Initial coin offerings (ICOs) have raised a tremendous amount of capital in 2017. Filecoin raised $257 million. Tezos raised $232 million. Bancor raised $153 million.


 raised $108 million. And EOS raised $185 million in the first five days of a year-long ICO.These numbers seem absolutely absurd for projects that are essentially seed stage investments, but the markets are not completely irrational.


The purpose of doing an ICO for your blockchain project goes beyond just raising money. While capital is extremely important, the ICO has another powerful effect: It gets your tokens into the hands of people who are incentivized to help your network grow.


Early adopters will not just spread the word about your protocol, they are also likely to use your protocol as it was intended, further increasing the value of their own holdings.


If you bought early shares in Facebook, you would be financially incentivized not only to invite your friends to Facebook but also to post pictures on Facebook so when your friends log in, they don’t experience a ghost town effect.


This theory applies to blockchain projects as well: If you were an early investor in Filecoin, you are likely to be host or a client (or both!) when the software is actually released. This usage drives network effects, which are especially hard to create in the very early stages of a network’s life. The “crowd” part of crowdfunding is just as important as the “funding.”





The market has been distorted because investors see the winner-takes-all nature of these networks. Let’s use another social media example to illustrate this. It is best for an early stage social network to have its “shares” in as many hands as possible to accelerate the creation of network effects.


If an investor sees the potential of this new social network to become the dominant social network, they will want to buy – and hold – as many shares as possible. While this is worse for the network as a whole, it is better for the individual investor – classic application of game theory.


When you apply this incentive structure at a system level, it’s clear how ICOs can raise tens of millions of dollars from just a handful of people in less than one minute.


Easy problem to fix, right? The ICO team should just limit the amount of tokens any one person can buy.Not so fast!Because of the pseudonymous nature of Bitcoin and Ethereum (your addresses are not tied to your real identity, and you can create as many addresses as you want, perpetrating what is known as a Sybil attack), initially, there was no easy way for the team running the ICO to limit any given individual’s investment.


The only way to ensure that everyone who wanted to participate had an opportunity to do so was to run an uncapped ICO, which led to ridiculous amounts of money being raised at absurd valuations for seed stage projects.

Why blockchain projects need such large upfront investments

Imagine if Uber had to raise the full $9 billion it has raised over 14 rounds in one round before it had an operational app or any drivers, or if Facebook had to raise $2.5 billion before there was a single photograph uploaded to its servers.


This is the current situation for blockchain protocol development teams. Tezos raised $232 million not just because it could but also because it had to. There are no Series B or C rounds for blockchain protocols, at least not yet.


Early stage venture capitalists invest knowing they will be diluted as a company grows and raises additional capital. This is counter to one of the core values of the crypto community. The number of tokens for all major crypto protocols is either fixed or grows predictably as newly minted tokens are distributed to the community according to predefined rules.


Most protocol development teams have embraced this concept, preventing themselves from issuing more tokens to fuel growth.Developing and marketing software that works at a global scale is expensive, and that hasn’t changed with the advent of blockchain technology.


Because the supply of talented blockchain engineers remains extremely limited, it is currently more expensive to develop a blockchain based protocol than a similar conventional app.Developing the software is only the first step. After a version one is launched, teams still need to market the protocol.


Filecoin will be worthless if people don’t use it, and you can be sure the required marketing and sales effort will cost a pretty penny, or Bitcoin. Protocol development teams set their ICO fundraising targets extremely high because they have enormous capital needs and know they will not get another chance to raise capital.

ICO presale structures drive FOMO

Most ICOs are structured with several layers of presales preceding the actual public token sale. Investors in the presale typically receive bonus tokens for their investment. These bonuses can be enormous, on the scale of 100 percent (doubling your money) or higher.The earlier an investor commits their capital in the presale, the larger their bonus.


