In September, one of the most talked about topics is the Initial Coin Offering or ICOs, the new way of fundraising. A major turning point is the case of China banning ICO, resulting in drastic digital currencies falling.
Techsauce had the opportunity to interview specialists such as Jun Hasegawa, CEO of Omise, a startup that raised funds in an ICO, Sam Tanskul, Managing Director of Krungsri Finance Co., Ltd., Paul Ark (Polapat Arkkrapridi), Managing Director of Digital Ventures, Thanapong Na Ranong, Managing Director of Beacon Venture Capital Co.,Ltd. As well as Mr. Akaradej Deedadej, Managing Director of Thai Fintech Associations and from the SEC’s viewpoint, Ms. Archari Suppiroj, Director of the FinTech Department.
Sam: It happens because startups can see a lot of money on Cryptocurrency, so they come up with ICO to raise money by writing a ‘White Paper’ for those who want to invest. Demand and Supply almost mean nothing in ICO. It is the expectation of the White Paper, if they see a chance that it will succeed, they just basically move to ICO.
Paul: There are several different factors that have led to the dramatic spike in ICOs this year. The first is the longstanding pain point of every entrepreneur of fundraising. Raising capital from venture capitalists is a long, tiring, all-encompassing process that no entrepreneur ever enjoys and always takes too much of her time away from building her business. Though setting up an ICO properly (drafting the white paper and offering document, promoting the crowd sale on social media, holding Q&As via Slack or other digital communication medium) can take months, many entrepreneurs have found ICOs a more straightforward and less painful process to raising money.
The second factor is the increased acceptance of cryptocurrencies and digital coins. Though the cumulative market value of all coins in existence is minuscule relative to fiat currencies and other traditional stores of value, the value is not insignificant. Additionally, the proliferation of crypto-exchanges means that cryptocurrencies and tokens can find instantaneous and widespread liquidity, making them attractive alternative stores of value.
The third factor, and one that is partially responsible for the second factor, the increased usage, utility, and robustness of Ethereum-based smart contracts have made ICOs one of Ethereum’s first “killer apps”, and the development of ERC20 token standard developed from within the Ethereum community have helped to streamline the ICO process, making crowd sales more consistent and efficient.
Fourth, the accelerating track record of completed ICOs since the first crowd sale by Mastercoin in 2013 is clear validation of the technical feasibility of raising large sums of capital via blockchain, as well as the willingness of investors to fund companies via a blockchain-based fundraising mechanism.
And lastly, the speed and ease with which companies have raised funds have given birth to a rapidly escalating spiral of greed, hysteria, and fear of missing out, with increasingly less substantive business ideas raising record-breaking sums of money, further fueling the hype.
Akaradej: Firstly, it is a new market. As we know, there were 2-3 startups that successfully raised money in ICOs. It is easy and most of us are so excited when digital coin is being traded in the market and it goes up in value by 1000% but personally, for those who don’t know this market well enough, wouldn’t dare to try.
We also discussed with Jun Hasekawa, the founder of Omise, the first ICO fundraiser in Thailand on this hot issue.
Jun: I was mentioned in TCDisrupt, our main intention is not raising money. Our intention is secure and our network by token mechanism.
An example of a token sale was Ethereum.
Sam: I think ICO will disrupt only VC, but not CVC. It will impact directly to large Venture Capital, which has big amounts of money because the value of ICO is higher. At the same time, startups will keep raising funds but with less amounts of money. They would turn from VC to CVC as they need a strategic partnership to help with their businesses. So VC would have to start turning the table. We can see many VCs in foreign countries not only put money for equity but in ICO instead.
Thanapong: VC is a strategic investment that not only requires money, but also requires knowledgeable investors to advice and work with startups. While in ICO, despite the huge investment and not as difficult as the VC, it is often received money from many investors and even without strategic investors, they also have high expectations for a very high return.
