
The ICO paradox and how to fix it - zherbert
https://blog.sia.tech/the-ico-paradox-and-how-to-fix-it-3bfc61bc6eb8
======
zitterbewegung
The way to fix it is through enforcement of the SEC laws. We aren't going to
combat fraud without proper enforcement. The industry needs more regulation
because right now most investors are getting fleeced and getting left with
nothing because there is a large pool of unsophisticated investors.

This solution would give SIA the ability to regulate these ICOs and that has
even more issues (what makes SIA authoritative)? SEC regulation even though
seems like a bitter pill for people who are in the cryptocurrency space is
needed for things to actually get done since every fraud basically turns away
investors that actually want to fund a real project.

~~~
jimmy1
> The industry needs more regulation because right now most investors are
> getting fleeced and getting left with nothing because there is a large pool
> of unsophisticated investors.

I agree with the premise

> The industry needs more regulation

but not the reason,

> unsophisticated investors

If you are an unsophisticated investor trying to invest in an ICO and you lose
out big, I think that is on you. I don't try my hand in algorithmic day
trading, or long term value-based investing either because I know I am not
informed enough to be able to make money, so I stay out.

~~~
ballenf
With the social and financial security nets we have, a person’s bankruptcy is
on all taxpayers (as soon as they get food stamps, Medicaid, etc.). There’s an
incentive to protect people from devastating financial mistakes, regardless of
political slant.

~~~
mmirate
That is one of many arguments that we should cease to be so socialistic.

~~~
lovich
So let people starve so that a few others can get richer?

~~~
mmirate
The question, as always, is what did those people do to earn the food with
which to not starve?

(Many people do just fine by producing things of value and engaging in
voluntary acts of trade.)

~~~
lovich
I mean, I'm coming from a place where I don't think we should let people die
because they are currently not economically productive.

If you think that people should die if they can't produce a surplus, you're
free to have that opinion. Just don't hide it behind phrases like "we should
cease to be so socialistic".

I also hope youre the first to stand up and refuse help when you find yourself
in a situation where your skills are no longer valued

~~~
jimmy1
> I also hope youre the first to stand up and refuse help when you find
> yourself in a situation where your skills are no longer valued

I absolutely would -- because if my skills are no longer valued, it's time to
pick up some new skills.

------
zby
ICOs are mostly useless - they are great for the founders but useless for
investors. For now there is the hype that delivers new and new greater fools -
but that will eventually stop and ICOs will face the hard reality of not being
a very good at aligning the incentives of founders and investors. The problems
are numerous - starting from the general problems of crowd-funding which can
work for big companies (i.e. the traditional stock exchange way) - but is
dismall for startups, to the specifics of ICOs which don't actually offer any
formal claim to investors. TSOs seem to stay at the 'general problems of
crowd-funding' level. There is also the theory that ICOs can enable funding of
development of open protocols (think SMTP) so that the claim is on the network
not on the company. I find this theory very vague.

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pandalicious
>Utility tokens exist to provide access to a good or service on a
decentralized, blockchain-based network. [...] Siacoin is specifically
designed as a utility token and has never been used for fundraising.

And yet it looks and behaves exactly like a speculative vehicle, just like all
the other crypto coins.

~~~
zherbert
That's true, but that is not the point of the post whatsoever.

------
CryptoPunk
>>Counterintuitively, developing a working Y-Coin network may actually
decrease YCN’s value, because it would increase YCN’s usage. This is because,
in order to access network utility, Y-Coin users need to spend their YCN.
This, in turn, increases YCN’s token velocity, which puts negative pressure on
YCN’s price.

This is clearly wrong. Value comes from demand for the currency, which
increases when there are non-speculative sources of demand, like having an
amount of that currency on hand for use in payments.

~~~
Taek
Demand for the currency can also increase absent non-speculative sources of
demand.

That's the problem we're highlighting. We feel that many of the dev teams
today are more focused on increasing the demand by chasing speculation instead
of chasing utility. By changing how the dev team makes money, you focus the
dev team on chasing actual utility instead of chasing the more short term
goals that can pump coin price.

------
zherbert
I'm the author, if anyone wants to discuss!

