SINGAPORE – Initial coin offerings (ICOs) acquired a bad reputation during the boom in the market that kicked off around 2017, with one study concluding that more than 80% of such exercises held that year were scams. So who would want them back?
That was the question put to Multicoin Capital Managing Partner Tushar Jain and AllianceDAO founding contributor Qiao Wang in a debate during which they argued the pros and cons of such offerings at the Solana Breakpoint conference on Saturday.
ICOs are differentiated from TradFi initial public offerings (IPOs) by their openness to the public and their permissionless access, which stands in contrast to the privileged access afforded to institutional finance sector businesses in IPOs, from which retail investors are excluded.
Jain got the debate rolling by acknowledging the existence of scams in the ICO market, while also describing the current token launch structure as “deeply flawed,” due partly to it being distorted in a way that is similarly disempowering for retail investors as IPOs are.
“Instead of democratizing access and putting market participants onto an equal playing field, what we actually have is a structure that leads to low-float, high-[fully-diluted valuation tokens] that are unfair,” he told the debate audience.
Read More: Who’s to Blame for the Underperformance of Low Float, High FDV Tokens?
Jain also criticized token airdrops as an alternative to ICOs, describing them as capital-inefficient exercises that incentivize airdrop farmers to attack protocols by making protocol team members think they have more traction than they in fact do.
“[With airdrops,] you’re giving away the money and you’re lying to yourself,” he said.
Posing the rhetorical question of what a fairer means of token launches would look like, he said: “We should give people the ability to buy tokens and have true price discovery as quickly as possible.”
ICOs vs. VC Coins
Wang countered Jain’s argument, citing the respective performances of ETH and SOL.
ETH launched through an ICO, while SOL rolled out as a venture capital coin, he said, arguing that since SOL has been outperforming ETH, a return to ICOs should be avoided.
Jain parried by saying that SOL, as a VC coin, had debuted in a way that was similar to an ICO as it allowed true price discovery without market distortions, permitting public scrutiny to see what the token was actually worth.
He pointed to SOL’s large-scale unlock in January 2021, saying: “Everyone who wanted to sell could sell, and everyone who wanted to buy could buy. We got to see what the thing was actually worth, and it wasn’t some made-up number that was manipulated by exchanges and market makers to try and make someone feel good.”
Jain said token launches have the potential to be substantial wealth-creation events for which access should be democratized, unlike the status quo model of airdrops and low-float, high-FDV tokens, making a case for an exploration of ICO design.
Wang ultimately conceded in the debate, agreeing in his closing statement that ICOs should be revived, while nevertheless noting the anti-ICO argument that the vast majority of launches in 2017 had sputtered and died, leaving only a handful of successes, such as 0x, Aave (previously named ETHLend), and BNB.
So, what’s the right way to ICO? According to Wang, with the greatest possible transparency in the hope that market forces will operate to reward ethical conduct and punish errant behavior.
“You want to disclose as much as possible about the team, what you want to do, what you want to build, where you are based, [and] ideally, what is the vesting schedule of the ICO,” Wang told the audience. “In theory, over the long term, ICOs that don’t provide transparency should be discredited by the market.”