Presale rounds are time bounded or capital bounded – meaning every moment an investor hesitates lowers their chances of getting into the earliest presale round and the largest possible bonus. This creates a lot of FOMO – fear of missing out. If the project is high profile or has notable backers, the FOMO is even stronger.


These ICO structures are designed to leverage human psychology in raising as much capital as possible as quickly as possible. Since tokens, unlike restricted stock in a startup, are liquid, investors are willing to invest more in a presale or ICO: They know they can offload their tokens to the market.

Better ways forward

Several protocol development teams have implemented ICO policies that are positive and responsible:

• Filecoin forced investors to have a lockup period for their tokens, which meant investors more carefully weighed the decision to invest.
• 0x required investors to preregister for the ICO and implemented investor identification requirements to limit how much any single investor could purchase, which solved the token distribution problem without requiring an uncapped ICO.
• Civic provides a mechanism to prevent Sybil attacks and has been used by recent ICOs (including that of 0x)
• Funfair announced it would have two rounds of fundraising; as it turned out, the company didn’t need the extra capital, so it didn’t raise it and burned those tokens instead.
• Vitalik Buterin, founder of Ethereum — the platform on which many of these ICOs have been conducted — wrote a whitepaper about how to run a more ethical ICO. A more easily digestible version for the layperson is here.

The ICO as a fundraising mechanism is maturing rapidly. Investors are getting more experience with ICOs and know what to demand from projects. Service providers, such as investment banks, are offering to advise protocol development teams on how to structure their ICO according to best known practices.


We don’t want to return to the world where only a select few have access to investing in these assets and all the bias that involves. No one other than VCs benefit from deals negotiated behind closed doors.


ICOs are here to stay, and while this fundraising mechanism might have growing pains, the future is bright.


Tushar Jain is CEO and co-founder of Multicoin Capital, a thesis-driven cryptofund that invests in blockchain tokens.

If you have enjoyed reading and learning from this article, then discover even more from Venturebeat, one of the most respected venture capital blogs online. See here: https://venturebeat.com/2017/11/25/making-sense-of-this-years-outrageous-icos/

A guide to initial coin offerings

Burges Salmon LLP







United Kingdom
November 13 2017

Initial coin offerings (ICOs) have become the latest fintech trend. But what are they? We explain how ICOs work, why investors are so excited and why regulators are so alarmed.

Following our introduction to smart contracts, this article looks at another rapidly growing area of fintech: the initial coin offering (ICO).By some estimates, ICOs have raised in excess of $3 billion for businesses and now accounts for more start-up funding for blockchain businesses than traditional venture capitalism.

Investors’ interest has certainly been piqued but so has the interest and concerns of regulator's worldwide for what some consider to be an under-regulated ‘Wild West’.

What is an ICO?ICOs are widely seen as an innovative alternative to traditional IPOs as a means for start-up businesses to raise capital. ICO itself stands for initial coin offering, a reference to the digital coins or ‘tokens’ which underlie the whole process.

At its most basic level, the ICO allows investors to exchange fiat currency for digital tokens in the business, which give the investors certain rights over (or in some cases ownership of) the business and/or its assets.

The digital token itself uses blockchain technology to operate and can act as a form of smart contract in which investor’s rights or distributions may be automated. The value of the digital token can increase as a start-up issuer’s business grows and the tokens themselves may be traded with other investors for profit.

How does an ICO work?Prior to the ICO, the firm will typically release a ‘whitepaper’ which provides investors with an explanation of their proposed project, the rights behind the virtual tokens they will be issuing and details of the ICO itself.

Some firms opt to have a pre-sale ICO (either publically or privately) in which digital tokens are sold (often at a discount) to test market appetite and raise funding for the ICO.
During the ICO itself, digital tokens are then sold in exchange for either crypto or fiat currency. If the firm fails to raise the minimum funding target in its whitepaper, the ICO is deemed to have failed and investor funds are returned.

