How many initial coin offerings have failed to date? Depends on whom you ask.
According to , a curated list of blockchain failures, the number is 868 as of Sunday. , which calls itself a “cryptocurrency biopsy,” says 280 tokens or coins show one or more of the following signs of failure: “abandoned, scammed, website dead, no nodes, wallet issues, no social updates, low volume or developers have walked away from the project.”
Whether it’s an ICO or an initial public offering, what’s old is new again. The idea of tracking failed ventures hearkens back to the dot-com era, when sites such as took an almost gleeful take on the well-publicized failures that characterized the early days of the consumer web.
There’s no ICO crystal ball, but there may be ways to identify the tokens most likely to be successful over time.
But while the idea of failure in an emerging marketplace is inevitable, new research is suggesting what traits make ICOs more likely to succeed. And no one is suggesting that the entire space is likely to disappear.
“Cryptocurrencies are the face of the innovative maelstrom around the blockchain technology that is bringing both massive price volatility and a constant trial-and-error of new product try-outs and failures,” according to a JPMorgan . Dubbed the “Bitcoin Bible,” the February report states that cryptocurrencies are “unlikely to disappear completely.”
High Failure Rates
You know when a research paper on ICOs is titled “,” a reference to the speculative boom in the flowering bulbs in 17th century Netherlands, the results aren’t all going to be rosy. In fact, the two Boston College researchers who wrote it monitored Twitter postings to estimate that more than half — 55.8 percent — of ICOs fail within the first four months following their coin offerings.
“In cryptocurrency markets, company announcements (as measured by Tweets) are good news, while no news is bad news,” the authors write.
What’s worse, , by the Satis Group, found that more than 80 percent of ICOs could be categorized as “scams.” At the same time, Satis researchers found the market may be far more savvy than that figure suggests. As much as 70 percent of ICO funding was funneled to what it calls “higher quality projects,” with only 11 percent going to identified scams, the report said.
“We hypothesize this is because the community is relatively adept at discovering scams and adding them to lists,” the researchers said. “By contrast, the majority of ICO fundraising to date (about 54 percent) has gone to projects that we would classify as successful, and this is a very positive story.”
Signs of Success
There’s no ICO crystal ball, but another study suggests there are ways to identify the tokens most likely to be successful over time.
A National Bureau of Economic Research studied more than 450 ICOs, finding that a broad range of factors, including public disclosure, community engagement, credible leadership and investors, and a clear business plan, translate into liquidity for a project’s token.
“We find that liquidity and trading volume are higher when issuers offer voluntary disclosure, credibly commit to the project, and signal quality,” the NBER researchers write.
The “Digital Tulips?” paper suggests many tokens continue to generate above-market-value returns after the ICO period ends, particularly in the first month. ”While our results could be an indication of bubbles, they are also consistent with high compensation for risk for investing in unproven pre-revenue platforms through unregulated offerings,” the authors write.