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Report: There are more ICOs — but they’re raising less

While Singapore secures its spot as the world’s number 1 jurisdiction for ICOs, a new report finds that despite greater numbers, many ICOs are failing to raise funds.

Although the total number of ICOs continues to rise a recent report from ICOBench, reveals that many of them are failing to raise funds. The report also suggests that the quality of successful ICOs is increasing as the market matures.

Despite 40 more ICOs closing out during the fourth quarter of 2018, the total funds raised fell from nearly 1.9 billion in Q3 down to 1.4 billion — a 23 percent decrease. At the same time, the average "ICOBench rating" of a successful ICO increased from 3.5 to 3.6.

However, despite ICOBench being one of the most popular websites for listing and rating ICOs, the exact methodology it uses for its ratings is unclear — relying on both an algorithm and the opinions of "experts" to give each ICO a score out of five. Although these experts must pass a background check, the site has previously been accused of providing good ratings for a price.

Putting assessments of quality aside, ICOBench has collected a wide range of data on ICOs that shows the changes happening in the market as the frenzy has abated and regulations begin to be enforced.

ICO hotspots

According to the report, ICO activity is particularly strong within certain segments of the crypto industry, and is also consolidated in certain countries.

Globally, Singapore is the top country by both the total amount of funds raised, and the number of ICOs completed in Q4 2018. The city state has long been a favorable location for tech projects, but has recently received a boost as ICO-friendly regulations were rolled out in August 2018.

The migration of projects from China after the ban could also have helped push ICO numbers in Singapore above countries like Switzerland, USA, and Estonia, which all have either lenient legislation, or an active tech scene, but come up behind Singapore in terms of total funds raised.

Historically, Singapore hasn’t always held the top spot, and ICOs operating in the United States are found to have collected the highest amount of funds overall — at 7.4 billion compared to Singapore’s lifetime ICO earnings of 2.2 billion. This suggests that recent enforcement efforts may have hindered the fundraising efforts of ICOs in the US.

Other aspects of the ICO world, however, remain the same: Ethereum has fought off contenders like EOS and Waves to retain its position as the most popular platform for ICOs, and the same old industry subsectors are coming out on top in terms of capital raised. Projects revolving around trading — like wallets and exchanges — are still the most popular with investors, reflecting the situation in early 2018, when a report from competing website ICOrating found the leading ICO industries to be Blockchain Infrastructure and Financial Services.

Enforcement: phase two

Anyone looking to raise capital with an ICO today, is entering a far more clearly defined regulatory environment than in 2017.

Over the past year, the SEC has come down hard on startups selling "unregistered securities", and issued charges against two ICOs operated by Airfox and Paragon after they raised $15 million and $12 million respectively. This move sent a clear message to not only bad actors, but potentially also slowed down the operations of legitimate funds trying to ensure compliance, and possibly even tempted other fundraisers to move abroad.

As of this week, the SEC has made the compliance process easier by publishing guidance for those considering raising capital with an ICO, or investing in one. This lays out several points; emphasizing the need for registration, highlighting the multitude of names that ICOs can come under, and stressing the need for caution for everyone involved.

The publication of this guidance could mark what crypto lawer Jake Chervinsky called last year "phase two" — a theoretical enforcement phase in which "the SEC expects everyone in the industry to come forward voluntarily and work with the SEC to make sure they’re in compliance with the securities laws."

This thesis was confirmed last week by SEC commissioner and "crypto mom" Hester Peirce, who suggested in a speech on crypto regulation at the University of Missouri that more guidance was on the way to help projects determine "whether their crypto-fundraising efforts fall under the securities laws."


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