SWRM Labs Blog

ICOs and Capitalization Trends for 2018

Jan 19, 2018 10:55:36 AM / by Robert Binning


Photo by Chris Li on  Unsplash

Initial Coin Offerings have been in the news heavily throughout the past year. Also called Token Sales, ICOs are a method for blockchain projects to raise funds without diluting the equity held by the founding team. There are three kinds of tokens commonly encountered: security tokens, which are assets that represent convertible units of value, meant to be traded through exchanges or redeemed for fiat currency when exiting the service; equity tokens, which represent ownership shares in the project; and utility tokens, assets that have no inherent value but are required to implement the service.

The majority of token types sold over the past couple of years are security tokens, assets meant to be tradeable or redeemable. Some are explicitly stores of value, like Bitcoin, Ripple, or Tether, while others are assets that people buy to use the service, including a number of gambling blockchain sites. While customers may not explicitly seek profits from their investment in these tokens, they do expect that the tokens will at least hold value while they use the service. Gamblers using tokens are hoping for token paybacks that they can redeem for fiat; Tether buyers seek a dollar-equivalence to hold funds between cryptocurrency investment cycles.

From an accounting perspective, utility tokens represent an asset held by the entity, and token sales generate extraordinary income for the business, offsetting accumulated and future operating losses as the project evolves from a pure R&D entity to a business with revenues and expenses.

A historical look at the blockchain industry shows that the industry is rapidly moving away from Bitcoin to embrace a multitude of tokens. A year ago, bitcoin was nearly the only cryptocurrency of note: Bitcoin controlled 85% of the total market capitalization for all cryptocurrencies and was the only currency worth more than $1 billion. Six months later in July, the total industry value had grown by a factor of 4x, and there were six tokens worth more than $1 billion in market capitalization, with Bitcoin holding just under 50% of the total capitalization value.

Tags: ICO, Ethereum, Bitcoin, Cryptocurrency, Uncategorized, Blockchain

Robert Binning

Written by Robert Binning

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