This means that the rest of the projects cease to exist before and after five months.

They said, "Breaking it down by category, 83% of the 694 IC0s that don't report capital and don't list on an exchange are inactive after 120 days. For the 420 IC0s that raise some capital but don't list, this figure falls to 52%, and for the 440 IC0s that list on an exchange, only 16% are inactive in the fifth month."

In 2018, another research by Diar.co concluded that 70% of the IC0 projects fail within six months of operation. In addition, Diar.com said, “70% of tokens are now valued at less than what was raised during their IC0s. And with tokens having no equity representation, markets have shrugged off cash-on-hand as part of an enterprise valuation.”

Why Initial Coin offerings (IC0s) Fail

It is true that most projects whose funding model was IC0 failed. Some of them only functioned for a short period and finally closed down. There are different reasons for the high failure rate of IC0s.

Low value products

A crypto project that uses IC0 to raise capital but does not have a strong product is bound to fail. In other words, a project with a product which does not create value for the community that supports it fails. This is because the value of a cryptocurrency depends on the products and services that the associated project provides to its community members.

Poor marketing and advertising strategy

The success of IC0s depends on the marketing strategy the development team uses. For a project to succeed the marketing effort and material should be appealing to potential investors.

For example, the project logo, whitepaper, pitch, colours and fonts should be attractive. In addition, the marketing effort should communicate a single message and product brand. Projects without well-coordinated and designed marketing material will fail.

Security issues

The security of a project, especially blockchain based ones, is critical in attracting investors. Data breaches, usually, damage the reputation of projects forcing investors to stop investing their funds in them.

Unbalanced team composition

One reason why many projects that use IC0s fail is the absence of a team with a good track record or enough experience. Before people invest in a crypto project they need to understand the background of the team members. Teams which are poorly constituted do not lure investors.

Rugpulls and scams

The key contributor to the high failure rate of IC0s is lack of regulation. Already, there is a poor reputation of IC0s as an investment opportunity. This is because, in the past, many investors lost their funds through rugpulls and scams. As such, potential investors are no longer willing to invest in them.

Development of IC0 projects in 2022 and beyond

As we discussed above, there are many reasons why investors are no longer willing to put their resources in IC0s. However, the projects that are vigilant during the launch of IC0s will become successful. For example, projects that rely on IC0 funding should have strong teams.

Reliable team and advisors

The project that raises funds through an IC0 should have a competent and balanced team, with a good track record. At any time, a team which is professional, flexible and innovative is able to produce products which are in demand on the market. Basically, a blockchain based project needs a team that solves problems and inspires the community.

If the team comprises reputable people who previously managed successful projects in the past it will succeed. Also, the team members should possess different skills, experience and expertise in areas such as operations, marketing, human resources, web development and business administration, among others.

A promising product roadmap

It is the roadmap which shows investors the potential of the project. This roadmap should articulate how the team will develop and launch the product as well as the timelines. Once the roadmap is clear from the start, the team should work hard to meet the timelines to maintain investor confidence.

A well-articulated and crafted whitepaper

The whitepaper is important as it communicates the vision of the project and the value of the product. It should also spell out the features and the entire product line of the project. If the investors read the whitepaper and are convinced that the product will solve a specific nagging problem they will invest in it. Also, the whitepaper should try to answer the key questions the investors may have.

Use the right platform to launch the token

There are many platforms on which teams can develop and launch their tokens. Generally, it is important to use a secure, convenient, reliable and scalable blockchain. Moreover, it is essential to carry out a thorough research before launching the token. Apart from reasonable transaction speed, the blockchain should have low transaction fees.

Conclusion

Initial coin offering is a method of raising funds through the sale of a token. To get many investors, the project launches the token on discounted terms so that those who invest early will have profit in the long term. It is important to have a quality product and a well-balanced development team.

Author: Mashell C., Gate.io Researcher
This article represents only the views of the researcher and does not constitute any investment suggestions.
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