Stunning Visualization Of The Explosion Of ICO Activity In The Last Four Years

Via Elementus.io,

This graphic shows every token sale that successfully raised at least $100k, from the beginning of 2014 through the end of last month, November 2017. The bar chart at the bottom displays the total dollar amount raised in each month (details below).

How big is the ICO (aka token sale) market really?

It seems like this should be an easy question to answer. After all, blockchains are open data layers that contain a complete record of every transaction ever made. However, we"ve found the answer to this question to be surprisingly elusive.

We surveyed the web for data on token sales and turned up over 100 ICO listing sites. Estimates on the total dollar amount that has been raised via ICOs to date range from about $3.5 billion to $4.5 billion.

Why such a big discrepancy?

As far as we can tell, all of these estimates rely strictly on reported figures -- either by the ICO issuer itself or by another third party. There is nothing wrong with this approach. Many data providers in the financial world collect their information this way. However, why rely strictly on reported figures when the actual transactions are available directly from the blockchain?

We decided to estimate the size of the ICO market ourselves by going directly to the source.

The figures in this post are based on our own deep dive into the Ethereum and Bitcoin blockchains. We searched for every token, crowdsale, and multisig wallet we could find. We then identified the corresponding owners and added up the total amount of contributed funds -- taken either from the blockchain itself or as reported by the fundraiser.

In total, we estimate about $6.4 billion has been raised via ICOs to date - materially larger than what is being reported elsewhere.

Perhaps more surprising than the fundraising total is the trend over time. The ICO market is not dying down, as many have reported. It"s still growing.

The rise and rise of ICOs

This chart is a labeled version of the one at the top of the post. It shows the ICO fundraising amounts by month.

Contrary to the commonly heard narrative that the ICO party is coming to an end, ICO fundraising in November was only slightly off its high point the month before.

The current run rate of over $1.3bn per month surpasses traditional early stage fundraising by a multiple. Angel and seed-stage VC investments were running at less than $300 million per month as of July (Goldman Sachs via CNBC).

The trend is even more stark when you look at the total count of ICOs that closed each month (minimum raise of $100k).

By this measure, the token sale market is not only still going strong. It"s accelerating!

November set a new record for number of closed token sales with 148, an increase of 36 compared to the month before.

We view this metric, the number of token sales, as a better gauge of market activity than the fundraising total. The total dollar amount raised is not only susceptible to fluctuations in crypto exchange rates, it may also be driven by just a handful of outliers, rather than the true underlying trend. For example, just two ICOs (Tezos and EOS, which raised $236m and $200m respectively) account for nearly half of July’s total fundraising.

The number of ICOs completed each month shows a much clearer trend, and one that shows no sign of slowing down.

To play around with the graphic yourself, click here to view the interactive bubble chart.

TL;DR

• ICOs have closed over $6.3bn of fundraising to date.


• Contrary to widespread perception, the ICO market is still growing.


• Total fundraising in November was down slightly from its high point in October ($1.38bn vs $1.39bn).


• November set the record for number of ICOs that closed with 148.

SEC Wins Injunction Against ICO Organized By Financial Fraudster

The Securities and Exchange Commission is stepping up its long-overdue crackdown on shady initial coin offerings that are churning out suckers at a record clip with one simple promise: Invest in our coin and you, too, can receive an astronomical IRR just like your savvy cousin who bought a handful of bitcoins back in 2011 and decided to hold on for dear life.

In an enforcement action that, as far as we can tell, is the first of its kind anywhere, the SEC just won an emergency asset freeze to stop an initial coin offering that the agency said has defrauded investors by promising a 13-fold profit in less than a month.

While such an outrageous guarantee should immediately set alarm bells ringing in the minds of any experienced investor, bitcoin’s 1,000%-plus return so far this year has inspired many lazy would-be crypto millionaires to throw caution to the wind and approach every new ICO with a level of credulity that’s totally unjustified. But anybody who actually reads the “white papers” that many of these companies release will realize that they typically comprise hypertechnical gibberish designed to convince investors that there is no problem in the world today that can’t be solved with a blockchain and thousands of monetized tokens.

According to Bloomberg, the asset freeze was granted after the SEC sued Dominic Lacroix and his company PlexCorps in federal court in Brooklyn. The firm and Lacroix, described by the SEC as a recidivist securities-law violator (a status that’s not uncommon among so-called “entrepreneurs” in the massively fraudulent world of ICOs), have raised $15 million since August marketing and selling a product called PlexCoin.

