According to CoinDesk’sState of Blockchain (http://www.coindesk.com/research/state-blockchain-q1-2017), issued as of June 6, 2017 for the first time in the technology’s short history, blockchain entrepreneurs are raising more money through initial coin offerings (ICOs) than traditional venture capital investments. In the first quarter 2017, blockchain entrepreneurs have raised $327m through ICO offerings, a figure that now exceeds the $295m raised through VC funding, according to CoinDesk data.
Moving through Q2 2017, capital raised via ICO’s has already reached more than $326 million, surpassing the total amount of funds raised by venture capital methods ($295 million).
Therefore, in order to assess the maturity of ICO projects, we decided to set up a projekt to assist investors in obtaining comprehensive knowledge of those projects and therefore we have developed a tokenrating model in order to setup standard assessment criteria in this growing industry.
An ICO represents a crowdsale of a new crypto asset (a Token) that powers peer-to-peer blockchain networks thereby enabling new business models. It is a new kind of global crowdfunding effort. These IC0s also called Token Sales have been quite successful during the past six months (USD 1,6billion) mainly also driven by high speculative factors. We are convinced that these new kind of crowdfunding could be enourmous valuable effect but as only limited regulation is available at the moments the Token sales bear also immanent risks:
The risks that token buyers may face include:
- The project may not be able to live up to expectations or keep its promises;
- The investors can only rely on the ICO whitepaper which outlines the business and technical plan of the project to understand the project details. But the whitepaper is not a legally liable agreement and thus there is no guarantee the plan is real or even feasible;
- Governance and management are not mature since most key members of the projects are programmers without much experience in project management;
We think an offer or sale of a Token (independent whether it is an utility token or an equity token) should be accompanied by a full and fair disclosure containing information necessary to enable prospective purchasers to make an informed investment decision. So we think comprehensive disclosure on an single project should provide information like:
- Project background: legal identities involved, identities and the background of the management and of the advisors bzw. project background,
- Business Model: the content in the whitepaper has to provide enough information to understand the core competitiveness of the project and its operation mechanisms and to enable an objective evaluation of the project itself to determine whether it has a realistic and achievable vision, feasible business implementations, etc.
- Source code disclosure: to enable the Assessment of the innovation, security and feasibility of the structure of the code or prototype
- Operation capability: Evaluate the project roadmap, disclosure information and the integrity of project governance to determine the overall operation capability;
- Token distribution plan: • Finance control: Assess the finance controls, funds usage plan and audit mechanisms to determine the robustness of the financial governance structure, the risk of misappropriation and the safety of raised funds.
- Adherence to financial surveillance rules like KYC/AML
Completeness of the due diligence process is based on long-term experiences.
Our Token rating scale:
Our Token Rating scale examines information that is currently available for a single project , as well as evaluates it against certain level of information we think – based on our experience as auditors and lawyers- should be given. So our rating scale provides an assessment of the appropriateness of the information given but by no way presents a judgement of the attractiveness of a specific project.