After nearly a billion was raised last month by just three projects, Ethereum ICOs are now seemingly cashing out while placing significant downwards pressure on eth’s price in the past few weeks, leading to the currency briefly breaching the support level of $250 today.
EOS, which raised some $200 million worth of ethereum earlier this month, has apparently been sending their eth to the open exchange Bitfinex, potentially explaining the downwards pressure on ethereum’s price recently, which has seemingly dragged all other digital currencies down with it.
Led by Dan Larimer in coding aspects, EOS promised to deliver a blockchain which uses parallel processing, otherwise known as sharding, without providing any detail whatever on how they’d achieve their goals as we analysed previously.
EOS’s price, however, jumped to nearly $7 on the same day the first stage of its ICO ended after it was instantly listed on Kraken, to then dump to a current price of $2.80 at the time of writing.
But they’re not alone. TenX, which listed Vitalik Buterin as an investor prior to the token sale, raising some 200,000 eth, worth at the time around $67 million, has apparently been selling too.
It’s not clear whether their eth are going to open exchanges or off the counter, but they are going off their smart contract address, with suggestions they have confirmed a sale of around 30% of their eth.
This presents ethereum with a very difficult problem after a correlation between mega ICOs and eth’s price was long noted and now seems to be largely confirmed.
On the one hand, token sales capped too low are sold out in seconds, as it happened with BAT, with bots, potentially controlled by just five individuals, scooping up all the tokens, allowing them to do with the price whatever they please, suggesting ICOs need to be as distributed as possible.
But, on the other hand, because of different incentives tokens provide, such as the ability to simply flip them for a higher price once they hit exchanges, we don’t want them to be uncapped.
Because individuals may invest in tokens not necessarily due to any long term return on investment forecasting, but simply to speculate on whether they can sell it higher a day or so later, sending potentially outrageous amounts which can only end badly as that creates phantom tokens of sorts.
Especially since ICO project developers have no accountability whatever, nor really any incentive, towards delivering on their promises, especially after they cash out their eth.
In this dilemma, the price punishment itself might act as a regulating mechanism, teaching the ecosystem objective analysis of ICOs and so perhaps preventing mega short term ICOs that can simply be flipped.
But the ecosystem needs to step up and fast because hundreds of millions for seed funding rounds are simply irrational.
We certainly want to fund innovative projects, but most of them will likely fail as that’s simply the nature of innovation, and they will fail even more so if they are fully rewarded with blockbuster sums before delivering anything.
So the ecosystem needs to start asking for provable business models, especially if the ICO is VC funded and already has a seed round because that means they should have users, they should have flowing revenue and even profits, that they should present a very sharp business plan and so on.