ICO: Initial Coin Offering.
ICOs are another form of cryptocurrency that businesses use in order to raise capital. A process or event in which a company (especially a start-up) attempts to raise capital by selling a new cryptocurrency, which investors may purchase in the hope that the value of the cryptocurrency will increase, or to later exchange for services offered by that company.
I thought it is timely that I record my one and only ICO investment experience today. Like SPACs and NFTs, it had its heyday a few years ago before expanding too fast and then dying a fiery death not long after. It peaked around 2017 and died off by 2019 as regulators had to clamp down on the rampant fraud scams that were happening by then.
It was Ethereum (ETH), the second biggest crypto that birthed the concept of ICOs with its innovative way of raising funds, bypassing the requirement to technically be considered a security issuance. This opened up Pandora’s box of tech nerds with White papers trying to create an idea out of thin air and jump on the bandwagon.
The founders of ETH created this new crypto kid on the block in 2015 that eventually rivals Bitcoin (BTC). They had idealistic and lofty goals of a decentralised finance (Defi) Blockchain ecosystem controlled by no central authority that was immutable. Using BTC or fiat currencies, one could buy into ETH. It was touted as a platform where its ERC20 protocols allowed for many other altcoin systems to sit on top of it.
The founders had trial and error experiences that included a hacking incident that almost killed the project. The solution finally was to do a hard fork to prevent the hacker from stealing the coins. That created ETC (Ethereum Classic) as a branch-off and made everyone realise the potential of forks to create new asset class coins within the same original mother ship. Hence we had also seen many BTC forks too.
It also encouraged the proliferation of ICOs as anyone could technically start a project to raise funds via this process. Write a new concept White paper and use Metamask to distribute their new coin. Viola! It looks scammy at best, so I decided to do some research before I dive into my first and only investment.
I attended some free seminars on ICOs to try to understand the logic behind the investment. The so-called guru trainer encouraged people to invest with a 3 prong strategy. (1) To buy computers with powerful graphics cards to mine the coins, (2) to join insider chat groups of his to have access to new ICOs as soon as possible and (3) the investment strategy itself. The strategy that was described to us looked exactly like a pump and dump scheme LOL!! Get in fast and sell within weeks – get out before the ICO tanked…
It made me wonder what the ICO founders are doing with the funds they collected in exchange for their coins. They claim to have a limit cap on the new coin but that could be in the gazillions. The use of the funds was opaque and for all we know, they could have used it to pump the price higher instead of utilizing them for the main purpose of the coin, to create and develop a new ecosystem.
I was very sceptical of the whole concept as many ICOs were being pushed and I could not see any success stories yet. But I was itching to at least try to invest in one as I always believe that the best way to learn is to put skin in the game, to participate in at least one.
The opportunity came along as one of my cousins contacted me for his ICO launch. The concept was noble, to create an ecosystem to bridge the gap between small local Asian tour providers with the vast China overseas tourist market using this new coin called WeGold. People will use this newly created coin to exchange for services and trade actively amongst themselves.
They had strong investors to back them and one of them was a successful investor and an ex-classmate that had done well selling off his matured investments. He was sitting on cash and wanted to divest into new ideas. He was also an ex-colleague of my cousin’s team.
I thought why not and decided to invest 10k into this new WeGoGo coin. Soon, I became the proud owner of almost a million of this stuff in my MetaMask account. There were constant marketing updates about new drops and how they are progressing with their milestones.
The first signs of trouble began with the delays. Launch dates seem to be pushed back regularly due to multiple issues. They could not jump-start the ecosystem for various reasons too. The founders also had a lot of their funds tied to the project and were trying hard to push it along even though it was a first-time ICO for all of them.
Things started getting quiet and the Whatsapp marketing group went silent. I checked with my cousin eventually and he was kind enough to want to meet me in person to deliver the news. They could not proceed further and the burn rate had eaten into their funds and have decided not to seek new funds to further extend the runway. They wanted to cut loss as they had already sunk in about a million in this project. They would look to sell parts of the business to try to recoup some losses.
Well so much for my first virgin ICO. I thought that the people I know would make it a success. But that was evidently not enough in this new tech world. There were many other variables which had huge hurdles to cross. Starting and maintaining an ecosystem is extremely difficult.
Crypto exchanges decided to create their own crypto to facilitate transactions with some level of success. Binance’s BNB was issued at a few cents each and traded to a high of $650 before coming off this year to $230 now. Binance is one of the largest crypto exchanges in the world but MAS did not allow them to get a license to operate in S’pore and they are now headquartered in the Middles East. This is only one of the few semi-ICO success stories I can think of as of today.
Like ICOs, we have seen SPACs and NFTs over the last 1 year having its 15 minutes of fame before flaming out within a short time. Everyone’s looking for the next big thing and product lifecycles seem to get shorter and shorter as volatility increases exponentially. Buyers beware, caveat emptor!
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