Using publicly available sources, Satis Group LLC classified initial coin offerings (ICOs) with market capitalizations of at least 50 million USD by quality, following an ICO’s evolution from white paper, fundraising, to eventual trading online. Their findings include the eye-popping claim that 80% of ICO’s are scams, and only 8% managed to trade on a exchange.
Study Claims 80% of ICOs are Scams
New York-based Satis Group LLC, formed from the ashes of The Argon Group firings last year, bills itself as a “premier ICO advisory firm.” Researchers Sherwin Dowlat and Michael Hodapp published a novel way to classify and rank ICOs titled, ICO Quality: Development & Trading.
The study begins by breaking down ICOs into 6 groups: Scam, Failed, Gone Dead, Dwindling, Promising, Successful. “On the basis of the above classification,” they wrote, “we found that approximately 81% of ICO’s were Scams, ~6% Failed, ~5% had Gone Dead, and ~8% went on to trade on a exchange.”
Scams were defined by researchers as “Any project that expressed availability of [an]ICO investment (through a website publishing, ANN thread, or social media posting with a contribution address), did not have/had no intention of fulfilling project development duties with the funds, and/or was deemed by the community (message boards, website or other online information) to be a scam.” That seems, at first reading, to be a little on the loose side. However, very few studies have tried to quantify community sentiment, and this might be their attempt.
Under the classification Failed, the authors explain these are ICOs said to have “Succeeded to raise funding but did not complete the entire process and was abandoned, and/or refunded investors as a result of insufficient funding (missed soft cap).” Gone Dead also succeeds in money raising, went through the process, “however was not listed on exchanges for trading and has not had a code contribution in Github on a rolling three-month basis from that point in time.” There was no word as to if the ICO might’ve gone to another platform instead of Github.
Dwindling incorporates success in funding and completion of the process, listing on an exchange, but “had one or less of the following success criteria: deployment (in test/beta, at minimum) of a chain/distributed ledger (in the case of a base-layer protocol) or product/platform (in the case of an app/utility token), had a transparent project roadmap posted on their website, and had Github code contribution activity in a surrounding three-month period,” which they refer to as Success Criteria. Promising, then, would have an ICO encompassing two of the criteria, and finally Successful would, of course, have all criteria.
Assuring they “will continue to develop our research in this area and produce a more in-depth study in coming months,” the pair take a deeper dive into their findings: “Within the 8% [traded on exchanges], in coins/tokens with a market cap of $50M+: ~47% were Successful, ~20% were Promising, and ~34% were Dwindling. In coins/tokens with an MCap of $50M — $100M (the lowest tier tracked): ~24% were Successful, ~22% were Promising, and ~54% were Dwindling.”
In contrast, MIT published Initial Coin Offerings and the Value of Crypto Tokens, authored by Christian Catalini and Joshua S. Gans, and they seem to have found only between 5% to 25% of ICOs are frauds. Furthermore, news.Bitcoin.com has published 46% of Last Year’s ICOs Have Failed Already, and it is well worth a read for a complete picture of the ICO market.
What do you think of the findings? Let us know in the comments!
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Author: C. Edward Kelso