~~~
a_d
How does one execute an ICO that is compliant? Can you please point to
specific details or methodology?

~~~
EGreg
Register with the SEC.

Edit: Why did this get downvoted? That is the right answer to the question!

~~~
AlexCoventry
It's extremely simplistic. In some circumstances, the coin offered in an ICO
might not be a security, for instance, and then it doesn't come under the
SEC's jurisdiction.

~~~
EGreg
They have said that pretty much every coin offered in an ICO does qualify as a
security.

~~~
AlexCoventry
Every coin the chair has looked at.

------
rdlecler1
With securities you’re limited to 2500 investors before you need to do a
public registration.

~~~
zherbert
That's true, but there's a ton of uncertainty with regards to who the "issuer"
is for token sales.

And I believe it's 2000, not 2500.

~~~
s73v3r_
I can't imagine why, unless someone is trying to be willfully ignorant.

------
granaldo
Massive correction like we see now
[https://www.coingecko.com/en](https://www.coingecko.com/en) is a good way for
the market to readjust itself and wake up to all the ico greed is good

------
gomox
Security token offerings (STOs) are steadily gaining popularity these days, as
was predicted for 2018.

A few relevant projects if you are interested in this subject are:

* Securitize.io who assists companies in raising capital through STOs

* GBX.gi who is creating a security token exchange for vetted projects and an ecosystem to provide such vetting (based in Gibraltar, where they have regulatory support from authorities)

* Kairos, a company out of Miami who successfully did a security + utility token raise earlier this year.

That being said, valuations for these security tokens are still crypto-
exuberant. I was on the phone today with a company with $1M in revenue raising
$20M at $40M pre-money valuation (i.e. a 40x multiple for a company that has
little to no growth rate and an unproven business model). In all honesty, even
though the deal is bananas by conventional VC standards, I think they will
probably raise that money very quickly.

~~~
latchkey
US citizens can't register for an account on GBX.gi.

------
dmitrygr
> liquid capital in the form of Bitcoin, Ether

Not sure that you're using the word "liquid" properly. Show me how you can
convert $50M USD's worth of BTC or ETH into USD in three business days or
less.

~~~
darawk
You can do that pretty easily on any of the major exchanges.

~~~
pjc50
Can you? Someone's selling the MtGox bitcoins, $400m worth, and this halved
the market price: [https://www.coindesk.com/mt-gox-trustee-sells-400-million-
bi...](https://www.coindesk.com/mt-gox-trustee-sells-400-million-bitcoin-
bitcoin-cash/)

Most volume on most exchanges is fake "wash trading".
[https://medium.com/@sylvainartplayribes/chasing-fake-
volume-...](https://medium.com/@sylvainartplayribes/chasing-fake-volume-a-
crypto-plague-ea1a3c1e0b5e)

~~~
darawk
That's because they sold it with large market sells, stupidly. People also
knew they were selling. I can't speak to OkEx, but at least two of the major
top ten exchanges i'm reasonably confident have volume at least in the range
of what they claim.

~~~
abakker
Yeah, but...then it isn't liquid. CEOs of big companies pre-announce stock
sales all the time, and prices don't often move >5%. An announced sale of
bitcoins shouldn't move the prices in a liquid market. It suggests a
buyer/seller mismatch.

~~~
darawk
Announced sales of company stock absolutely move (and absolutely _should_
move) the price of a company's stock.

------
_greim_
ICO: Initial Coin Offering

[https://en.wikipedia.org/wiki/Initial_coin_offering](https://en.wikipedia.org/wiki/Initial_coin_offering)

~~~
rorykoehler
This might come across as a bit snarky but it is not intended as such at
all...

Why did you post this link?

I would assume that the HN crowd would be aware of what an ICO is at this
stage. Am I wrong?

~~~
_greim_
I had no idea what ICO stood for, and couldn't find an explanation in the
article, so I posted this to save others a click.

