What did the Silicon Valley ICO bubble create?

Three years ago, when the blockchain start-up Filecoin raised $ 257 million with nothing more than a pledge to create a decentralized market for data storage, it sounded like another example of the craze sweeping the cryptocurrency world.

At the time, investors were investing around $ 20 billion in what is called Initial parts offerings – the sale of new digital tokens by projects which, like Filecoin, claimed to build a significant new digital infrastructure. Many have since sunk without a trace, and ICOs quickly went out of style.

But in recent weeks, the Filecoin marketplace has finally seen the light of day. Those vying for their tokens have already committed a combined storage capacity of 1.3 exabytes, according to Juan Benet, the founder of the project. One exabyte is 500 times the data stored in all US research libraries.

Demand from clients looking to buy storage is still only a small fraction of that, but Filecoin’s first goal was to attract capacity, and the progress has been ten times greater than expected, Mr. Benet said. .

The activation of the Filecoin network is part of the late emergence of a handful of blockchain projects, funded by the ICO bubble, which have launched with great ambitions to change online business.

Spotted, a platform that others can use to create their own blockchains, is nearing completion of the phased launch of its network. Others, like Cosmos, which provides a way to connect different blockchains, and Tezos, a smart contract competitor of Ethereum, were also put online.

The founders of some of these projects admit that their ideas benefited from the wave of financial speculation. Gavin Wood, founder of Polkadot, said that much of the money poured into ICOs in 2017 was the recycled profits from investments in Ethereum (which he also co-founded) and Bitcoin.

“At the end of the day, I think a lot of people saw this as some kind of combination bet,” Mr. Wood said. “They made a lot of money on Ethereum and they wanted to see if they could keep rolling.”

Still, he and other crypto entrepreneurs say the technical innovations of a handful of survivors will prove to be more enduring than the financial mania surrounding ICOs.

“These projects have built some pretty important things,” Benet said. “I think the total organized capital [by ICOs] the past three years is not – if you look at the rest of the technology – out of the ordinary.

Although some of the blockchain networks have been put into use, the applications they were designed to support have not yet been developed, making it difficult to assess their final impact.

The Tezos blockchain, for example, was designed for “any place you’re trying to create a digital economy,” like video game purchases, said Kathleen Breitman, one of its founders.

Other potential uses can be found in online “creator economies”, said Alison Mangiero, president of TQ Tezos – places where individual artists, artists and influences might see a benefit in “cutting out the middleman and finding ways to monetize their fans ”. They promise that apps like this will start appearing in 2021.

Meanwhile, a recent surge of interest in Challenge – decentralized financial applications that do away with traditional middlemen – has also drawn attention to blockchain platforms that could support it.

Polkadot has been one of the major recipients of developer attention: its platform for interconnected blockchains could be a good fit for DeFi, supporting a large number of simple apps that could be combined to create new, more complex financial products.

Platforms like this aren’t designed to simply provide an existing set of services at a slightly lower cost, said Wood. Rather, they could take over entirely new services, or those that could only be provided with “orders of magnitude more overhead” using older methods, he said.

The same goes for the data storage provided on a blockchain, according to Mr Benet. While this may seem like the ultimate undifferentiated service, storage services sold by a handful of giant cloud companies like Amazon web services are very complex and “everything but a commodity,” he added.

Opening up the Filecoin network to smaller players, as well as developers who can create specialized services to use raw capacity, will be as disruptive to cloud companies as Airbnb has been to the hospitality industry. , did he declare.

If the new applications are still largely theoretical, the financial gains are only too real. The price of Filecoin tokens has increased 14-fold from the average price paid during its ICO, while the points – the tokens used on the Polkadot network – have increased almost 20-fold.

Line chart of Price ($) showing Filecoin

The promoters of some of these projects are also big winners. Filecoin, for example, reserved 300 million tokens when it was created. This transport is currently worth around $ 7 billion, although Mr Benet said the tokens would not be fully acquired for six years.

The recent Bitcoin boom has also taken a fresh look at some of the less successful veterans of the ICO bubble. Most payments accepted in Bitcoin and Ether in exchange for their own tokens, leaving them a potential windfall. The Tezos Foundation collected $ 232 million through its 2017 ICO – an amount that had risen to $ 652 million by July this year. With over 60% of its reserves held in Bitcoin, it is now likely to be worth well over $ 1 billion.

The value of their crypto holdings means that many of the less successful blockchain projects now rely on reserves worth more than their “market capitalization” – or the total value of their coins in circulation. This will likely result in the intervention of activist investors “who keep projects on fire” and force them to pay off some of their excess cash, said Ryan Zurrer, a crypto investor and entrepreneur.

The history of technology has seen this before. In the aftermath of the dot-com bubble, cash-rich companies without a viable business model sometimes lingered for years as investors mobilized to get their money back.

The dotcom period also produced a small number of big winners, including Amazon and Yahoo. Survivors of the ICO bubble still have a long way to go to prove they have something like resistance.

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