5 Lessons Learned from the ICO Bubble

There’s a saying: If you forget the history, you are condemned to repeat it. In today’s lesson, we’re going to touch on the five lessons that were learned from the ICO bubble so that we’re not so quick to repeat the mistakes, but rather learn from them.

Back in 2017, the ICO bubble was growing quickly, and it was spawned from the ideas behind Mastercoin. In case you’re not familiar with Mastercoin, it was a protocol layer built on Bitcoin that pioneered the crowdfunding revolution for crypto projects way back in 2013. The team behind the protocol, later renamed as the Omni Layer, had the idea of outlining the features they wished to build, giving Bitcoin holders an opportunity to contribute to their project in exchange for part-ownership of their protocol.

But it wasn’t until Ethereum popularized smart contract technology that ICOs truly took off, mainly as a result of the simplicity with which anyone could set up a crowd sale contract and issue their own token. Teams got into the habit of issuing ERC-20 tokens as placeholders for some future token that would be native to their as-yet-unlaunched network. Investors poured millions into crowd sale contracts based on promises made by the teams. It was truly a gamble whether or not these developers would actually deliver on their roadmap and create the functional technology that the investment money was supposed to buy.

Execution proves challenging for projects
Enthusiasts were quick to proclaim ICOs as the leading new model for capital growth, going even as far as labeling it a threat to traditional venture capital. Naturally, this drew comparisons to some of the most epic asset bubbles of the past; The Dutch tulip bulb market bubble of the 17th century; the Great Depression, the housing bubble of 2008…

And the ICO market grew quickly, sparking FOMO and panic to buy in to the new thing that it almost had nowhere else to go but bust. And it came tumbling down in spectacular fashion. As 2017 gave way to 2018, the value of once-popular tokens continued to bleed. Token holders began to realize that countless crypto projects could talk the talk but didn’t walk the walk. Executing the dream was proving to be a lot more difficult than shilling about it.

Releasing functional code is a major milestone for a project
Some projects succeeded in launching functional mainnets and products, but a sizeable percentage of the ICOs that launched in 2017 are yet to release any functional code. None. Some seemingly took the money and shut down. Other projects had a great idea but failed to market it, disappearing into oblivion. Retail investors were exceptionally enthusiastic about the nascent digital asset class, but the failure to launch on a testnet, much less the mainnet, caused a huge uproar of no confidence, declaring the entire ICO space a scam.

This knee-jerk reaction overlooks the fact that despite the presence of unscrupulous individuals who actually did take advantage of less sophisticated investors, there were still a good portion of projects that were founded by well-meaning entrepreneurs who sought to advance the ideals of decentralization across various sectors. Unfortunately, bad news is often the loudest and most far-reaching, which made crowdfunding through an ICO much more difficult for legitimate projects.

Projects building utility services such as decentralized storage and compute, as well as consumer-facing DApps distributing tokens for use within their application, faced the daunting task of having to build and maintain trustless infrastructure upon which to build their solutions. Some went as far as building their own consensus layer. Projects were left with very few resources to invest in creating value added products for the real-world.

DApp Networks put together necessary service components for building scalable products
Much like ICOs in 2017, the early days of the internet saw limited-functionality websites bogged down by resource limitations and unable to deliver the critical tools that have now become everyday staples. It was only after the emergence of APIs, cloud computing, and other similar services, that there was enough leeway to allow developers to move resources from infrastructure toward investing in the user experiences. Once that happened, the internet revolution took off!

On the DApp Network, all the necessary service components for building scalable products are aggregated in a single platform, much like public cloud providers, such as AWS, that can take care of things like the auxiliary functions associated with infrastructure maintenance and service provisioning, decentralized middleware platforms which allow for scalability, and gives the development teams room to focus on their core competency.

The early adopters and developers were building from scratch. It is only now where projects no longer need to “recreate the wheel” but rather adapt existing things to develop their own version.

Monetizing resources is essential for a thriving global market
One of the more popular segments of the ICO space that, much like the rest of the market, underwhelmed upon execution was the lack of decentralized markets for digital resources. Just a few years ago, the technology was having a digital wallet that could transfer useless token from each other. To many people, it was a novelty with no real value. Let’s not forget the 10,000 BTC for two pizzas purchase.

But now, blockchain-enabled digital scarcity has enabled the creation of marketplaces for resources such as data storage, memory, and computing power. Projects like Golem, Storj and Filecoin raised millions of dollars in their quest to create platforms that would allow users to monetize their excess resources by selling them to resource-strapped developers in exchange for tokenized rewards.

At this point, we have yet to see the emergence of a thriving global market for such utility projects – but it’s coming. Filecoin, for example, raised $257 million to create an incentive layer on top of IPFS, a decentralized file storage system. They’re about two years post ICO with no product to show (yet), but there is no doubt that there is a need and growing interest for this type of next generation system. And while the team behind the project is made up of the same capable developers that built IPFS, the task of building each component and assembling them to form a decentralized storage network from the ground up has proved daunting for the FileCoin team.

A mature infrastructure is essential to a project’s growth
In 2017 projects were falling short of their potential due to the immaturity of infrastructure and the “newness” of the emerging technology. In 2019, we see blockchain developers harnessing easy-to-use service platforms to deliver scalable, interoperable products that can solve real problems for their users. What will 2020 and beyond bring?

In the end, the ICO was great for developers who were on the ground floor to innovation, while others only saw opportunity to cash in. Some were good, but there will always be bad actors in any field. What did we learn from the experience though? That research and development take time, dedication and money; that investors need to do their due diligence before handing out exorbitant amounts of cash, and perhaps making all the money up front, is not a good idea because it’s a lot of temptation without a lot of accountability to deliver.






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