Why the ICO Industry is terrible and how to fix it.

You already know it, or are sitting on the sidelines secretly hoping for hit pieces to come out, destroying everything Crypto, so what you do can be relevant again.

You — ‘I’m actually working on a Big Data AI startup, we’re Series A. Predicting patterns in…’

Other person — ‘You know what, you should totally put that on the Blockchain, tokenise…’

You — ‘But actually on AWS it’s like 40000% cheaper, you know’

Other person — ‘Buh Blockchain’

Yeah, it’s not even a parody anymore. It’s just a thing. The ludicrous bonuses, ridiculous amount of FOMO and hype, the sheer level of scammy marketing. It’s out of hand. Regulators are going to come in and because of our collective actions, they’re really going to go to town.

About me: I run a Marketing Agency, we specialise in FinTech, ICOs and general cool Blockchain things. We’ve spent 7 figures in advertising and have been the backbone, or at least part of, in excess of $100 million in raises. We get over 10 leads a day, everything from tokenising Nasal Inhalers (No, I am not lying), to full scale protocols. I’ve seen the best and the worst of them. I’ve even had people put us as advisors on their website without even asking. I’ve spent the last 3 months travelling non-stop, from NY to Kiev to Barcelona, speaking and networking at conferences. I feel as though I have a fairly healthy grasp on the industry from multiple perspectives, especially marketing for investments, but also on aspects such as the legalities.

The reason for the lengthy bio wasn’t to sell anyone It’s to demonstrate explicitly the experience in dealing with, let’s call it, the ‘underbelly’, of ICOs, with knowledge that I believe others simply don’t have, that should be expressed.

Now before I get into the meaty part of what may become an essay but I hope stays simply as a ‘piece’, it should be noted that I take into account multiple political issues when writing this. Such as regulation, the free-market intent of Crypto, or jurisdictions. As well as finance specific matters, such as insider trading and fraud.

I’ll attempt to lay a path for what I see as the future of ICOs and how they’ll actually run, while using examples of hideous immorality and the straight illegality we’ve seen, along the way.

Pay to Play

Our current client, CRYPTO20, recently found themselves in an awkward situation. They’d done everything by the book, full KYC/AML compliance and so on, then come to me with this email –

Not wanting to out them, I can say they’re a top 5 news firm in the Industry. The most important things to note are:

  • They will actually entertain sponsored posts, across multiple networks, for an investment vehicle (Not the worst)
  • They will actually hide the fact that it’s sponsored material (Pretty bad)
  • They have terrible cold emails

We were curious, phoning them up. To be told:

‘If $30,000 is too much, we would happily do it for $10,000 + $30,000 in tokens, as we really love your project’.

Wait a minute. A news website with millions of impressions per month, is willing to shill a coin to unknowing potential investors?

After further questioning, it appeared as though they didn’t even read the entirety of our whitepaper. To add fuel to the flames, this was actually the 4th ICO of ours that they had approached, all in the same manner. Except with prices getting gradually higher over the recent months.

So what does this actually mean?

This forms part of my larger argument, about Pay to Play and the abuse of power. Whether you like it or not, perhaps you’re ultra-for the free market, it’s clear to see that some bad players are tarnishing the market as a whole. The fact that journalists, heck, an entire news site, can covertly promote and investment vehicle that they stand to gain tremendous amounts from, by distorting information, is worrisome. The fact that you can be reading a ‘news piece’ on a well respected news site, shilling a coin because the journalists can essentially pump and dump it, is ridiculous. So when the SEC, FCA, MAS and other 3 letters start swinging, that’s where they’re going to go first.

On a strictly moral level, it’s difficult to justify such behaviour. Knowingly spreading disinformation into the market for personal gain, at a company level.

How do we fix this?

First, standards. Speaking with Ryan from Token Market and following one of Miko’s talks (From ICO Governance), it’s clear to see the focus of those on the forefront is Best Practices.

Now, I can say with certainty, the reason why Best Practices aren’t in place right now, is because of money. If we were to ditch KYC across our projects, allow US investors, go straight to market without audits and lawyers and the rest of it, we could make far more by spending far less. That’s a factual statement from our data.

Ultimately, Best Practices need to be performed by all players. However, as anyone with a cursory knowledge of basic Game Theory knows, it won’t happen. For the reasons stated above. If we’re not operating in US Markets, that means lower Cost Per Acquisition and more Market Share for others. Best Practices improve the investor safety in all aspects, from educating them on Crypto in general to SmartContract Audits. Such as how to use a wallet (Great for new adoption and enlarging the market) for newbies, to protecting against theft, scams and attacks. The latter actually very pertinent for allowing the Smart Money to enter the market. This all of course includes the main expense, Compliance. Lawyers, SEC no action drafts, KYC/AML facilities, all necessary features to any ICO starting today.However they all come with technical debt, biz dev debt, a headache and a hole in your pocket. Not to mention a much more difficult marketing campaign.