The case is the first brought by a new SEC unit created in September to focus specifically on ICOs.

“This first Cyber Unit case hits all of the characteristics of a full-fledged cyber scam and is exactly the kind of misconduct the unit will be pursuing,” said Robert Cohen, head of the SEC’s Cyber Unit.

 

“We acted quickly to protect retail investors from this initial coin offering’s false promises."

According to the SEC, Lacroix and PlexCorps violated securities laws by failing to register the offering and not disclosing Lacroix’s involvement with probes by Canadian authorities, the SEC said. The agency also sued and froze the assets of Sabrina Paradis-Royer, described as Lacroix’s romantic partner. The suit seeks fines and disgorgement from Lacroix and Paradis-Royer, as well as a ban on their participation in offerings of digital securities.

The SEC fired its warning shot in July when its ruling on an investigation into the collapse of the DAO - a sort of proto-ICO that went bust after hackers stole $50 million worth of ethereum tokens (of course, the total value of the tokens stolen has massively inflated in the interveneing period) - officially declared ICOs to be securities that must be registered with the SEC. In August, the regulator warned investors to exercise extreme caution before investing in ICOs, warning that many are classic pump-and-dump schemes obscured by a new techno-veneer.

Even the most successful ICOs are on the verge of collapse. The 800 or so ICOs that have launched this year have raised nearly $4 billion. Yet the market has been astonishingly devoid of success stories.

Yesterday, we reported how frustrated investors in Tezos, which raised more than $230 million in an ICO over the summer, have filed a spate of class action lawsuits against the company alleging that its founders intentionally defrauded investors. The company, which had little more than a white paper to its name when it completed its offering, has yet to produce the digital tokens it promised investors.

Meanwhile, the ethereum and bitcoin that it accepted as payment during its crowdsale have appreciated massively in the intervening months.

But for those investors who still insist on invest in the ICO market - where founders fool investors with nonsensical business plans that they pass off as “too complicated” for the average layperson to grasp - one 16-year-old math whiz has created a product that will reportedly allow investors to invest in a “tranche” covering the entire ICO market.

As the press release explains, the answer is simple:

In a nutshell: We’re going to take a position in each ICO, then wrap those up into their own ICO and then you can buy tranches of that ICO depending on your “risk tolerance” i.e. how strong a person you are.

 

Basically, it’s all a question of how RICH YOU WANT TO BECOME. The bottom tranche is so safe that you can basically put your entire life savings in and earn a fat return.

The notion that diversification can help investors avoid losses in a massively fraudulent market is, of course, a canard. At the end of the day, it"ll be the investors - not the offering"s organizer - left holding the bag once the entire market goes to zero.
 

Frustrated Investors File Lawsuits Against World"s Largest ICO

Here"s the latest sign that the massively fraudulent ICO market is headed for a collapse.

Tezos’s investors are still waiting to learn when they can expect to receive the digital tokens that they paid a premium for during the company’s record-setting crowdsale. But as reports of abuse, internal strife and outright embezzlement have surfaced in the press, three groups of angry investors have filed class action lawsuits accusing the company of fraud and securities violations.

In response, Arthur and Kathleen Breitman, the young couple that founded the Tezos project, are asking the Switzerland-based Tezos Foundation to foot the bill for their legal defense – a controversial move, seeing as that money is supposed to seed the Tezos coin ecosystem, according to Reuters.

Tezos set a new sales record in the white-hot IPO market this summer when it raised more than $230 million in a hotly anticipated ICO that saw several behemoth firms in the northern California venture capital scene invest millions while thousands of individual investors followed suit, enticed by the astronomical returns of digital currencies like bitcoin and ethereum?

However, anybody who stopped to scrutinize the Tezos whitepaper – where the company’s founder laid out his “vision” for a product that he has yet to build – would recognize that the company’s business plan sounds like gibberish.

Despite this, the company raised more than $200 million during the first week of its July crowdsale.

To help shore up investors’ faith in the company, the leaders of Tezos promised to entrust the money they raised during the token sale to a nonprofit organization set up in Switzerland. The Tezos Foundation, is supposed to keep the company on budget until the product is finished. The company initially promised investors that it would deliver their tokens – informally known as Tezzies – by the end of the year.

The Tezos project and its founders, Arthur and Kathleen Breitman, are facing three class-action lawsuits in the United States. Plaintiffs allege federal securities law violations and that the fundraiser defrauded participants, who were told they were making non-refundable donations to the Swiss foundation. The lawsuits are seeking refunds and damages.

