New York-based SMC Capital, a VC firm focused on blockchain technology, and Estonia’s bigX, a Fintech firm that provides a crypto-fiat exchange, have co-published an extensive report on initial exchange offerings (IEOs).
IEOs came after initial coin offerings (ICOs), which are a type of crowdfunding method that involves issuing digital tokens so that blockchain projects can raise funds to develop products and services. According to ICOData, ICOs only raised around $90 million in 2016, but then managed to secure a total of $6.2 billion+ during the ICO craze of 2017, a year that saw the Bitcoin (BTC) price surge to nearly $20,000.
ICOs would go on to raise $7.8+ billion in 2018, despite the extended cryptocurrency bear market that lasted throughout that year. Unfortunately, multiple reports confirmed that most or more than 80% of ICOs were scams. Many others were not outright scams, but the companies that secured funding through token sales were unable to develop legitimate or useful products and services.
Initial exchange offerings (IEOs) became fairly popular in 2019 as they managed to secure a total of $1.7 billion in funding last year. IEOs are also token sales, but are conducted with the help of a centralized cryptocurrency exchange, which should make their issuers feel more responsible or accountable.
The report from bigX and SMC Capital reveals that just four out of the top 15 IEOs generated a positive return on investment (ROI), at the time when they published their findings.
Per the report, the average ROI of the 15 largest IEO campaigns was 18%. Notably, Matic has offered the best returns as it helped investors earn a 577% ROI. The Matic token sales was conducted on Binance Launchpad, and currently has a market cap of more than $67 million, according to CoinMarketCap data.
Matic describes itself as a blockchain “scalability” platform which aims to offer secure and instant transactions powered by proof of stake (PoS)-based side chains.
MultiVac (-92%) and VeriBlock (-94%) were among the worst-performing IEOs out of the 15 largest ones in terms of returns generated. The MultiVac IEO took place on KuCoin Spotlight and VeriBlock’s IEO was conducted on the Bittrex crypto trading platform.
As noted in the report, Binance was the most widely-used token launchpad for the top 15. This, as eight out of the 15 largest IEOs (53%) were carried out on its trading platform. LaToken was the most frequently-used launchpad for the overall IEO market, as it helped carry out over 140 IEOs last year.
There were reportedly only two IEOs out of the largest 15 (13%) that managed to secure over $10 million in capital, with GateChain Token raising $64 million and LEO acquiring $1 billion+ in funding.
As mentioned in the report:
”The best launchpad in terms of average ROI was Binance with +144%, and the worst was Bitforex, with an average ROI of -83%.”
The report reveals:
“All TOP-15 IEOs from the class of ’19 are still struggling in keeping their token price higher than it was during the IEO, and 74% out of them are still in a ‘red zone’ providing investors with the negative ROI (in avg. -53%).”
The majority of IEOs last year were conducted in the US, Estonia, Singapore, South Korea, Hong Kong and the United Kingdom, the report noted. Over 50% of all IEOs took place in these countries and secured a total of $1.45 billion, which is around 85% of the total funds raised by the crowdfunding method in 2019.
More than half of total IEO funding was raised on the Bitfinex Launchpad, because of the massive $1 billion LEO token sale.
As detailed in the report:
“The most successful market sector for IEOs was protocols, which performed quite strongly (+124%). In contrast, the Internet of Things (IoT) sector delivered the worst ROI. Notably, IEOs followed the same trend as ICOs, where protocols also dominated in terms of ROI.”
The report pointed out that many tokens had a “stellar performance” during the first few days of their launch, or some even has strong returns for weeks after their IEO campaign had been launched.
However, IEOs were mostly a disappointment as most of them “lost the vast majority of their token value within several months,” the report revealed.
It added:
“IEOs and ICOs did show that almost anyone can launch a project and get millions of dollars in funding from retail investors simply by having a good idea, a solid team, a vibrant community and convincing arguments why the token price will grow after listing.”
The report further noted that the performance of the 15 biggest IEOs is “unmistakably similar to projects in the ICO era.”
There are several fundamental issues with firms conducting IEOs. For instances, the report confirmed that startups became public “too fast and spent their attention and resources on boosting the token price instead of developing their product.”
Because there was no actual product development taking place, most IEO tokens “lost the lion’s share of their value during the first quarter after listing,” the report noted.
It concluded:
“It appears that the IEO era was more about speculation and trading than fundraising and startup development.”