A Steelman against Best Practices, specifically on the regulation side, is something along the lines of ‘The whole point of Crypto is to avoid Government, to not be held down by regulation’. Now let me remind you, firstly, ICOs aren’t really Cryptocurrencies. Regulating store of value and payment coins, such as Zcash, Dash, Bitcoin and Monero is something I would dislike and argue against. However, crowdfunding Assets/Securities or even Howey proof Utilities with the promise of high returns is a different matter and as such, should be treated differently in respects to Marketing and the Law.

To further the counter, another argument could be ‘Because of the decentralised and open nature of ICOs, it’s clear for anyone to see if something is a bad project or not. If they are particularly bad, the community will show this.’. Moreover ‘Even if someone judges a bad project as good, it’s on them as their own agent to decide, no one is forcing them. They should be looking for the Audits, Legal partners and so on.’. These are both sound lines of reasoning, but missing one crucial thing. Influence is everything and people are highly irrational. Further, even the most diligent will have a hard time deciphering a project and it’s potential outcomes. If you were to truly agree with the above two counterarguments and actually believed that such people shouldn’t invest, then, guess what, we’d have no market.

If you wanted to, you could even take another line of reasoning, such that ‘The backbone of Crypto relies on anonymity, forcing KYC stops that, ergo, regulation is bad’. To which one may reply, ‘The future of Crypto is dependent on widespread adoption and the safety of investors’. If we don’t focus on investor safety, we lose the adoption battle. Companies such as Coinbase already do full KYC, even with a live Skype video. Now that’s potentially a weak argument, stating that because X does it, it’s an okay thing for us to do it. But actually, Coinbase is the initial touch-point for investors into Crypto, to get in. With their rapid rise in Monthly Active Users, it’s clear to see this isn’t stopping new-adopters. So, requiring this information (Also facilitating KYT, which we’ll come onto later), isn’t a terrible option to nudge towards.

The truth is, the current ICO industry thrives of the poorly informed. In order for one to go from uninformed to informed, they generally tend to read about it or talk to others about it. But if their main source of knowledge is coming from a news site that’s shilling a shit coin only to dump it, surely part of the blame then lies with said news site. Further, there needs to be a conversation about the ability of the casual investor to grasp a project. The difficulty to absorb information can be seen by this post bashing Bancor. This is the counter to Bancor, on why it won’t work and ultimately it’s not a sound investment. The only trouble is, even for a somewhat reasonably educated ex-Dev, this may as well be Hindi.

Best Practice’s takeaways from this:

  • If you’re going to advertise, disclose it in Native Content. It can be done maturely such as:

Yes you’ll get shit for it in the comments, but if it’s an honest project, with high value, it’ll still shine through. This is basic advertising integrity.

  • Educate your potential investor. It’s in your best interest not to cloud your whitepaper with Wikipedia pulled formulas demonstrating prediction markets for squirrel adoption on a Laffer curve.
  • Be open and honest. ‘YES. YOU CAN LOSE MONEY BY GIVING US YOUR MONEY’. ‘NO, WE CANNOT GUARANTEE 3000% RETURNS’.
  • Don’t fall into the trap of Pay to Play. Go after ICO listing websites, interviews and PR months (Like, 3 months) in advance. Do it properly. Do not rush because you think the bubble will burst and you’ll lose the cash grab opportunity. To put it in perspective, the biggest and arguably best ICOs take 6–9 months of just marketing and roadshows before going live. Filecoin, Kin etc…

To run a small conclusion, the ‘proper‘ way may takes more time and money, but it’s worth it. If you have a truly quality project, it’ll show. You’ll be picked up by journalists, shaking hands at events, have glowing reports from Smith and Crown. You won’t have to resort to poor practices. We plucked one bad instance, but it isn’t anecdotal. There are many more examples we could give, everything from shitty acts from Whales, to Syndicate Scams. It’s widespread. To include them all here, would take far too long. Let’s start fixing it, please?

Next up in this Series

KYC, KYT, AML and other stuff you don’t know about but really should

“In New York, I attended a conference where Gary Ross was speaking, a lawyer that actually sits with the SEC. He said something that completely changed my thinking at the time. To paraphrase:
‘I find it crazy when client’s come to me a few days before their ICO. In fact, they should come to me before they even start their Whitepaper. They didn’t even know what the Howey test was’ …”

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