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Money 2020 Asia: The Rise and Fall of ICO’s – What’s Next?

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Patrick Schueffel
Patrick Schueffel

ICOs - are they scams? or “The ICO is dead, long live the ICO!” Presentation held at the Money 2020 Asia Conference on the research on ICO generated by Dan Liebau and Patrick Schueffel.

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or “The ICO is dead, long live the ICO!” March 2019 THE RISE AND FALL OF ICO’S – WHAT’S NEXT? Money 20/20 Adj. Professor Patrick Schueffel HEG Fribourg, Switzerland
THE FALL OF ICO’S March 2019 Prof. Patrick Schueffel ARE THEY AS BAD AS PROCLAIMED? Dr. Patrick Schueffel Professor HEG Fribourg, Department of Finance Switzerland Liaison Officer Singapore Daniel Liebau PhD. Candidate, Erasmus University, Netherlands, Founder Lightbulp Capital, Singapore
COMMENTS ON IPOS March 2019 Prof. Patrick Schueffel BY SCHOLARS AND RESEARCH INSTITUTIONS Bitcoin is the mother of all scams Prof. Nuriel Roubini Prof. Saifedean Ammous Ether is a worthless scam Satis Research on IPOs: 81% of all ICOs were scams in the first place
CAN ICOS BE JUSTIFIABLY BE CALLED SCAMS? We argue • Poor economic performance cannot automatically be equated with a scam • High failure rates are not idiosyncratic to the novel phenomenon of ICOs => A more differentiated view on ICOs and potential scams is necessary! March 2019 Prof. Patrick Schueffel RESEARCH QUESTION
SOME CLARIFICATION ON VOCABULARY Scam • Oxford Dictionary: “A dishonest scheme; a fraud.” • A fraud is an unlawful act as it "consists of deceitful practice, resorted to with intent to deprive another of his right…” Economic Performance • Economic performance is the evaluation of a firm's success measured in monetary terms - ultimately it is about the survival of the firm • Survival rate of new technology ventures is approximately 60% after the first year March 2019 Prof. Patrick Schueffel WHAT IS A SCAM, WHAT IS ECONOMIC PERFORMANCE?
WHAT WE LOOKED AT Sample • 2016 cohort was chosen as we needed a sufficient time lag • ICOs sourced from ICO Web sites, such as ICO Data, Token Market, ICO Bench, Coin Index, ICO Watch List, and CoinGecko • Criteria: i) It must be a public offering, i.e. advertised through the pertinent outlets of the crypto community ii) it must have completed its ICO during the year 2016 => A total of 45 ICOs were identified March 2019 Prof. Patrick Schueffel
HOW WE WENT ABOUT IT Data base research • Lexis Nexis was used accessing 36’000 international news sources • Search for any news related to the sample ICOs, delimiter: 2016 or younger • Keyword check for "scam”, “fraud", "sham”, "deceit", "con", "hoax” • Search for any resulting legal proceedings or court cases • If court cases were initiated, we investigated whether a verdict was delivered yet, if so, what the ruling was March 2019 Prof. Patrick Schueffel
RESULTS March 2019 Prof. Patrick Schueffel| 8
ROUBINI GOT IT WRONG! Few scams • Far less than the alleged ca. 80% of ICOs are scams in the legal sense of the word: 2.2% or one project • Even assuming the worst-case scenario that tall 22 projects (49%) for which we cannot obtain data on the issuing price or the current price or both turn all out to be scams we see fundamentally different results than suggested previously March 2019 Prof. Patrick Schueffel SCAM FIGURES ARE FAR SMALLER THAN ANTICIPATED
SURVIVAL Alternative explanations • Worst-case failure rate of 49% may not be idiosyncratic to the field of ICOs. 51% survivors close to 60% survival rate for New Technology Ventures • “Liability of newness” • “Liability of foreignness” • ICOs typically suffer from those two disadvantages at the same time March 2019 Prof. Patrick Schueffel FAILURES RATES ARE NOT OFF THE CHART
CONCLUSION Myth debunked! • Far less than the alleged ca. 80% of ICOs are scams in the legal sense of the word • In 2016 total appr. 96 million dollars raised through the ICO mechanism “Only” appr. 9 million or 9.3% were invested in projects which are today flagged ”n.a.” • The annualized return of an equally weighted portfolio would have been 164% p.a. March 2019 Prof. Patrick Schueffel DATA IS REVEALING
OUTLOOK March 2019 Prof. Patrick Schueffel THE KING IS DEAD LONG LIVE THE KING ICOs were hyped, then went for the vale of tears • Looking at the hard facts ICOs are better than their reputation • The current shake-out will separate the wheat from the chaff • Due to more critical investors future ICOs will c.p. be of higher quality than previous ones
ICO’S GOING FORWARD March 2019 Prof. Patrick Schueffel TAKE A NUANCED VIEW! ICOs can be seen as an experimental, high-risk investment activity, but scams have not been as widespread as anticipated
THANK YOU March 2019 Prof. Patrick Schueffel FOR YOUR ATTENTION! Dr. Patrick Schüffel, A.Dip.C., M.I.B., Dipl.-Kfm. Adj. Professor Institute of Finance Haute école de gestion Fribourg Chemin du Musée 4 CH-1700 Fribourg patrick.schueffel@hefr.ch, www.heg-fr.ch LinkedIn: https://www.linkedin.com/in/patrick-schueffel/
Q & A March 2019 Prof. Patrick Schueffel LET’S DISCUSS!

