I’ve been deliberating talking about ICOs for quite some time.
I’ve been involved in platforms that pioneered the ICO since May 2014, when the Asset Exchange launched on the Nxt Platform.
Frankly, anyone who cares do consult history can draw his conclusions based on the ICOs that were done in 2014 on the Nxt blockchain.
It’s disheartening to see so many obvious mistakes being made and red flags ignored while we already have plenty of documented projects on forums.
There has been a lot of written about ICOs in the last months during the feverish investment, but for me, it’s been rather shallow, talking about rules and regulations, what to invest in and what not, and how this will all disrupt current investment models.
In the end, rules and regulations are just reifications of ideas and standards, so in this article I will try to cover some fundamentals which I believe will need to be addressed (and haven’t been!) for ICOs to actually be useful and add something new.
An investment is a relationship
Investments in anything lead to relationships, and this is something many ICOs don’t seem to realise.
A lot of ICOs communicate extensively with their prospective investors before they put their money in, only to communicate very sparsely after the actual investment has been made.
This is equivalent to going on a date and then not returning calls after you slept with them. If nothing else, it’s going to reflect badly on your commitment to people in general and is going to lead people to question if you have their best interests (combined with your own) in mind.
Unless an ICO takes this extremely seriously, I fail to see how we are seeing anything new. We’re basically seeing a “Give us your money and we’ll do what we want” scheme. This leads me to the following point:
An investment must be mutual
For an investment to be beneficial to both parties, it needs to be mutual.
I put in my money, you put in the work. From this combination, the idea is that the total value of our joint venture grows, benefitting each of us.
In order to know that you hold up your part of the bargain, I need assurances you will follow through. It’s this part where most ICOs go completely off the rails.
A quick search on “ICO Terms” reveals how thin most promises actually are. Just a sampling of projects shows that even the larger ones come down to “this is where you can send money” with little explanation of what the funds actually are going to (and saying x% is going to be paid to founders, x% to developers is definitely not enough!).
There is no mutuality here and no way for investors to hold teams accountable. There are some that have pushed this non-mutuality to the limit, heaven knows why.
Unless teams are going to face up to the simple responsibility that they need to build in real checks and controls on their handling of projects, an ICO comes down to little more than asking for no-strings-attached money. No thanks. And that leads to my last point:
Teams need to be accountable
I have a couple of simple rules by which to judge anyone that I am considering giving any power over me. Rule #1 is simply ‘if the first action this person takes is not setting limits and checks on his own power, then I say “no”‘.
So far, this rule has served me well, as it’s both a safety mechanism as a test of character. If you are not willing to bind yourself, of your own free will, by rules to ensure my safety against your arbitrary actions then you can go on without me.
We’re all adults (supposedly) and this means that I will hold you to adult and responsible standards.
If you need outside rules and regulations to behave responsibly to me, then you fail this test immediately. You are acting like an adolescent that doesn’t see the value of boundaries. I like adolescents and children, but I would not go into business with them.
It is amazing how often you will see teams calling out angry investors with legal action. To me, it implies a weakness. On the one hand they want to benefit from the freedom of an ICO, but once the heat is on (because, for instance, they don’t like drudge work) they make call on the authorities. Sorry, that just doesn’t wash.
ICOs can be great tools, but unless they are run by adult teams that take greater care in being accountable than the current rules force them to be (because those rules largely exist to curb adolescent behaviour in adults) they will be old hat very soon.
With great freedom comes…
I believe ICOs can be great, and they can afford a greater access to distribution of value. However, potential is not realisation. So far, most ICOs just focus on the benefits for the receivers, and afford little more than promises for the people putting in money.
If teams are accountable, and are willing to curb their greed (who the hell needs $ 232,000,000 for a start-up?!) and realise and accept they have a large responsibility to their investors (not because of “rules”, but because of humility and gratitude if nothing else), then ICOs could add something new to forms of financing.
Unless those minimal checks are in place, they will be little more than ways to dodge the rules, which is a huge pity.
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