 

The project has yet to launch, which is required for contributors to receive new Tezos digital coins, called Tezzies. Meanwhile, their contributions – made in bitcoins and ether – have soared in value.Both lawsuits name as defendants the project’s young founders, their Delaware-based company, Dynamic Ledger Solutions Inc (DLS), which owns the Tezos source code, as well as the Zug-based Tezos Foundation.

 

A Reuters investigation in October found that the couple was in a bitter dispute with Johann Gevers, the foundation’s president, over control of the project.

 

Arthur Breitman told Reuters in Zurich on Thursday that he would not answer any questions. Gevers said he could not comment on the Breitmans’ request that the foundation indemnify them against legal actions.

According to legal experts who are familiar with the arcane rules governing Swiss nonprofits say the legal argument for the Tezos Foundation covering its founders’ litigation expenses is flimsy, at best.

Georg von Schnurbein, co-author of a book on Swiss foundation governance, said he saw no reason for the Tezos Foundation to cover the Breitmans’ legal costs.

 

“In my opinion, there is no reason for that because their activities were connected to their Delaware company, not to the foundation,” he said.

 

The foundation’s three board members could be held liable by Swiss regulators if they were to agree “because the lawsuits have nothing to do with the foundation purpose, only with the collection of money prior to that,” von Schnurbein added.

Unfortunately for investors, Tezos neglected to disclose many of the details about the relationship between the foundation and Dynamic Ledger Solutions Inc, Tezos’s corporate entity.

Further complicating matters is the contractual agreement between DLS and the foundation that was signed in June. The agreement, which is not public, governs the sale of DLS and its intellectual property to the foundation.

 

The agreement, a copy of which was reviewed by Reuters, states that the Swiss federal supervisory authority for foundations must approve the agreement. It also indicates the approval was required before the fundraiser took place.

However, a spokesman for the department that oversees the Swiss authority told Reuters that approving these types of agreements lies outside the authority’s scope of influence: “It is not the Foundation Authority’s task nor its responsibility to approve private law agreements."

The contract also says that some Tezos software code would be put in the public domain prior to the fundraiser. But the foundation later said that it has a license to release the code and will do so “at an appropriate time before the launch of the main network.” Conveniently,  documents provided to investors didn’t mention the required approval by the Swiss authority or the timing of the source code’s release.

Stephen Palley, an attorney at Anderson Kill in Washington who focuses on software development, told Reuters after reviewing the investor agreement that it may help plaintiffs’ lawyers show that contributors to the Tezos fundraiser were purchasing securities, not making donations. According to the agreement, the contributions were needed to launch the Tezos network, he said. Over the summer, the SEC issued a ruling in an inquiry into the implosion of the DAO that effectively deemed all ICOs securities offerings. This means companies that launch ICOs must register their tokens as securities and abide by all pertinent securities laws.

“This weakens the argument that tokens were a discretionary gift, akin to a tote bag given to people who donate to a public radio fundraising drive,” he said.

 

Kathleen Breitman told Reuters in June that participating in the Tezos fundraiser was like making a donation to a public broadcaster and receiving a tote bag.

 

The agreement was signed on June 27 by Gevers and DLS’s shareholders, who are the Breitmans and an investment firm founded by Silicon Valley venture capitalist Tim Draper. The shareholders eventually stand to receive 8.5 percent of the funds raised in the initial coin offering in cash, and additional Tezos coins distributed over four years.

 

Reuters also reviewed a separate agreement between DLS and the foundation. It lists 11 early backers of Tezos, including the living trust of Frederick Ernest Ehrsam III, a co-founder of Coinbase, which operates a U.S. cryptocurrency exchange; Meta Stable Capital and CoinFund LLC.

 

Jake Brukhman, CoinFund’s managing partner, said the fund initially backed the Tezos project but received a refund in May before the fundraiser. “Our teams came to a mutual decision to part ways,” he said.

 

Ehrsam declined to comment through a spokesperson for Coinbase. Other early backers did not respond to requests for comment.

The internal strife at Tezos spilled into public view back in October when the Breitmans accused Johann Gevers, the head of a Swiss foundation which oversees their funds, of attempting to overpay himself using the massive pot of investor capital - despite the fact that the company will likely blow through its promised deadline of allocating tokens to buyers by December (the tokens have yet to be created). The news sent Tezos futures contracts trading on BitMEX spiraling lower.

