Blockchain & Money: Session 19: Primary Markets, ICOs, and Venture Capital, Part 1, by M.I.T. Sloan School of Management with Professor Gary Gensler

Session 19: Primary Markets, ICOs, and Venture Capital, Part 1

• Overview: Readings and Study Questions; Review of Bakkt Discussion; Initial Coin Offering (ICO) Characteristics; Evaluating ICOs; ICO Statistics; Conclusions.

• Session 19: Study Questions
  • What is the new crowdfunding mechanism of blockchain technology–initial coin offerings (ICOs)?
  • What attributes help distinguish successful ICOs? Why have so many ICOs failed?
  • What has the wave of ICOs meant for the venture capital field?

• Session 19: Readings
  • ‘All-Time Cumulative ICO Funding’, CoinDesk.
  • ‘Initial Coin Offerings and the Value of Crypto Tokens’, Catalini and Gans.
  • ’10 keys for evaluating Initial Coin Offering (ICO investments)’, Crypto Potato.
  • ‘Nearly Half of 2017 Cryptocurrency “ICO” Projects Have Already Died’, Forbes.
  • ‘The Rise of the ICO, and What It Could Mean for Venture Capital’, Visual Capitalist.
  • ‘How to Launch An ICO, A Detailed Guide’, Coin Telegraph.
  • Optional: ‘J.R. Willett: How I Invented the First ICO’, radarZero.

• Initial Coin Offerings (ICOs)
  • Proceeds used to build networks
  • Tokens usually issued prior to being functional
  • Development, while open source, is largely centralized
  • Promoters allocate themselves ‘premined’ tokens
  • Tokens are fungible & transferable
  • Scarcity is fostered with preset ‘Monetary policy’
  • Purchasers anticipate profits through appreciation

• Evaluating ICOs
  • Assess Viability of Token Use Case
  • Whitepaper Details and Source Code
  • The Team
  • Venture Capital Involvement
  • Media and Community–Reddit, Medium, BitcoinTalk, …
  • Monetary Policy
  • Token Distribution
  • Regulatory Compliance

• Use Cases: Assessing Costs & Benefits
  • Strategic questions?
    • What is the value creation proposition?
    • What problem or ‘pain point’ is being solved?
    • What are competitors doing to address similar ‘pain points’?
    • Why is blockchain technology and native token the best solution?
  • Specifics of the blockchain technology and native token use case?
    • Which costs of verification or networking can be reduced?
    • Which transactions need recording?
    • Which stakeholders need write and read access to ledgers?
    • What is the customer interface and how is it better than current interface?
  • Costs of technical challenges and transition?
    • What tradeoffs are necessary?
      • scalability, performance, privacy, security, interoperability & coordination
    • Can Permissioned blockchain or Traditional Data Base adequately address use case?
    • How can broad adoption be realized?
  • Are net benefits sufficient?

• ICO & Blockchain VC Markets 2018 3Q
  • $1.8 Billion ICO Raised–Down 78% from Q2
  • $1.0 Billion Blockchain VC Raised
  • 597 ICO Projects
    • 84% on Ethereum platform
    • 4% Listed on Exchanges
    • 57% raised less than $100,000
    • 67% of DApp ICOs were unsuccessful

• Conclusions:
  • Initial Coin Offerings are a New Means of Crowdfunding
  • Assessing Viability of Use Cases is Critical
  • Benefits of Tokens Economics are still Uncertain
  • A Majority of ICOs have Failed
  • After a Boom Offerings have Declined
  • Living within Investor Protection and Public Policy Frameworks also Key

Biblio:

• Gary Gensler. 15.S12 Blockchain and Money. Fall 2018. Massachusetts Institute of Technology: MIT OpenCourseWare, https://ocw.mit.edu. License: Creative Commons BY-NC-SA.
• Video Link: Session 19: Primary Markets, ICOs, and Venture Capital, Part 1.
• Slides Link: Session 19: Primary Markets, ICOs, and Venture Capital, Part 1 Slides.