ICO investors from around the world are continuously subjecting their funds to unnecessary risk caused by the lack of regulations. We could surely turn to our governments to institute regulations, but then we would become dependent on a third party to verify ICOs. Instead, this article will present the concept of self-regulating trust in the ICO environment through market participants. This process isn’t perfect yet, so we’ll address the risks, how to reduce them, and how ICO platforms are actively participating in this necessary process!
What Do Investors Need Protection From?
ICOs swept onto the scene and picked up in popularity extremely fast in the crypto-market, opening up funding for several legitimate companies. Unfortunately, this also allowed for scams to flourish and steal money from unsuspecting investors. Even ICOs that appear completely legitimate can be fraudulent, but oftentimes it isn’t intentional maleficence that causes investors to lose money. Here are a few key things that a self-regulating market (a market that operates without externally imposed control or regulations) could help prevent.
Utility tokens are offered in many ICO sales, but what happens if the company never gets off the ground? Are the investors refunded if the company never reaches its first milestone? Although utility tokens are perfect for launching companies that plan to offer a service (acting as a type of digital coupon), the high risk of failure and what happens afterwards needs to be addressed. Unfortunately, if tokens are classified as a utility, and not as security, then the investor has little chance to recover their money if the company goes bankrupt.
Value speculation happens when a company predicts its goals to be far more lofty than achievable, and because of these claims something appears to be a much better investment than it really is. Blogs and websites certainly write about these claims, trying to debase them, but without a community consensus these opinions are often lost in the frenzy of the hype-train. Bitconnect is the perfect example of this, where high ranking users on Bitcointalk were questioning the validity of the company, but quickly got lost in hundreds of “positive comments.”
Unavailable due to network congestion
When many ICOs are using the same cryptocurrency platform to launch, such as Ethereum, sometimes trading becomes unavailable due to network congestion. Without a community vetted organizational system for ICO launches, this problem will only become more prevalent as ICOs become more popular. Investors can find startups launching on different platforms, but each comes with its own set of risks and security issues. Regardless of the platform an ICO is being launched on, the fact remains that if the underlying network slows down or crashes it can instill fear in investors, possibly driving them to sell and crash the market even further.
Regulatory strictness on a local level
Regulatory strictness on a local level can cause investors to lose money when they realize they shouldn’t have been able to invest at all because of their local laws. Since ICOs launch worldwide, having a community-monitored method of verifying who can invest is crucial to ensure that investors abide by the laws that govern them. Practices like KYC and AML are steps in the right direction that can, and should, be expanded on further.
The Present and Future of Market Self-Regulation
There are three main forms of ICO market self-regulation currently being implemented, some with more success than others. ICOs are being launched worldwide, and many governments are struggling to pass legislation fast enough to keep up with the changes. Because of this, different types of self-regulation have begun to take shape in order to ensure that the market can succeed even after government regulations kick in.
[bctt tweet=”Self-regulation have begun to take shape in order to ensure that the crypto-market can succeed even after government regulations kick in”]
Self-regulating organizations are groups of businesses sharing decision making power and trying to impose regulations on other businesses in their region. SROs are increasing in popularity as businesses spread across countries band together to begin regulating themselves before their respective governments implement stricter laws on ICOs. This is done in the hopes of alleviating the blow of strict government regulations by reigning themselves in ahead of time. They encourage standardized regulation of ICOs within their region to protect ICOs from future government regulation and investors from fraudulent ones. The main problem is that several countries are not part of a self-regulating organization, making it difficult for ICOs to find guidance for self-regulation.
Recently, Croatia’s Blockchain and Cryptocurrency Association (UBIK) has met with the Croatian government to discuss regulations, particularly on ICOs, and aims to simplify the complicated process of adhering to current and future laws. This may become a trend, considering two of Japan’s largest cryptocurrency industry groups may have held talks of merging in order to govern policy.
Private self-regulating committees
Private self-regulating committees contain a spearhead company that intends to set the rules and has gathered the support of other businesses who agree to follow. This is a different approach from other self-regulating organizations because instead of seeking community consensus, they instead want to declare the policy they feel is correct.
For example, the Chamber of Digital Commerce currently touts itself as the “world’s leading trade association representing the digital asset and blockchain industry,” and is comprised of numerous companies that want to call the shots for the entire industry. Waves is in a similar position, creating a small committee of like-minded organizations in an attempt to declare industry standards for all current and future ICOs.