Paul: In the near term, ICOs will experience a lot of ups-&-downs, growing pains as they fight to become commonly-accepted alternate to venture capital as a vehicle of startup fundraising. However, over the long term, ICOs has the potential all traditional capital markets and forms of fundraising. Over time, regulators will impose standards and safeguards that may slow the frequency and size of ICOs in the near term, will introduce a level of safety, professionalism, and trust that will allow ICOs as a form of fundraising to scale. As regulators develop rules that will allow and facilitate the tokenization of equity, debt, trade receivables, and other traditional forms of security, ICOs will no longer represent a blockchain alternative to capital markets, but rather the default blockchain-based infrastructure on which traditional analog forms of capital raisings will be digitized and on which they will operate.
Sam: I think it is very possible. Everyone wants to invest in ICO because it’s easy and has enormous amounts of money but there is a high chance of having frauds.
Paul: Considering that more than 9 out of 10 startups fail, it shouldn't come as any surprise that the same would hold for blockchain and cryptocurrency projects. High risk ventures in general face a high rate of failure. I think this statement was not directed towards those in the startup world, who are painfully aware of the rates of startup failure, but rather towards all the cryptocurrency neophytes stampeding into ICOs who see them as foolproof shortcuts to easy riches. There are many in the fintech, Ethereum and cryptocurrency communities who are eagerly waiting for a few high-profile ICO failures, in the expectation that a correction and dampening of enthusiasm will weed out unviable projects and allow authentic and meaningful blockchain projects to access the funding that ICOs are meant to provide.
Jun: I do agree. End of the day who will ship actual products and applying it to real business. Those are only matter. And we will see the result in the next 2 years. We at Omise always deliver real products and thats how we make ourselves strong in the market. Same as OmiseGO, we will provide PoS Decentralized Exchange network with Plasma architecture. It's change / refine people daily lives much better and connect globally.
Paul: In September, the People’s Bank of China (PBOC) announced an outright ban of ICOs and cryptocurrency exchanges. However, many observers believe that this is a temporary ban while the PBOC studies the issue and draft a regulatory regime.
With the exception of China’s announced ban on ICOs and closure of crypto-exchanges while regulators investigate ICOs, most regulators around the world have taken a more cautious approach and avoided outright bans. Of note, in particular there are similarities in approach by the SEC in the United States and the MAS in Singapore; as bellwether fintech environments, they signal that ICOs may have a path to legitimacy. Both the SEC and the MAS have commented that ICOs seem like securities should fall under securities regulations (that is, if it looks like equity and acts like equity, then it is an equity issuance and requires licensing). However, it leaves room for ICOs that don’t resemble securities to proceed for the time being.
Akaradej: I think there should be a regulation to reduce the risks. Some people might just want to try because of the hype that surrounding ICOs.
Let’s have a look at the SEC’s point of view
The Securities and Exchange Commission (SEC) has commented that the ICOs can serve as a mechanism to help raise funds for the business. However, if any ICOs are considered as securities, funders are required to comply with all applicable laws and regulations. There are also concerns that the ICOs may be a channel for frauds. The SEC is considering a proper regulatory approach when welcoming all opinions from the business sector.
They also warn those who are interested in investing in an ICO to understand the details of the project, all sources of funding and the risks involved, including the fluctuation of price, the lack of liquidity and Cyber risks.
Ms.Archari : The ICO grows so fast that It has attracted many Chinese investors, so there are fears of bubbles and scams that use ICO as a tool to deceive people. China is considering its own digital currency so it is possible that China has decided to ban the ICO for the time being and when they have considered all the relevant policy and framework, they may lift a ban on ICO.
Ms.Archari : We haven’t seen yet. Normally, If the token is considered securities, then it must comply with the relevant criteria. In some countries, such as Canada, bring ICO into the regulatory sandbox and modulate certain requirements for ICO issuers that meet regulatory conditions.
Sam: If startups want to give it a try, they should make the White Paper on the truth basis and come up with good marketing but this market is still uncertain. It is a new and vulnerable market and nothing can be guaranteed. I suggest startups should wait and see the situation for a while.
In summary, ICO is an attractive fundraising model but It is still new in the market and lack of proper regulations. Anyone who interested in raising funds in ICO should study thoroughly because nothing can be earned easily.