The late 2017 cryptocurrency run-up drove the values of major cryptocurrencies to an all-time high, catalyzing a wave of optimism that flooded the blockchain industry with investor capital. 2018’s “year of the ICO” saw almost $8 billion directed toward initial coin offerings, many of which captured millions of dollars on the back of a simple white paper and a single Telegram group.
The combination of falling cryptocurrency values and ever-increasing regulatory oversight, however, has created an ICO ecosystem in which a compelling white paper and a slick website is no longer enough. ICOs have been banned outright in countries such as Morocco, South Korea, and China, while others demand extensive documentation, registration, and AML/KYC policies.
The ICO ecosystem is moving away from the initial coin offering model and toward the security token model or STO. Unlike ICOs, STOs are tightly focused on regulatory compliance, often leveraging new blockchain platforms that integrate identity management at a protocol level.
The easy money and billion-dollar caps of 2018 are gone for good. While retail investor sentiment may be declining, however, enterprise capital is taking a strong interest in the possibilities presented by the future of blockchain-based crowdfunding. An entirely new funding ecosystem, driven by venture capital and the enterprise world, is emerging — placing new and stringent demands on would-be blockchain ventures.
Due Diligence is Here to Stay
The blockchain capital generation process followed by new blockchain startups is beginning to resemble more traditional avenues of startup fundraising. New blockchain ventures are now aiming squarely at enterprise-oriented stakeholders and are thus tasked with answering the same questions asked of traditional startups.
White papers are critical to the launch of any blockchain venture, but the new ICO landscape demands an MVP or proof of concept that demonstrates the fundamental capabilities of a project alongside a detailed roadmap and a reasonable go to market strategy.
As a result, more blockchain ventures are turning to accelerators and VC-backed incubators in order to generate the pre-ICO capital needed to deliver a compelling and credible proposition before approaching enterprise-oriented investors.
Compliance is King
The ICO ecosystem is now heavily scrutinized by regulatory bodies around the world. The $7 billion injected into ICOs over the course of 2018 rapidly captured the attention of regulators, resulting in the creation of new regulatory frameworks that demand extensive KYC and AML processes in token offerings.
Token sales are now subject to subclassification in many countries, with tokens now sorted and defined as utility tokens, security tokens, or other various instruments that fall under traditional securities law. Initial coin offerings and STOs must now perform careful due diligence regarding the geographic availability of their offering and ensure that they conform to the regulation in the regions in which they are made available.
Launching an initial coin offering or security token offering now requires that new ventures consider the legal and tax ramifications of their offering, as well as publish extensive documentation regarding the structure and registration of the business entity that drives it.
Developing an effective marketing strategy is now a critical element of any new blockchain startup launch. The earliest days of ICO marketing typically involved grassroots BitcoinTalk campaigns and cursory community management of platforms such as Telegram.
The modern ICO ecosystem, however, demands a multidisciplined approach to marketing that provides potential investors with transparent, well-written, and easy to understand information regarding an ICO. New blockchain startups are now working with industry-specific ICO marketing firms in order to access professional marketing techniques that incorporate PR, media outreach, SEO, community management, coin listings, and social media management.
While the ICO and STO ecosystem is now more complex than it was in 2018, it’s now more closely regulated, safer, and more innovative than before. Ultimately, new blockchain ventures considering launching a token sale in 2019 must create and deliver an MVP, communicate value via a compelling marketing strategy, and present it to the right stakeholders in order to capture the capital they need to succeed.