The rights behind the digital tokens can vary considerably and many tokens are not intended to grant the investor an ownership stake in the business (unlike shares, for example). Instead, many ICOs offer 'utility tokens' to investors, which allow buyers to use (and pay for usage of) a service backed by blockchain.

Some commentators have argued that the value of many tokens is in fact minimal or nothing, but that the increased hype among investors for ICOs and a general ignorance of the instrument they are acquiring has led to many ICOs being grossly overvalued.

Once an investor has acquired their digital token, they are the beneficiaries of the token's underlying rights. In practice, many investors will, at a later stage, look to trade their token on a digital exchange (such as on Overstock or TokenMarket) as a form of cryptocurrency once the project has increased in value.

What are the benefits of ICOs?

ICO’s have been hailed by some as the great disrupter of venture capitalism. It has also been widely portrayed as a ‘Wild West’ in which there are considerable riches to be won but also lost.

Fintech firmsIt can be of no surprise that ICOs are hugely popular with fintech start-ups, particularly given the background of venture capital funding in which large financial institutions can exercise considerable negotiating power over fledgling businesses. The benefits of ICOs for start-ups include:

• Wider investment pool: The ICO offers start-ups the opportunity of bypassing venture capitalism altogether by approaching a wider pool of investors on more preferable terms.
• Speed: The ICO can be a very quick and easy means of raising capital for start-ups by, in most cases, avoiding more cumbersome regulations for IPOs
• Marketing: The ICO can be an extremely effective marketing tool for a start-up business by raising the firm's profile with investors across the globe at the same time as it receives investment. Some ICOs can direct more business for the firm by giving token holders certain rights/benefits to the services offered by the firm.
• Ease: Once the ICO has launched and tokens have been issued, the Bitcoin- or Ethereum-backed tokens can be extremely easy for the business to administer causing minimal interference to the firm's operations.

Investors Investment in ICOs is growing rapidly and increasing numbers of investors see the ICO as an opportunity to profit from the opportunities presented by fintech businesses.

Despite in many cases the increased risk that ICOs present to investors and warnings from regulators, such as the UK’s FCA, against investment by inexperienced or retail investors, the ICO’s popularity appears unaffected. The reasons for the ICO’s popularity with investors include:

• New investors: Previously investment in start-up was considered the preserve of a limited number of venture capital businesses. Many investors which are interested in taking a share in the innovative projects proposed by fintech firms see ICOs as a quick and easy opportunity to do so.
• Profit: The volatility of cryptocurrencies means that, while it is possible to suffer significant losses, there are also significant gains to be made. A well chosen investment in a digital token can lead to profits far exceeding more traditional financial instruments.
• Liquidity: As with listed shares, digital tokens can be traded on virtual exchanges allowing investors to realise their investments quickly (but of course only if there is demand). Unlike with traditional venture capitalism, investors do not have to be locked into a project for a prescribed number of years.
• Portfolio diversification: In comparison with venture capitalism which requires a significant sum to be invested in a particular business, ICOs allow investors to diversify their portfolios by taking smaller stakes in a larger number of businesses.

What examples are there of ICOs?Many commentators trace the first ICO back to the sale of Mastercoins back in July 2013 which reputedly raised around $500,000 worth in bitcoins (about 5000 bitcoins at the time).

Since then, hundreds of ICOs have followed. The most widely acclaimed ICO was probably Ethereum’s launch of the ‘ether’ coin in July 2014, in which over 7 million ether were sold (worth approximately $2.3 million in the first 12 hours alone). Other notable examples of ICOs include:

• Unikrn’s (an e-sports betting plaform) ICO presale earlier this year raised $15 million from accredited investors, including Mark Cuban.
• Social media platform Kik’s launch of the Kin token raised $98 million in investment following its ICO (including a private pre-sale ICO).
• Kyber, a digital exchange, raised nearly $60 million in just over 24 hours following its launch of its KNC token.

Recently, spoof tokens have also begun to appear, such as the 'Useless Ethereum Token', to parody ICOs which some perceive to be a fad which has created an ICO ‘bubble‘ and offers little value to the investor.What are the risks behind ICOs?

