Token sales have had a wild year in 2018. Granted, when an entire industry moves with the peaks and troughs of a nascent digital currency system, this was to be expected.
After witnessing a period of frenzy and subsequent malaise, we feel it’s important to acknowledge certain realities of our industry that are apparent from widespread media coverage, speculator frustration, and one simple graph.
ICO raises from icodata.io (2018)
The token launch industry has stagnated. At blockchain events, people are buzzing about whether the era of token sales is a thing of the past.
An Insider’s Critique
An issue with any current and future analyses of the token industry is that the initial period of “success” is a bizarre one for comparison. The ICO frenzy that took place between late 2017 and early 2018 was swarming with two types of parties who complemented one another terribly: projects that did little planning, and speculators who did little research.
The number of companies who held a token sale with poor token design, no business plan, and leadership that had inadequate business experience is an embarrassment and a setback to our industry. Many tokens were, as one of our token designers aptly dubbed, “futility tokens”. Though it may sound harsh, it’s important to acknowledge this reality as real discern will be essential going forward in actually building a tokenized future.
And unfortunately, we aren’t the only ones with a harsh critique. The overall post-mortem of token sales from the media is dismal. Bloomberg reported that almost half of the startups that launched ICOs have folded (ending in May 2018). While there are some long-term advantages to a euphoric bull market, such as attracting talent and capital, it is difficult to argue that the way token sales played out in the last year should be repeated. It’s no surprise that regulators are currently working to ensure it does not.
Infrastructure is Only Infrastructure
Beyond participating in projects with no business plan, the stagnation of the token market was accelerated by a group of slightly more informed purchasers who did one level of research beyond absolutely none. These are the people who, often still speculating, determined that their best investment was in infrastructure projects, because the protocol layer in the decentralized web was proving more valuable than the application layer in cases such as Ethereum and Bitcoin.
However, the relationship between application and protocol development should happen in waves. The void of usable, popular decentralized consumer apps is a testament to this imbalance.
The Price Is Not Right
Another detrimental line of thinking has been to let the price of two salient cryptocurrencies determine the viability of an entire generation of technology. A drop in price has repeatedly served as an indication for the aforementioned participants to abandon ship.
In our space, the value of any tokens built on Ethereum has been tied to the value of Ethereum. In the future, this does not need to be the case. Take this analogy: if Ethereum is a mall, the tokens deployed on it are its stores. As these tokens proliferate, grow their networks, and find different uses, the stores themselves develop independent value as brands.
In this way, utility tokens will hold the majority of value in the long term. Underlying blockchains will have a fractional amount that’s aggregated across all utilities. However, it will take time for these networks to proliferate, as achieving mass adoption in decentralized technology has proven even harder than at your run-of-the-mill software company.
In this chaos, the true purpose of a token sale was all but lost. Well-designed utility tokens still have the potential to foster highly disruptive networks, while rewarding participants and lowering barriers to entry. We still exist to support this mission.
Short-Term Predictions for the Token Industry
The future of blockchain is a mystery we’re uncovering the more we experiment. For the short term, we anticipate a healthy correction in the token sale market that will foster the kind of high-quality projects that are needed for the industry’s success in general. Here are some predictions:
- The amount raised through tokens sales will be lower
- Private token sales will be common, and other shifts toward partial centralization will take place
- Token-powered networks will take 1-5 years to mature (as the token sale takes place around when pre-seed funding would otherwise occur)
- Many token-powered networks will become blockchain-agnostic, and this is a good thing
- Successful future token sales will emphasis usability of their applications or marketplaces [both a prediction and an appeal]
Some Guidance for Future Token Sellers
While the following guidance may seem obvious, as we’re seeing in the fallout of dubious token launches, these factors were not always considered when founding every company that wanted to pursue tokenization. We recommend the following to any prospective token sellers:
- Develop applications that are actually a better way than what already exists
- If fast capital is your only goal, consider pre-seed funding or crowdfunding instead of a token sale
- In addition to an MVP and whitepaper, ensure you have adequately done the following:
- Extensive market research
- Identified total addressable market
- Identified competitors, blockchain-based and otherwise
- Customer development
- Go-to-market strategy
- Received adequate funding to create the network using traditional financing means
Where We Go From Here
Token Foundry is currently doubling down on certain features of our platform to help engender the maturation of the token industry. This post is a post-mortem of a time that, because of the clarity of hindsight and the response of regulators, will likely not happen again. This does not mean there is no place for utility tokens in the future, or brilliantly designed token-powered networks; these have the potential to disrupt and transforms industries that they always had. It is necessary to refocus on the mission of creating strong, usable networks that attract users.
Token-powered networks can achieve so much. To do so, they’ll need a lot more than simply the ability to launch. We’re currently in a research and building phase, to help token-powered networks thrive in the long term.
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