Initial Coin Offerings held by Bitfinex and GCBIB are the largest ICOs held so far this year in terms of the total amount of funds raised per single ICO, even as more than 250 startups went on to complete their ICO campaigns successfully in the last five months, raising a combined total of over $3.3 billion among themselves.
This is according to a report published this week by PwC about performance of ICOs, STOs and STOs in the last five months of 2019. Being the methods through which cryptocurrency startups/companies raise capital by issuing their tokens initially or selling their tokens to public, ICOs, STOs and STOs have been fantastic in performance this year since February of this year even as crypto winter tended to an end according to PwC. That is in comparison to the last months of 2018 when performance went down.
May is also the month in which most ICO funds have been raised this year so far by blockchain and crypto startups for all the months this year, and in fact, it is the highest month-month figure since July last year. Nevertheless, the combined figure raised by ICOs for the last five months is nowhere near what was raised in the first half of 2018, which was close to $9 billion.
The Initial Coin Offerings by Bitfinex and GCBIB joined the top fifteen list of the largest ICOs ever. On top of the list are EOS, Telegram and Bitfinex which each has managed to raised over 1 billion in a single ICO campaign.
Entry of IEOs is more of a blessing
There has been continued publicity and IEOs as a model of fundraising recently. So far, this has been a very strong year for IEOs according to the report, and all IEOs have raised more than USD 1 bn raised since the start of 2019.
According to the report, IEO or Initial Exchange Offering, which the report terms as an innovation in the ICO fundraising sector, emphasizes a higher degree of institutionalization of large crypto exchanges around the world "as cornerstones of global crypto finance infrastructure." Further, IEOs and their popularity may be seen as a response to established crypto exchanges moving into crypto.
Particularly, IEOs have encouraged more and more exchanges to participate in fund raising with all of the top ten crypto exchanges now having own launchpads and launching IEOs now and then.
According to the report, reputable large global exchanges serve to put a "trust stamp" on the IEO project, which may act to attract already on-boarded investors at the exchange. Which is one reason they are gaining popularity.
Initial Coin Offering, which is a form of Initial Public offering for cryptocurrency startups, differs from Initial Exchange Offering (IEOs) in that the launch of an IEO is done specifically via a cryptocurrency exchange. According to the report, while ICOs can be global in coverage and highly cost efficient due to automated processes of participation and issuance of tokens to buyers, IEOs can also be scalable and cost effective since the exchange can leverage already established investor relationships and data.
As could be expected, when a startup holds an IEO through an exchange, it may benefit by publicity from the IEO campaign done by the exchange, which already has crypto users/customers who are likely to be buyers too. However, in many ICOs that last for minutes, only the people registered with that particular exchange are able to participate and in some cases those with good standing at the exchange when participation is based on their trading volume of transactions or amount of coins held at the exchange. Hence some IEOs may have lesser geographical coverage in terms of participants compared to ICOs especially when done at exchanges that have more users in certain geographical regions than others.
As it may be expected, an IEO can either be a utility or security token with an STO or Security Token giving legally binding ownership, voting or dividend rights or all of these to those who are buying. If it is an STO, then it is done in full responsibility of the listing exchange. Reputable crypto exchanges also do provide higher security standards for the IEO projects by startups.
IEOs offer increased and immediate liquidity since the tokens are listed on the exchange immediately.
Challenges and rough road for ICOs/IEOs/STOs
Generally, the report notes hacks that have taken place in the crypto industry recently such as the Binance's loss of USD 40 million in a recent hack, reveal the security challenges eminent in the industry. Cybersecurity risks still remain real even in the cases where crypto exchanges are providing higher security standards for IEO projects.
The report says that there are some vulnerabilities and high complexity that exist in systems during performance of the IEOs/STOs/ICO processes and which increase risk of users or the startups losing money or confidential data during the process.
According to the report, cryptocurrency exchanges are also continuing to establish usage of recovery funds to cover users in case of hacks, as a response mechanism in case of an hacking eventuality. The report provides an example of Binance's Secure Asset Fund which is used to cover loses by users in case of hacking losses. Bitfinex has also previously responded by use of funds to cover such losses from hacks.
Nevertheless, in addition to hacking recovery funds, KYC/AML and capital requirements for users are "key themes in today's crypto finance ecosystem" due to security challenges in the cryptocurrency sector. It says in addition to regulation and standards being worked on, central banks, other banks, regulators and start-ups are joining forces to build secure, trustworthy and convenient solutions around the world.
Security challenges exist for dapps, smart contracts and crypto custody solutions
Usually, hacks also try to exploit holes in code on dApps and blockchains as well in addition to taking advantage of security ignorance and irresponsibility among other security breach methods. The report notes the current challenges facing blockchain and crypto startups and networks as they continue to try to deliver their promises to customers.
It says, for instance, providing crypto custody requires a trade-off between convenience and security and that none of the solutions available in crypto custody are easy to use and satisfying the highest audit standards. Smart contracts or DApps need to build automated code scans, commission independent code reviews, and implement formalized software development &
testing controls in order to counter security risks to their dApps.
On the other hand, says the report, hacks and mistakes arising from duplication of consensus algorithms are affecting everybody on blockchain and crypto networks. Hence blockchain companies may need to assess robustness of consensus algorithm, monitor & respond to changes in the resilience
against double spend attacks, as well as insist on thorough software development controls including sufficient peer reviews of critical parts of the code.