Of course, Tezos isn’t the only major ICO that’s in trouble: Last month, we reported that Bancor, the world’s fifth-largest ICO by funds raised, has plunged by more than 50% since the company’s June ICO as investors have become disillusioned with its obscure product.

The question remains: Would Tezos’s failure help pacify the investing fervor surrounding ICOs? Or will investors in these products continue to be victimized by fraudsters until the offerings are banned outright?

Luckily for Tezos, if the owners can"t remedy the company"s many intractable problems, PwC is now accepting payment in bitcoin for its consulting services...

Blockchain-Based Platform Spurs Confidence In "Sketchy" ICO Investment Opportunities

If it were a competition, BnkToTheFuture would be a shoo-in for “most meta business plan” of 2017. To wit, the company is building a blockchain-based trading system for selling and trading stakes in blockchain companies in a play to capture a subset of investors who are growing increasingly wary of the sketchy ICO market.

A firm called BnkToTheFuture plans to open a market in the second quarter that will let investors trade equity stakes in companies involved with the blockchain, the transaction-tracking technology that underpins digital currencies like bitcoin. BnkToTheFuture will use a blockchain ledger to keep record of those investments for clients.

While the blockchain tech sector is certainly still in its infancy, there’s little doubt that investors are interested in finding more reputable ways to facilitate investing in blockchain. Presently, the booming market for ICOs, which has seen more than $3.5 billion raised this year, has proven to be rife with incompetence and even outright fraud.

Some of the largest and most widely anticipated ICOs are already floundering with their tokens rapidly losing value, and even drawing lawsuits, in some cases.

Given the lack of honest brokers – and explosion of self-dealing – in the existing market for investing in blockchain solutions, there’s reason to believe BnkToTheFuture’s projection that it will soon facilitated more than 50% of private investments in the space.

“By year-end, we could have 50 percent of the major companies in the sector on our platform,” Chief Executive Officer Simon Dixon said in a phone interview.

As Bloomberg explains, the blockchain is a digital ledger for recording transactions in a secure and transparent manner. The technology is expected to revolutionize industries ranging from finance, to supply chain management to even boring old title insurance, as we recently pointed out.

BnkToTheFuture has already helped some 45,000 accredited investors from around the world invest more than $200 million, Bloomberg reports. It has allowed investors to buy equity in more than 100 companies and projects, including ethereum and storj. The company is planning to implement a blockchain-based ledger to record and facilitate these transactions – something it says it will implement by the second quarter.

It’s worth noting that BnkToTheFuture – despite its implicit challenge to the existing ICO market – is itself an ICO.  The company plans to issue a token next year with which customers can pay BnkToTheFuture for deal analysis, due diligence and investor relations. BnkToTheFuture hopes to raise as much as $33 million in an initial coin offering planned for next February. The largest ICO’s have raised more than $200 million. Indeed, some self-styled ICO “experts” have advised their audience that raising $100 million in an ICO can be more trouble than its worth.

As more regulators crack down on the ICO market – China has banned it entirely, and the SEC has opened civil actions against several accused ICO fraudsters – investors could migrate to BnkToTheFuture’s platform. To be sure, the product has not yet launched, and if ICOs like Tezos are any guide, investors in ICOs shouldn’t count their chickens before they hatch, so to speak.

BnkToTheFuture is registered in the Cayman Islands, and holds a stake in a broker-dealer. The company holds equity in several established digital-currency exchanges, including Bitstamp and Kraken.

According to Kyle Samani, managing partner at Multicoin Capital Management, a crypto hedge fund, BnkToTheFuture is already a hit in Asia.

“Their investment opportunities are vetted quite extensively and it seems only very few get accepted judging from the amount of investments that pass through their platform,” Majid Shah, the co-founder of CoinSchedule and a longtime user of BnkToTheFuture, said in an email. “I would say they provide a lower-return but lower-risk way of investing into the blockchain space, whereas ICOs are more high return, high risk.”

However, BnkToTheFuture isn"t the only company trying to legitimize ICOs: Overstock.com saw its shares pop back in September after revealing that it is building a platform for launching and trading ICOs.
 

Ethereum Proposes "Guidelines" To Stop ICO-Related Fraud

It looks like Ethereum’s developers and entrepreneurs have finally recognized the perils of being associated with the massively fraudulent ICO market.

