A study funded by the Canadian government has identified the problems faced by ICOs. According to the study, ICOs face the challenge of meeting compliance, reach and cost efficiency requirements in equal measure.
For most, this Bitcoin news are an insoluble trilemma
Initial coin offerings – or ICOs for short – are an innovative means for companies to obtain investment funds. Unfortunately, there are numerous black sheep among the Bitcoin news, because even unfair players find an interesting investment vehicle here. In many places, the regulatory authorities are still struggling for clear ICO guidelines like this: https://www.onlinebetrug.net/en/bitcoin-news-trader/ A general ban on ICOs, as is the case, for example, in China, is something very few people are aiming for. The potential of the new form of financing is too great. A large proportion of scams (Bloomberg estimates that just under 80 percent of the ICOs held in 2017 were fraudulent projects) and the large number of failed projects have, however, permanently clouded the view of ICOs.
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The Trilemma: Either or (or)
A study conducted by iComply, Mitacs Canada and the University of British Columbia and funded by the Canadian government has examined the fundamental problems of ICOs. The analysts found that ICOs face a trilemma. This prevents them from unfolding their true potential. The trilemma consists of the following dimensions:
Distributed investors (reach)
While ICOs scored well in the area of cost efficiency in their early days, the study shows that the growing influence of the regulatory side has led to interdependencies between the three dimensions mentioned above. Anyone wishing to carry out an ICO would hardly be able to achieve more than two of these goals. The ideal of a law-compliant (1) ICO that reaches globally distributed investors (2) in a cost-efficient way (3) is now difficult to implement.
Private, Hybrid and Maverick: The ICO archetypes
The analysts identify four archetypal ways in which the trilemma is frequently encountered.
Scam Alarm: The Maverick
A Maverick ICO doesn’t care about compliance. The main focus here is on maximizing reach and cost efficiency. And best of all, without appearing on the radar of the regulatory authorities. Classic examples are exit scams or snowball systems. The researchers cite the now legendary Bitconnect fraud as a concrete example. These breakaway ICOs are not only damaging the reputation of the industry, the analysts say:
“In summary, it can be said that the Maverick approach is not only very risky, but also harms economies, societies and the practice of ICOs in general. According to the compliance trilemma, the more likely it is that the “more successful” the ICO (i.e. the higher the amount collected), the more likely it is to attract the attention of the authorities”.
Low range: the private ICO
A private ICO targets only a small circle of institutional investors. The range is sacrificed in favour of compliance and cost efficiency. An example of such an approach is Telegram’s ICO. For Telegram, the calculation worked out at the time. In private pre-sale, the company was able to collect around 850 million US dollars, more than enough to be able to do without a public ICO. Conversely, the risk of private ICOs is, among other things, that not enough investment money will be raised due to the limited range.