Regulators worldwide have raised concerns of the potential for fraud since many ICOs take place overseas or outside of regulations. Most notably, in September this year, the People’s Bank of China declared ICOs illegal in China, previously a popular destination for launching ICOs, and called on ICOs to stop in order to prevent “disruption to social order”.

The FCA has fallen short of banning ICOs in the UK, however, recently issued a warning to consumers to raise awareness of the risks behind investing. The key risks for investors identified by the FCA are:

• Unregulated space: the fact that most ICOs are not regulated by the FCA and many are launched overseas.
• No investor protection: investors in ICOs are unlikely to benefit from UK regulatory protections, such as those offered by the Financial Services Compensation Scheme or the Financial Ombudsman Service.
• Price volatility: the value of tokens can be very volatile, which can lead to considerable losses to investors.
• Fraud: there have been cases of the fraudulent use of ICOs to raise funds to be used in ways which were not originally marketed to investors.
• Inadequate documentation: Whitepapers, which are prepared by the issuer for ICOs, are not regulated and consequently may be incomplete or misleading in comparison to regulated prospectuses for IPOs.
• Early stage products: many start-ups which undertake ICOs are in the early stages of development with experimental business models. This poses greater risk to investors who could potentially lose their entire investment.

Many critics of ICOs argue that the main risk is the ignorance of many investors of the investment they are making, combined with a reluctance from regulators to attempt to regulate a technology they do not fully understand. ICOs and investments in cryptocurrency are considered 'very-high risk, speculative investments’ by the FCA and yet, many investors do not recognise this fact.

There is widespread confusion as to whether or which ICOs are regulated (see below). In the absence of regulatory clarity, many whitepapers and other marketing materials can be misleading or incomplete, resulting in greater confusion for the investor.

Without greater regulation of ICOs there is a risk of a sudden market crash and loss of investor confidence which could cause lasting damage to the ICO as a method of raising capitalAre all ICOs ‘unregulated’ in the UK?It seems to be a common misconception that ‘all ICOs are unregulated in the UK’.

This is a huge generalisation and, unfortunately, an incorrect one (as tokens themselves are not prescribed instruments and can perform a wide variety of functions). From a UK perspective at least, the true picture is in fact far more complicated.
This in part can be explained by the fact that the UK’s regulated activities and financial promotions regimes were not originally drafted with ICO’s in mind.

Digital tokens are not expressly referred to in the underlying legislation. However, many digital tokens perform the same or similar functions to financial instruments which do fall within these regimes.

The FCA has warned that “depending on how they are structured, some ICOs may involve regulated investments and firms involved in an ICO may be conducting regulated activities” noting that some ICOs show parallels with IPOs, private placement securities, crowdfunding or collective investment schemes which are regulated.

Commentator Preston Byrne, in his excellent blog on the FCA’s warning, similarly gives the example of how some tokens can be seen as types of future or other options which require authorisation.

It is certainly true that the existing legislation is unclear and needs to be updated quickly to address this confusion.

However, issuers and currency exchanges should heed the FCA’s warning and consider whether they will be carrying out any regulated activities requiring authorisation.
Burges Salmon LLP - Adrian Shedden and Alex Gillespie
For more Legal Perspectives like this one, see Lexology here : https://www.lexology.com/library/detail.aspx?g=3b5c2a6c-6c92-4d00-a758-2a96e0e8c51e

Simple Token right now seems to aim to become the Stripe of the blockchain industry, are there any plans to expand the usage of the platform to non-developers? Are there any other plans in the pipeline to make Simple Token a “currency”?

Simple Token enables any company to create and manage their own digital branded crypto-currency powered by Simple Token without their internal team needing to know any blockchain technology.



Simple Token combines the “ST” ERC-20 token, an immediately usable protocol for consumer app tokenization, and a SaaS software solution for managing your token economy.