ICOs have exploded since the beginning of the year as companies equipped with little more than a white paper sketching out some grandiose (and often highly improbable) killer app that somehow incorporates a monetized token trading on a blockchain much like bitcoin. So far, these offerings have raised more than $3 billion this year, and many of them are built on top of Ethereum’s platform, which enables the creation of decentralized “smart contracts” that can carry out higher level functions beyond simple transfers of value.

Last year, the collapse of the DAO - a kind of crowdfunded project meant to provide early stage financing to blockchain startups - sent the price of ethereum spiraling lower. Apparently, Ethereum’s top people are afraid the collapse of the ICO market might be even more damaging, CoinDesk repors.

"Grotesque" might not be the word you"d think ethereum developers would ascribe to today"s ICO scene.

 

But that"s exactly how some of the platform"s ardent supporters described the current state of affairs. At Devcon3 in Cancun, Mexico, last week, developers were decidedly unenthusiastic when approached for thoughts about the new funding method, some going so far as to allege that many projects that use it to raise money are little more than "scams."

 

Even Fabian Vogelstellar, the developer behind the technology standard that helped make ethereum tokens so easy to launch, was keen to join the ranks of ICO critics, echoing remarks made by a colorful cast of commentators as diverse as MIT Media Lab Director Joi Ito and the "Wolf of Wall Street" Jordan Belfort.

 

"The problem right now is that too many people outside of the blockchain space focus on tokens and ICOs; frankly speaking, it"s the least interesting part of ethereum." 

The tone of these remarks stands in stark contrast to the optimism about ICOs , which just earlier this year were being hailed as a groundbreaking tool for capable of revolutionizing how companies raise money.

Etherscan CEO and founder Matthew Tan went so far as to call ICOs ethereum"s "killer app," a statement that aligns with the more than 10,000 token projects launched to date – 13 of which have eclipsed $100 million in total market value, according to Etherscan data.

 

It"s an interesting take seeing how ICOs are typically touted as a means to circumvent traditional fundraising methods. But, du Rose"s sentiments hint at a crucial criticism: that many ICOs are simply executing incorrectly. 

The criticism comes as regulators in US, China and many other major markets for cryptocurrencies have taken steps to curb or regulate the markets. The SEC has been slowly clarifying its stance toward ICOs since this summer, when it first declared - in a finding about the DAO fiasco - that ICOs are securities that must be registered with the SEC and subject to US securities laws.

To their credit, Ethereum developers have suggested some helpful “guidelines” of their own.

Here’s Jack du Rose, co-founder of ethereum startup Colony:

Ethereum developers largely believe that, at the very least, the individuals or company behind an ICO should have a prototype to prove their idea could theoretically work in practice. For instance, ethereum-based casino game platform FunFair launched an ICO over the summer, but only after releasing several prototypes.

 

And FunFair founder and CEO Jez San Obe had strong words about issuers that do it differently.

 

"You should have a product before you ICO, you should know how to run a company, you shouldn"t have an anonymous team and you should release a prototype first," he told CoinDesk.

It’s something that, in conventional markets, should go without saying. But ICOs are anything but conventional. So Ethereum’s developers reminded investors and the companies doing the offering not to "risk other people"s money on something, when there’s a reasonable likelihood we"d be prosecuted."

Issuing  a token before the product is not only foolish from a regulatory standpoint, but also "incompetent and greedy."

Du Rose also insisted that ICOs be reserved for companies building a product that is decentralized, like the ICO being used to finance it.

"For a token to be interesting ... it should be a totally decentralized protocol, not just glitter on top of a centralized company with its own revenue models," du Rose said.

 

In this way – although probably curiously for some – Giveth founder Griff Green pointed to The DAO as an ICO success story. Though its code had a bug that led to millions of dollars in ether being stolen from users, it was at least decentralized, said Green, who was the community organizer of the project.

 

He thinks about The DAO in a more abstract way, though, saying that, in the future, people will be able to launch their own cryptocurrency to push against the power of the banks.

 

"The power of creating currency is unfathomable. Banks are in a really good spot today. They have a lot of money and a lot of power. They can create money out of nothing. Instead, with ICOs, you can give that power to every person," Green said.

While regulators, investors and - increasingly - the general public believe the ICO space is fraught with bad actors, some crypto investors see this as the beginning of a learning process. ICOs could still revolutionize corporate fundraising, they believe, the market just needs to work out the kinks first.

"What I"ve seen is kind of unsurprising," said DappHub software engineer Andy Milenius. "People"s first experience with an idea is allowed to be wrong."

