A newly released BitMEX Research report revealed that the combined valuation of initial coin offering (ICO) projects in the crypto market has declined from $80 billion to $10 billion, by more than $70 billion in less than 12 months.
Arthur Hayes, the CEO of BitMEX, described ICOs as “poo poo” created “out of thin air,” referencing the report of BitMEX Research entitled “Tracking US$24 billion Of Tokens ICO Makers Allocated To Themselves.”
What Caused ICOs to Fall by $70 Billion and Crypto Market to Plunge
In an interview with JoongAng in September 2017, a mainstream media outlet in South Korea, Ethereum co-creator Vitalik Buterin said that while ICOs are typically conducted on decentralized protocols in the likes of Ethereum, many blockchain projects are mostly centralized.
The majority of ICOs rely on opaque operations, single development teams, and a core group of individuals that the community has to trust to run a blockchain network or a decentralized application (dApp).
Prior to the bull run of cryptocurrencies in November 2017, Buterin stated:
“However, they also have their flaws, and I think many of these flaws arise from the fact that even though the ICOs are happening on a decentralized platform, the ICOs themselves are hardly decentralized; they inherently involve many people trusting a single development team with potentially over $200 million of funding. There are also not very good incentives for people to produce information to help people determine which projects are worth participating in. I think in the medium term, getting funds with ICOs will get harder, regardless of whether or not regulation is implemented.”
During a bull market, when the demand for an asset class skyrockets to a point in which investors funnel massive amounts of capital with no regards to the sustainability of projects, assets tend to experience a rapid growth rate.
However, as the bubble deflates and the valuation of projects begins to depreciate, projects with fundamentals, active user bases, and products survive while most projects fail.
The lack of fundamentals in the ICO space has led to a $70 billion drop in the valuation of tokens, as reported by BitMEX Research.
Surprisingly, $24.2 billion generated from ICOs and token sales were allocated to team-controlled wallets, which allowed project owners and operators to remain control of a relatively large portion of the circulating supply of tokens.
“Although peak valuation highly is dubious due to a lack of liquidity and most of the tokens were granted to the teams essentially for nothing, therefore classifying these price movements as losses may not be appropriate. Unlike ICO investors, the teams did not have an offering price or initial investment. However, some trading activity occurred at these ridiculously high valuations, therefore we believe it’s still interesting to consider these figures, while bearing these caveats in mind,” the BitMEX Research report read.
Lack of Transparency
Based on the high percentage proportion of the tokens that were allocated to the founders of tokens, analysts suggested that the study of BitMEX Research demonstrates the lack of transparency in the ICO market.
The research team explained that throughout the past two years, teams were able to sell, buy, trade, and mint tokens often in an opaque manner. The data obtained by BitMEX Research showed that ICOs may have profited more than $13 billion from token sales since 2017.
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