In the ICO-craze last year, even the most meaningless ICOs could raise massive amounts. Take a look at the 2017 crowdsale statistics of UET or Useless Ethereum Token.
This had no whitepaper and on the UET website itself, investors were warned “You’re going to give some random person on the internet money, and they’re going to take it and go buy stuff with it… Maybe even a big-screen television. Seriously, don’t buy these tokens.”
However, the hype has since died down and the industry is moving to its next phase. To discuss what this phase might entail, panellists; Sarah Nabaa (Country Manager, VeChain), Hong Qi Yu (Founder, Tokenize), John Patrick Mullin(Managing Director, Trade.io) and Hayk Hakobyan (Partner, Vision Capital) were invited to the Beyond The Hype-Blockchain Insights from Industry Experts moderated by PwC.
In this article I will share some of the key take-away points.
Should every company adopt blockchain?
A common pitfall when launching an ICO is sliding in some remote use case of blockchain so as to classify tokens as “utility” tokens. However, the panellists at the event say that while blockchain has immense potential to change every industry in the world, not every business needs blockchain.
Bloomberg (2017), noted that adding “blockchain” to company names was a trend last year even in companies with little to do with blockchain; sports bras, e-cigarettes and juice companies etc. The panellists say that this year companies will be under more scrutiny and simply baiting investors with “blockchain” in the company name will not yield much benefits.
Typically blockchain is deployed in industries which have opaque communication and information asymmetry between players. This is because Blockchain offers a ledger that is immutable and not held by any single party. For example, Sarah said that the logistics industry has traditionally been extremely fragmented and communication between forwarders, shippers, customs etc takes place in silos. As a result tracking cargo is a challenge. In response VeChain offers an IOT device that records cargo conditions such as temperature and humidity in real-time on blockchain.
To decide if blockchain is right, companies must examine the environment and assess if Blockchain’s use-cases can remedy the environment’s weaknesses.
In the past year, Hayk said that he has seen too many startups launching ICOs without making real plans for creating value with the funds raised (Fortune reports that ICOs in 2017 had a 46% failure rate). This year, he says that the public has awoken to this reality and even the most unsophisticated investors will at least read through the ICO whitepaper before investing.
Therefore companies looking to ICO will need to commit much more resources for marketing and hiring the right team to gain credibility. Whitepapers should also include detailed budgets for at least the next 3 years to justify the target ICO amount to be raised.
Commenting about regulations, John said that the Singaporean government has been cautious and yet very forward looking; not saddling the industry with over-regulation. This is in line with the stance of MAS Assistant Managing Director (Capital Markets), Mr Lee Boon Ngiap who said “The number of digital token exchanges and digital token offerings in Singapore has been increasing. We do not see a need to restrict them if they are bona fide businesses. But if any digital token exchange, issuer or intermediary breaches our securities laws, MAS will take firm action.”
Therefore companies that use blockchain or issue tokens should be careful to follow guidelines and best practices even when operating in the blockchain-friendly regulatory environment of Singapore.
While KYC and AML are now commonly understood, there have been cases of carelessness in the classification of tokens. Earlier this year, MAS issued warnings to 8 Digital Token Exchanges and an ICO Issuer due to the companies issuing/facilitating the trading of tokens constituting securities/futures without MAS authorisation.
As long as the technology is not restricted, Qi Yu says that regulations should be embraced since they build public trust in the technology. Tokenize Xchange is fully compliant with all MAS requirements and in this way; clients have an added layer of assurance knowing that this exchange does not operate with impunity.
The future of blockchain
As the hype dies down, meaningless ICOs and blockchain projects like the UET will fade away. As a result, the industry can make real progress in developing blockchain into an infrastructure technology that will transform every other industry.
To promote this trend, blockchain companies have to mature. This will involve improving corporate structures and practices, for example; setting clear policies on the segregation of duties between staff members, engaging legal teams and forming advisory boards with reputable figures that inspire public trust. Most importantly, cooperation between Blockchain companies, regulators and Traditional Financial Institutions must increase to enable Singapore to maintain its position as a fin-tech and ICO hub.