Market participants is a third, albeit different, category of market self-regulation. Relying on ICO portals, small companies, investors, and field experts, this method defers less to established rigid laws and regulations and depends more heavily on community involvement and opinion, remaining more true to blockchain principles. Community knowledge and education is pivotal for this variation of self-regulation, particularly in the United States where regulation is rapidly evolving.
Relying on market participants to have the communities’ best interests in mind would be naive, so using a variety of forums, websites, and ICO portals to cross check and thoroughly vet is the answer that this regulation method perpetuates. According to Tal Ron, a managing partner of Tal Ron, Drihem & Co, “The industry has to regulate itself, that way there will be less need for tough regulation. We must learn from the lesson of the binary industry. If you do proper KYC and AML and do right by your customers, you will be okay. The market might be smaller, but it will exist.” Only through a clear presentation of information and open discussion can we safely evaluate ICOs, and Coinschedule presents the ideal circumstances for doing just that.
How are ICO Platforms Helping the Investors?
In an effort to open the pathways of information, reduce the need for heavy government regulation, and make investing safer and more secure for everyone involved (regardless of country), many ICO platforms aim to fill the niche of market participant self-regulation; most prominent amongst the crowd is Coinschedule, a UK based ICO listing platform that has earned the communities trust through years of quality service.
[bctt tweet=”Many ICO platforms aim to fill the niche of market participant self-regulation”]
Coinschedule was one of the first ICO listing platforms available to the market, and it maintained its grasp on being one of the best since its founding in 2016. Utilizing a variety of methods for vetting ICOs, such as providing authentic links to the dev team’s LinkedIn profiles or requiring that ICOs pass their ICOrank algorithm, Coinschedule has grown and changed with the market over the years. Because they don’t accept every ICO that wishes to list with them, the community has grown to trust the information that is provided on ICOs listed with Coinschedule.
The core founding principle for Coinschedule is the presentation of useful and transparent information on ICOs in order to allow investors to make the most informed decision possible. This information is presented without an attached opinion, which enables investors to digest it as they choose and form their own opinions without being swept up in a hype-train over an ICO that might not be worth it in the end.
Getting a Headstart on Research
By tracking ICOs before they hit the market and listing it in their “Upcoming” section, Coinschedule is able to provide their community with the chance to research the ICO before it goes live and the pressure to buy increases. Given that ICOs only last for a limited amount of time, doing research ahead of time can enable the investor to confidently buy in during the early stages of funding, which often includes bonuses. However, the investor should be aware of the fact that bonuses that are too good to be true often are, as high bonuses can be clear indicators of a potential scam.
The Benefit of Veteran Knowledge
Extensive knowledge of the ICO process shown through past successes, and the development of their own ICO ranking algorithm, permits heavy vetting when accepting new ICOs on Coinschedule. This elaborate and thorough approval process helps to ensure that outright scams are not listed. However, this does not guarantee that all ICOs listed on their platform will succeed, and it is up to the investor to help regulate the market by only investing in ICOs that they deem to be trustworthy based on the information readily available through Coinschedule, Bitcointalk forums, and other similar websites.
Other ICO portals participating in market self-regulation
Diligently working throughout the years to provide only the most vetted investment opportunities to visitors, which can be verified through their completed ICO list, it is no surprise that Coinschedule has inspired many other websites to do the same. Through this joint community of market participant self-regulation, individuals and companies in the ICO field are trying their best to make it safer for investors to buy into the startups seeking funding. For this effort to succeed it is necessary for the entire community to be meticulous when evaluating new ICOs.
TokenMarket is the perfect platform to research tokens, blockchains, and decentralized projects that are focused in the financial market; all projects are thoroughly vetted by TokenMarket staff.
A similar approach is taken by ICOCrowd, who publishes independently researched articles on ICOs and covers topics in the general ICO industry to keep readers up to date on diverse changes.
To find an extensive list without bias visit ICO-List; it features quick links for important information and a comment section for ICO-related discussions.
Where Will the Future Take Us?
Without a doubt, more regulation is needed in the current Wild West era of ICOs to ensure that this innovative way to raise funds can continue without too much negative speculation. Where that regulation will spawn from is the million dollar question. Perhaps it will be through individual government enforcement, creating disparity between physical borders due to inconsistent international regulations. Maybe it will spur from a privately-founded self-regulating committee who proclaims a standard that becomes accepted worldwide.
[bctt tweet=”ICO market needs self-regulation through market participants holding them to the highest standards”]
Realistically, giving control of a decentralized concept to a centralized organization seems to be asking for trouble. The most stable resolution to the problem seems to be self-regulation through market participants and trusting the community to rigorously vet ICOs, holding them to the highest standards.