The June ICO craze, when just six projects raised $650 million worth of eth, might give way to the July pitchforks as ethereum’s community seems to be losing patience with at least some ICOs.
An alleged hack of CoinDash, leading to losses of some $7 million, was followed by an emotional outburst from MyEtherWallet which started off by saying:
“Alright Crappy Token Creators listen up. I am 100% out of patience. It’s 10am. I haven’t slept. And you are going to get to hear me rant.”
And quite a rant it was, including things like “quit the ICOs,” as well as “you chase a goldmine of stupid money instead of helping Ethereum become what it should become. You promise lots, but deliver lost funds.”
Much of the criticism is fair, some of it is not, and all of it would have carried more weight if MyEtherWallet criticized themselves too, alongside the ICOs and investors.
Because there are things service providers can do. MetaMask, for example, has started blocking known phishing websites. But ultimately, it is a cat and mouse game.
When the Slack channels of ethereum projects were plagued by scammers, the thieves upped their game, direct messaging individuals to tell them there have been too many scam attempts, so for increased measure please click their scam links.
So they’re clearly clever and the above would have been funny if it didn’t lead to losses. But at least here we have clarity. We know they are thieves. With some ICOs it’s not that clear.
CoinDash has stated they will continue their project based on around $6.4 million invested by white-listed individuals in a pre-ICO. They will also give tokens to all who sent eth, valued at some $7 million, to the fraudulent address.
So allegations they may have themselves performed the hack of their website, posting a thief’s address, may be without grounds, but without an independent audit no one can quite say.
But it is clear the ICOs ecosystem needs to mature on many fronts, starting with the amount initially raised.
There is a reason why VCs fund companies in stages. However great an idea might be, or even the execution of it, the project might still fail for many reasons.
It may, for example, simply be the case that the timing for it is not yet right. It may be another competitor leaves them with no customers. It may be they burn-out and can’t deliver, or the management is chaotic, or whatever other reason.
So, for just a concept, you’d be lucky to get a million, or, if the team is exceptional, perhaps $10 million. The latter, however, is usually reserved for projects with users and revenue. If they do return on profits, or it seems like they are growing, investors may then give them more funds.
That’s the traditional way of keeping projects accountable and it is used because it works. So, there is no reason for ethereum to re-invent that wheel. To the contrary, it should instead make it all automatic through its smart contracts capabilities which none of the ICO projects use any longer.
That’s mainly because of the Slockit DAO hack last year, but the one lesson from that, which has recently been ignored, was that ICOs need to be capped.
They need to go further, especially the projects that have raised what is now valued in hundreds of millions. They need to provide quarterly reports on the progress of their projects, their audited balance sheets, details on how the money was spent, details on how it will be spent, what they plan to do next, etc.
It is the minimum they can do, but as they no longer need funds, they hardly have much incentive to do so.
Until, perhaps, the SEC does move in and demands it, which might have the effect of forcing ICOs to then use the smart contract capabilities whereby funds are released based on a token holders vote rather than just given up-front then fingers crossed.
Because if the latter is the main method of raising funds, then we probably do need traditional law to move in as these projects are not using the code smart contract law, therefore are not accountable nor incentivized to deliver.