Initial coin offerings (ICOs), a fundraising method used by an increasing number of blockchain startups, have surged in popularity in 2017 with investment volumes growing exponentially.
More than US$4.5 billion was raised through ICOs in 2017, or nearly 20 times more than in 2016 with US$236 million. In October and November 2017 alone, US$1.838 billion was raised through ICOs, according to a report by PwC.
An ICO refers to a limited period of time in which a company or startup sells a predefined number of digital tokens to the public, typically in exchange for major cryptocurrencies like bitcoin and ether. ICOs are largely unregulated to date, and it often remains unclear whether a token represents a security, utility token or digital currency.
The new fundraising method is gradually disrupting traditional venture capital funding with new hybrid models now “en vogue” as they combine smart money and crowd support, the report says.
In a hybrid funding model, a startup receives initial funding from business angels and venture capitalists after releasing a business plan, prototype and after team validation. Then, it raises ICO funding from retail investors after releasing a proof-of-concept and assessing the potential of the idea.
ICO in Singapore and Hong Kong
Globally Switzerland, Hong Kong and Singapore are emerging as the leading ICO hubs, the report says.
In Asia, Hong Kong and Singapore are the leaders in the field, thanks to government support and local associations such as the Fintech Association of Singapore and the Singapore Fintech Association which have been contributing to their respective country’s fintech development.
For instance, the Best Practices for Token Sales released in December 2017 by the Fintech Association of Hong Kong provides insights and suggested general practices for the Hong Kong fintech community on issuing digital tokens.
In Singapore, the Monetary Authority of Singapore released clarification on ICOs and token sales in August 2017 followed by a ICO guidance in November explaining when ICOs are and aren’t considered securities.
In Hong Kong, government support includes Hong Kong Science & Technology Parks, Design Incubation Programme, and Innovation and Technology Fund. There are similar government programs in Singapore in addition to funding and physical spaces such as the infamous Lattice80 and the recently launched 80RR.
While Hong Kong has yet to host a considerable ICO (> US$100M), Singapore, on the other hand, had several notable token sales in 2017 including QASH which raised US$106.4 million.
ICO in Switzerland
Undeniably, one of the major global hub for ICOs is Switzerland which managed to attract some of the largest campaigns so far, thanks to its friendly regulatory environment, political stability and its vibrant Crypto Valley ecosystem.
Amongst the 15 largest ICOs of 2017, four were hosted in Switzerland, namely Tezos, Bancor, The DAO and Status.
The globally renowned Crypto Valley ecosystem, which is home to several notable blockchain and cryptocurrencies startups and organizations including the Ethereum Foundation, Bancor, Status and Xapo, has largely contributed to thriving Swiss blockchain industry.
But most importantly, the Swiss government has committed to support fintech innovation and build a leading blockchain sector.
“Switzerland has positioned itself as a hub for blockchain related activities. This success will be maintained if Switzerland welcomes innovative and serious projects,” Mark Branson, CEO of the Swiss Financial Market Supervisory Authority (FINMA), said in an interview last year. “Our work consists in distinguishing the innovations that deserve to have a chance for success from the ones that are fraudulent.”
While Switzerland remains mostly permissive of cryptocurrencies and ICOs, its financial regulator is constantly monitoring the ICO sector.
FINMA issued guidance on ICOs in September 2017 shortly after it shut down the QUID PRO QUO Association, the provider of alleged fake cryptocurrency E-Coin.
Also the Crypto Valley association just released a code of conduct regarding ICOs in Switzerland.