As we"ve reported, two of the world"s largest ICOs have already hit the rocks this year.

And we imagine those won"t be the last...

Norwegian Mining Company Launches First Asset-Backed ICO

While the world debates whether blockchain-based Initial Coin Offerings are a fraudulent pyramid scheme, meant to take advantage of gullible investors who are desperate to get rich quick, or a revolutionary "post-equity" way of raising capital, a Norwegian mining company, Intex Resources ASA, has taken the next step in the latter, and last week announced it was issuing the world"s first asset-backed Initial Coin Offering, with the resulting tokens being exchangeable for the physical collateral.

Although Intex is not the first corporation to approach ICOs as a means of raising capital, with Overstock revealing last week that it will launch an ICO on Nov. 1 using its proprietary tZERO platform, a strategy that will allow Overstock to raise capital without diluting its common equity float, Intex approach is somewhat different: the Company intends to issue asset-backed tokens which are backed by the Company"s metal reserves; currently Iron Ore  and Nickel Ore.

Where Intex" approach is unique, is that the newly issued Tokens will be based on blockchain technology and will be exchangeable into the physical product, i.e. Iron Ore, Nickel or products derived  thereof. As a result, the company"s Tokens are being pitched as an alternative tool for investors who are looking for Iron Ore or Nickel exposure/hedging or investors who simply want exposure in digital Tokens which have the security of underlying value assets (as opposed to Bitcoin and other unsecured and un-asset backed crypto currencies).

Commenting on the new capital raise, Lars Beitnes, Chairman of the Company, said the "the new world of secure digital currencies and tokens opens up a whole new way for listed companies to raise capital. We believe our ICO would be the first of many to come from other companies in Norway and internationally."

While it remains to be seen how accepted it is, by effectively pledging collateral behind the ICO, the company eliminates of the biggest concerns the rightfully skeptical investing public has regarding ICOs: the fact that they have no "fair value."  However, once pegged to an underlying asset, that argument loses much of its potency.

What exactly is the collateral behind the new ICO? The answer, according to the press release, are the iron ore assets in the company"s Ambershaw mine in Canada:

As the Iron Ore asset owned by Ambershaw Metallics Inc. (AMI) is the closest to production the parties anticipate initial development of a Token with Iron Ore (or products derived thereof) as the underlying asset, in cooperation with AMI. The Company has 5% direct ownership and an option to acquire majority control in AMI. AMI expects to start concentrate production in Q2 2018. AMI estimates that in the initial mining phase it can produce approx. 330,000 tonnes of concentrate annually. The current sales price for 65% Fe concentrate is estimated to approximately USD 93 per tonne, with production cost of USD 35 and estimated freight cost of USD 15-20 per tonne.

Beitnes pointed out what Overstock CEO Patryck Burne noted last week, namely that "one of the great benefits with raising capital through an ICO is that there is no dilution for the shareholders, in addition to the benefits of transparency, the asset backing and it being attractive compared to traditional capital funding."

Beitnes then notes the interest in digital currencies by other international companies - such as BP, BNY Mellon, Credit Suisse, Deloitte, Intel, J.P. Morgan, MasterCard, Microsoft and UBS, among others - and notes that "seeing these great companies taking interest in this new world of financing, gives us comfort that this is the future for corporate capital raising. They are all members of the Enterprise Ethereum Alliance, where we also plan on becoming a member."

As for the chief reason for the company"s decision to use an ICO to raise capital - besides euporic investors who are more than eager to allocate capital to the new platform despite repeat warnings by regulators that these may be fraudulent - Beitnes writes that the Tokens could offer "interest-free financing to the Company and its mining subsidiaries by selling future production in advance" and adds that "for the Company the most obvious potential of issuing Tokens is the possibility of bridging the gap between current reserve-value and equity value, in addition to providing a possibility  for non-dilutive financing for our shareholders."

Going one step further, Intex" partner in the launch, Harmonychain, said that it is already preparing a market for the ICOs as a surrogate for trading the underlying iron ore and nickel assets that collaterlize the ICO:

"We have already registered IRON and NICKEL on the EC20 blockchain"  said Bjorn Zachrisson, CEO of Harmonychain AS, "and we are looking into ways to distribute the tokens and have them tradable on reputable token exchanges". 

Needless to say, it is still far too early to know if this proposed asset-backed ICO will be a success, although the concept of an asset-backed ICO is certainly novel and may eliminate many of the fears of ICOs blowing up worthless in the future, in the process opening up the pathway to another capital raising process, one which gives ICO investors at least some implicit collateral protection behind their investment.

