4/5 ICOs Conducted in 2017 Were Scams, New Report Claims

A new study quantifying the impact of initial coin offerings (ICOs) has concluded that the vast majority of projects conducted in 2017 were scams.

ICO Market Statistics

An ICO consulting firm by the name of Statis Group examined hundreds of blockchain projects launched throughout 2018, concluding that 81% of said projects are scams. To be classified as a “scam,” a project must have solicited investment funds with no intent to fulfill its development duties.

While four out of every five ICO projects were deemed to be scams, only 11% of the investment funds went toward said projects. Based on Stratis’ numbers, that amounts to $1.3 billion.

“Over 70% of ICO funding (by $ volume) to-date went to higher quality projects, although over 80% of projects (by # share) were identified as scams,” the report said.

Interestingly, only three projects accounted for the lion’s share of the stolen funds – Pincoin ($660 million), Arisebank ($600 million) and Savedroid ($50 million).

Initial coin offerings (ICOs)

ICOs took the world by storm in 2017, raising a combined $6.1 billion, according to ICOData.io. Depending on who you ask, ICOs have generated between $6 billion and $13.7 billion this year (Stratis claims that number is $7 billion). In doing so, token raises have seemingly defied a broad market downtrend that has inflicted cryptocurrency prices for much of the year.

Since peaking near $840 billion in January, the cryptocurrency market cap has lost a staggering $600 billion in value.

PwC recently reported that demand for ICOs remains as strong as ever despite evidence to the contrary reported by Hacked. The consulting firm says the crowdfunding model demonstrates repeated cycles of fund circulation, with existing holders of bitcoin and Ethereum using their wallets to fund new projects on an ongoing basis.

That being said, ICOs continue to face a murky regulatory picture. On the one hand, the U.S. Securities and Exchange Commission (SEC) has declared Ethereum – the protocol used by the vast majority of ICOs – to be a non-ecurity. On the other hand, the head of the regulatory agency has stated publicly that most, if not all, ICOs fulfill a security function.

The SEC remains unconvinced by the ICO industry’s distinction between security tokens and those used for application – i.e., “utility tokens.” Until further guidance is provided, ICO regulation will continue to be a patchwork in progress as agencies look for a common framework.

In South Korea, lawmakers are working to fast-track a slew of cryptocurrency regulations that could reinstate ICOs sometime this year. At least three South Korean officials are planning to present draft legislation to the National Assembly sometime this month. The Assembly kicked off its 13-day session on Friday.

Disclaimer: The author owns bitcoin, Ethereum and other cryptocurrencies. He holds investment positions in the coins, but does not engage in short-term or day-trading.

Featured image courtesy of Shutterstock.

Chief Editor to Hacked.com and Contributor to CCN.com, Sam Bourgi has spent the past nine years focused on economics, markets and cryptocurrencies. His work has been featured in and cited by some of the world's leading newscasts, including Barron's, CBOE and Forbes. Avid crypto watchers and those with a libertarian persuasion can follow him on twitter at @hsbourgi