78% of ICOs in 2017 were scams, but got only 0.3% of funds raised
Only 0.3% of ICO fundraising goes to scams, depending on how you want to measure it.
A new report from Satis Group, Cryptoasset Market Coverage Initiation: Network Creation, has identified 78% of ICOs in 2017 as scams.
This was defined as "any project that expressed availability of ICO investment... did not have/had no intention of fulfilling project development duties with the funds, and/or was deemed by the community (message boards, website or other online information) to be a scam".
However, this 78% of scams only went on to raise somewhere between 0.3% and 11% of the approximately US$12 billion raised in ICOs throughout the year, depending on how exactly you want to measure it.
$12 billion? That's not what I heard
$12 billion is much higher than most of the other widely used fundraising estimates, such as CoinDesk's $5.3 billion total for 2017.
It's probably not worth sweating the details too much though. There are different ways of measuring ICOs, and it's largely a matter of opinion and convenience. For example, one has to decide whether or not to include the estimated $4 billion raised by the year-long EOS ICO. It started raising Ether in 2017 but wrapped up in 2018. This Satis research also includes the $150 million Ethereum DAO which many others wouldn't consider to be an ICO.
There's also the question of how you account for volatile prices. Do you count the value of funds raised at the time of each ICO? This might be the most honest-seeming approach, but perhaps not the most useful because it disproportionately emphasises the ICOs that went off when prices were higher. It also sounds like a lot of work.
You can't use the prices at the start of 2017 because not all the coins you want to measure existed then, and it would come out unrealistically low. So maybe you just use the prices at the end of the year, which also happened to be almost exactly on crypto all-time highs?
There's no perfect way to do it, so take all the dollar signs with a grain of salt.
78% scammy, 0.3% of funds raised
Of the $12 billion, Satis says only about 11% ($1.3 billion) went to identified scams. But if you exclude just three outliers, that drops to $30 million, or 0.3% of the total funds raised. The inclusion of these three outliers is debatable in different ways. They are:
- SaveDroid: After raising $50 million, SaveDroid exit scammed as a joke, then un-exited as an unjoke. Whether its founders are scammers or just have really, really poor judgment is still up for debate.
- AriseBank: After raising $600 million in token sales to start a decentralised bank, then seemingly lying about acquiring stakes in real banks and getting shut down by the SEC, AriseBank is no more. But the founder insists that the project was all started and operated in good faith, and technically the jury is still out on the alleged AriseBank scam.
- Pincoin: A Vietnamese project, whose slick website is still up, that is believed to have raised 15 trillion Vietnamese dong worth about US$660 million. The founders disappeared after raising the funds and it seems to have all the hallmarks of a Ponzi scheme. But if you're going to count Pincoin, then why isn't Bitconnect on the list too? Its coin got listed in 2017, and the only reason not to include it is because it didn't have an ICO. It still sold tokens though, and by not including it you're just splitting hairs over whether or not a scam refers to itself as an ICO while selling its Ponzi tokens.
With just a little bit of data massaging you have a reasonable argument for scam ICOs only raising 0.3% of funds in 2017.
Is that a valid interpretation? Sure, why not. The numbers are never going to be right anyway, so you might as well just pick what sounds good (see 0.3% headline) as long as it can be justified in some way.
Either way, the paper notes that it paints a much more positive picture of ICOs than the phrase "78% of ICOs are scams" would suggest.
"Outside these three projects, Identified Scams got away with just $30M in fundraising (or ~0.3% of all time ICO fundraising)," the report says. "We hypothesise this is because the community is relatively adept at discovering scams and adding them to lists."
Overall, the report notes that the majority of ICO fundraising (54%) has gone to projects it would classify as successful.
"This is a very positive story and a direct contrast to the outcome when you look at the percentage of Successful and Scam projects on a per numbers basis (4% and 81% respectively)."
There's a lot of variation in how different studies measure scamminess, and no right answers. What about all projects that are arguably designed to profitably fail legally without technically being scams? What about unverifiable claims that the Venezuelan Petro ICO raised $5 billion? There are probably too many grey areas to ever attach an accurate number to scams in cryptocurrency.
In contrast to all the grey areas around scams, measurements of general ICO mortality remain remarkably consistent across different studies, suggesting a solid 50/50 chance of ICOs failing shortly after being listed on an exchange.
50% ICO mortality rate
There's a lot of variation in how different studies measure scamminess. In contrast, measurements of ICO mortality remain remarkably consistent across different studies, suggesting that solid 50/50 chance of ICOs failing soon after being listed on an exchange.
- According to a recent study from Boston University, about 50% of listed ICOs fail within 4 months.
- A study from bitcoin.com found that 59% of ICOs died within 12 months of finishing fundraising.
- This Stratis analysis, finds that about a third of the non-scam ICOs die before getting listed, another third go on to get listed and enjoy success, while another third are listed but still look like they might be dying soon.
There are a lot of different ways to measure success and reputability, so it probably pays to take most numbers with a grain of salt.
Or in this case, to optimistically declare that only 0.3% of ICO fundraising goes to scams. If you really want to make that look really good, just compare it to figures saying that about 5% of global business revenue is lost to fraud. With enough handwaving, and a sufficiently credulous audience, you now have the bones of an argument that ICOs are actually 16.6666 times less scammy than average businesses.
Disclosure: At the time of writing the author holds ETH, IOTA, ICX, VET, XLM, BTC, NANO
- Ethereum price shrugs off SEC and IRS criticism with 24-hour rally
- Can Bitcoin beat the Fed? BTC price increases despite bearish news
- Intel and Block support for miners could push Bitcoin higher
- Cathie Wood’s ARK analysts predict Bitcoin at US$1 million each by 2030
- Gibson prepares to offer NFTs based on its classic guitars