One thing that"s clear: the market"s euphoric response to the announcement, with Intex stock soared on the Oslo Stock Exchange, nearly doubling on huge volume.

Meanwhile, as we wait to see if the Intex experiment is successful, a more ominous development is the unchecked proliferation of older, shadier ICOs, many of which are certainly frauds. Here, the problem as laid out by The Business Blockchain author William Mougayar is that the world continues to be flooded with legacy ICOs, which may end up imploding in the not too distant future, crushing investor interest in the asset class, and killing off ICOs as a potentially credible, regulated way of raising capital.

This was my Inbox this morning. 15 ICOs closing in 36h. As @fredwilson writes this morning, buyer beware. https://t.co/0crLDDUxKB pic.twitter.com/YmlP8JyPB9

— William Mougayar (@wmougayar) October 29, 2017

SEC Files First-Ever Civil Fraud Charges Against ICO Companies

That didn"t take long.

After issuing a ruling in July that officially declared that the tokens sold during initial coin offerings must be registered as securities - a ruling that many hoped would lend a badly needed veneer of legitimacy to the shady ICO market - the SEC is following through with what we imagine will be the first of many civil actions against ICOs and the individuals who launch them.

The agency on Friday announced civil actions against two companies and their founder, businessman Maksim Zaslavskiy, for violating anti-fraud and registration provisions of federal securities laws after misleading investors in a pair of so-called initial coin offerings (ICOs) purportedly backed by investments in real estate and diamonds.

It"s important to remember that this is civil complaint - the SEC doesn"t have the power to make arrests; to do that, it must work in tandem with the FBI. Zaslavskiy is a free man. However, his assets - and those belonging to his companies - have been frozen. Instead, the agency is seeking to permanently ban Zaslavskiy from participating in any future digital-currency offerings, along with what we imagine will be hefty fines.

In its press release, the SEC accused Maksim Zaslavskiy and his companies of selling unregistered securities, while also alleging that the digital tokens or coins he was peddling didn"t really exist. According to the SEC"s complaint, investors in REcoin Group Foundation and DRC World (also known as Diamond Reserve Club) were told (presumably by Zaslavskiy) that they could expect sizeable returns from the companies" operations, when neither had any real operations to speak of.

As we"ve previously reported, the ICO market has exploded since late last year. The total sum raised has already reached $1.3 billion, with more expected by year"s end. However, the ease with which unscrupulous people could fraudulently market their tokens (and earn big money) has attracted attention from regulators all over the world. China cited fears about abuses related to ICOs as the reason for shuttering all local digital-currency exchanges. Russia briefly flirted with the idea as well.

Earlier today, FINMA, the Swiss government body responsible for regulating markets, said it was investigating several ICOs for possible fraud. In its press release announcing the investigations, the regulator explained that because ICOs are structured in a similar way to traditional stock offerings, they fall under the agency"s purview. So every time it has received a complaint related to ICOS, its representatives have pursued that complaint.

To the best of our knowledge, these are the first indications that any official regulatory action is being taken against ICO purveyors in either the US or Switzerland.

In its civil complaint, the SEC alleges that "from July 2017 to the present, Zaslavskiy, the President and sole owner of the Companies, fraudulently raised at least $300,000 from hundreds of investors, through various material misrepresentations and deceptive acts relating to supposed investments in digital “tokens” or “coins” offered, first by REcoin, then by Diamond, during the ICOs."

Zaslavskiy allegedly touted REcoin as "The First Ever Cryptocurrency Backed by Real Estate."  Alleged misstatements to REcoin investors included that the company had a "team of lawyers, professionals, brokers, and accountants" that would invest REcoin"s ICO proceeds into real estate when in fact none had been hired or even consulted. Zaslavskiy and REcoin allegedly misrepresented they had raised between $2 million and $4 million from investors when the actual amount is approximately $300,000.

Zaslavskiy then carried his scheme over to Diamond Reserve Club. He marketed the organization as one that invests in diamonds and obtains discounts with product retailers for individuals who purchase "memberships" in the company. Despite their representations to investors, the SEC alleges that Zaslavskiy and Diamond have not purchased any diamonds nor engaged in any business operations. Yet they allegedly continue to solicit investors and raise funds as though they have.