Our message to potential customers is simple: You focus on your own customers and your core technology and leave the blockchain infrastructure to us. We give you all the tools you need to design, create, and manage your token economy.

Simple Token is a digital currency in that it has a value from day 1. Simple Tokens are staked against creating Branded Tokens (“BT”) for each company and the value of those BT is always based on the value of ST.

Aside from adoption, what is the biggest challenge that Simple Token is realistically facing as it grows?

Visibly differentiating ourselves from the slurry of ICO nonsense. There are so many companies that are undergoing token sales for the wrong reasons; either they have a product that does not warrant a token sale, they’re looking to scam investors, or they enter the crowdsale phase much too early.


We don’t view a token sale as a fundraising event, although many do. A token sale is a token generation event, and its primary goal should be to create, build out and strengthen an ecosystem, not just make money.

We are also taking care to make sure that the entire Simple Token software program is simple to use, living up to our brand promise.

What are the steps that your team is taking to increase the adoption rate of Simple Token once it launches?

Firstly, we’re committed to seeing our Member Companies succeed. We reserved 27.2% of the total Simple Token supply (roughly $18M) for our Network Accelerator Program.


The Accelerator Program provides grants to projects we feel will advance and strengthen the Simple Token ecosystem. These grants will help them fund their development and implementations, incentivize and reward their developers, and provide some warm-up tokens to their users to spur the initial stages of adoption.


We’re giving these grants to projects of all sizes, not just already successful companies, but startups with solid ideas and roadmaps.The best way to increase adoption is to be sure that we’re ensuring the success of those already using the OpenST platform, and support potential projects that will continue bolstering its strength.

Because Branded Tokens will be tradeable across the ST ecosystem, as more companies join the platform, their customers will be able to use their tokens to make purchases from other companies, and vice versa, incentivizing more people to frequent their business.

Loyalty programs are no longer isolated to a single company – in the ST ecosystem, tokens gained through frequenting Company A can be used on purchases from Company B, or even spent in games and apps on the platform.

Can you explain more on what you’re trying to do with Simple Token for Pepo? How is it going to change the function of Pepo once the protocol is applied?

We originally came up with the concept of Simple Token in 2016 when trying to develop a token economy for Pepo. Pepo is poised to launch a vibrant marketplace for local tips and reviews using Pepo Coin, powered by Simple Token.



Unlike services such as Trip Advisors or Yelp wherein people give up their reviews for free, Pepo will enable anyone to get rewarded for their valuable contributions.

What is your outlook on Simple Token 5-10 years down the road?

We envision Simple Token as the standard for app tokenization. Not only because we offer a palatable onramp for embracing blockchain technology, but because our ecosystem finds strength in numbers.

Eventually, more companies will be incentivized to join because of the universal exchangeability within this ecosystem.


Why go through the development process to create an isolated token that can only be used within one company?  Because there’s no incentive to use, buy or sell that token when there’s a globally interconnected token marketplace in which any token can be used to frequent any company.

If a company tokenizes their rewards program onto an isolated blockchain, nothing would change from the current status quo of rewards programs; you buy from Company A, and you use those rewards towards Company A.


Rewards programs, in-game purchases, peer-to-peer transactions across every industry will be used towards any other on the Simple Token platform.

The Simple Token token sale

Simple Token will launch the token sale for the ST utility token.

Below are the details of the token sale:

Token name: STToken base: Ethereum (ERC-20 compliant)

Token supply: 800,000,000 (240,000,000 on sale during the token sale)

Token sale date: 14th of November, 2017Token sale target:

$20,000,000Token exchange rate: $0.0833 = 1 ST

Simple Token’s Website

Simple Token’s Whitepaper

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By Daniel

As our editor-in-chief, Daniel is at the helm of our smart tech commentary ship. He is fascinated by this new direction that the tech industry — and really all industry — is taking, and understands the potential, the power, and the promise of putting capital funding in the hands of the public.