Read the rest of the complaint below:

2017.09.29icocomplaint by zerohedge on Scribd

 

ICOs On Track To Raise $1.7 Billion As Firms Ignore SEC's "Tokens Are Securities" Ruling

Two weeks ago, the Securities and Exchange Commission declared that the virtual tokens issued during an initial coin offering, an increasingly popular funding mechanism for blockchain startups, are considered securities and are therefore subject to a litany of regulatory strictures, including the need to register any pending offerings with the agency.  

The SEC’s decree was expected to slow the pace of new ICOs, as startups scrambled to hire legal counsel and figure out how, exactly, to comply with the new rules, as we reported. However, blockchain analysts reasoned that the agency’s ruling was a good thing for the market’s long-term health, and that the increased scrutiny would help confer more legitimacy on the shady ICO market, which is fraught with hacking attacks and scams. SEC oversight benefits entrepreneurs by encouraging more risk-averse investors to buy their tokens. It helps investors by weeding out fraud.

However, it seems we underestimated the market’s willingness to simply ignore the whims of US regulators. Despite being the world’s largest economy and one of the largest markets for crypto assets, the New York Times is reporting that “the cautionary words of American regulators have done little to chill a red-hot market for new virtual currencies.”

“…even after the commission said it was looking closely at projects that may violate its rules, programmers are still embarking on new offerings at a torrid pace. Most of the offerings have little legal oversight and some appear to conflict with the commission’s basic advice.

‘The broader detail and the silences in the report should give many people pause and that doesn’t seem to have happened yet,’ said Emma Channing, the general counsel at the Argon Group, which helps projects in the industry raise funds. ‘I don’t understand why everyone isn’t as concerned as I am.’

Since the guidance was released on July 25, 46 new coin offerings have been announced and an additional 204 are moving toward fund-raising, according to data Tokendata.io.”

Despite the SEC’s ruling, the ICO market remains on track to surpass all historical VC investment in the blockchain space by year end, which stands at $1.7 billion since 2010, according to a team of analysts at Pitchbook. In the eight years since the debut of Bitcoin, only Coinbase, Circle and 21 have raised more than $100 million.

July was the best month for ICOs to date, according to NYT.

“July was the biggest month for coin offerings, with 34 projects raising $665 million, Tokendata.io data shows – or twice as much money as was raised in the first five months of the year combined.”

However, data from Goldman Sachs puts the total for July closer to $300 million, which would make July the second-best month after June. However, ICOs have surpassed angel and seed-stage funding for all internet companies since the beginning of the summer.

The decentralized nature of digital currencies allows blockchain companies to – using Pitchbook’s phrasing - “maximally leverage regulatory arbitrage.” Why should startups with a hot ICO waste money on lawyers when they can just move to Switzerland?

As the NYT explains, companies can try to avoid the SEC by blocking US investors from participating in an ICO…

“Other projects have tried to work around regulators by prohibiting American investors from buying their coins, which they have done by barring anyone who tries to buy the coins from an internet address associated with the United States.”

…but the relative ease with which US investors can circumvent these limitations still risks angering the agency, which could go after a company for non-compliance – even if it’s based in a foreign country – if US investors are found to have participated.

“Several lawyers said that the commission is unlikely to care about the steps taken to keep out American investors if Americans still end up buying the coins.

‘Just blocking IP addresses is irrelevant,’ said Patrick Murck, a partner at the law firm Cooley, referring to internet protocol. ‘There’s only one thing that is relevant, and that is whether a US investor bought in your sale.’”

While Switzerland’s regulatory climate remains accommodative for blockchain companies – it recently opened the door to the crypto-asset management industry by allowing a local private bank to begin handling digital currencies – Singapore, another crypto haven, has said it would adopt many of the same restrictions imposed by the SEC, according to the NYT.

Ultimately, the real reason so many firms have hesitated to comply with the SEC is because they view compliance as a greater business risk than non-compliance. To use a metaphor: Nobody wants to be the first person to jump into murky water - there could be sharks or other dangers lurking beneath the surface.

“Mr. Murck said that even teams that do make an effort to comply with the regulators are going to be in treacherous waters because of the lack of clear definitions and law regarding virtual currencies.”

“There are still open questions after the SEC report,” he said. “There’s uncertainty and risk in the space, even for people who are taking a professional approach to it.”  

But after the waters have been tested, companies will have a clearer picture of the risks involved, and perhaps be more willing to comply.

Read the full pitchbook report on ICOs below:

PitchBook 3Q 2017 Fintech Analyst Note ICOs by zerohedge on Scribd