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Money 2020 Asia: The Rise and Fall of ICO’s – What’s Next?

  • 1. or “The ICO is dead, long live the ICO!” March 2019 THE RISE AND FALL OF ICO’S – WHAT’S NEXT? Money 20/20 Adj. Professor Patrick Schueffel HEG Fribourg, Switzerland
  • 2. THE FALL OF ICO’S March 2019 Prof. Patrick Schueffel ARE THEY AS BAD AS PROCLAIMED? Dr. Patrick Schueffel Professor HEG Fribourg, Department of Finance Switzerland Liaison Officer Singapore Daniel Liebau PhD. Candidate, Erasmus University, Netherlands, Founder Lightbulp Capital, Singapore
  • 3. COMMENTS ON IPOS March 2019 Prof. Patrick Schueffel BY SCHOLARS AND RESEARCH INSTITUTIONS Bitcoin is the mother of all scams Prof. Nuriel Roubini Prof. Saifedean Ammous Ether is a worthless scam Satis Research on IPOs: 81% of all ICOs were scams in the first place
  • 4. CAN ICOS BE JUSTIFIABLY BE CALLED SCAMS? We argue • Poor economic performance cannot automatically be equated with a scam • High failure rates are not idiosyncratic to the novel phenomenon of ICOs => A more differentiated view on ICOs and potential scams is necessary! March 2019 Prof. Patrick Schueffel RESEARCH QUESTION
  • 5. SOME CLARIFICATION ON VOCABULARY Scam • Oxford Dictionary: “A dishonest scheme; a fraud.” • A fraud is an unlawful act as it "consists of deceitful practice, resorted to with intent to deprive another of his right…” Economic Performance • Economic performance is the evaluation of a firm's success measured in monetary terms - ultimately it is about the survival of the firm • Survival rate of new technology ventures is approximately 60% after the first year March 2019 Prof. Patrick Schueffel WHAT IS A SCAM, WHAT IS ECONOMIC PERFORMANCE?
  • 6. WHAT WE LOOKED AT Sample • 2016 cohort was chosen as we needed a sufficient time lag • ICOs sourced from ICO Web sites, such as ICO Data, Token Market, ICO Bench, Coin Index, ICO Watch List, and CoinGecko • Criteria: i) It must be a public offering, i.e. advertised through the pertinent outlets of the crypto community ii) it must have completed its ICO during the year 2016 => A total of 45 ICOs were identified March 2019 Prof. Patrick Schueffel
  • 7. HOW WE WENT ABOUT IT Data base research • Lexis Nexis was used accessing 36’000 international news sources • Search for any news related to the sample ICOs, delimiter: 2016 or younger • Keyword check for "scam”, “fraud", "sham”, "deceit", "con", "hoax” • Search for any resulting legal proceedings or court cases • If court cases were initiated, we investigated whether a verdict was delivered yet, if so, what the ruling was March 2019 Prof. Patrick Schueffel
  • 8. RESULTS March 2019 Prof. Patrick Schueffel| 8
  • 9. ROUBINI GOT IT WRONG! Few scams • Far less than the alleged ca. 80% of ICOs are scams in the legal sense of the word: 2.2% or one project • Even assuming the worst-case scenario that tall 22 projects (49%) for which we cannot obtain data on the issuing price or the current price or both turn all out to be scams we see fundamentally different results than suggested previously March 2019 Prof. Patrick Schueffel SCAM FIGURES ARE FAR SMALLER THAN ANTICIPATED
  • 10. SURVIVAL Alternative explanations • Worst-case failure rate of 49% may not be idiosyncratic to the field of ICOs. 51% survivors close to 60% survival rate for New Technology Ventures • “Liability of newness” • “Liability of foreignness” • ICOs typically suffer from those two disadvantages at the same time March 2019 Prof. Patrick Schueffel FAILURES RATES ARE NOT OFF THE CHART
  • 11. CONCLUSION Myth debunked! • Far less than the alleged ca. 80% of ICOs are scams in the legal sense of the word • In 2016 total appr. 96 million dollars raised through the ICO mechanism “Only” appr. 9 million or 9.3% were invested in projects which are today flagged ”n.a.” • The annualized return of an equally weighted portfolio would have been 164% p.a. March 2019 Prof. Patrick Schueffel DATA IS REVEALING
  • 12. OUTLOOK March 2019 Prof. Patrick Schueffel THE KING IS DEAD LONG LIVE THE KING ICOs were hyped, then went for the vale of tears • Looking at the hard facts ICOs are better than their reputation • The current shake-out will separate the wheat from the chaff • Due to more critical investors future ICOs will c.p. be of higher quality than previous ones
  • 13. ICO’S GOING FORWARD March 2019 Prof. Patrick Schueffel TAKE A NUANCED VIEW! ICOs can be seen as an experimental, high-risk investment activity, but scams have not been as widespread as anticipated
  • 14. THANK YOU March 2019 Prof. Patrick Schueffel FOR YOUR ATTENTION! Dr. Patrick Schüffel, A.Dip.C., M.I.B., Dipl.-Kfm. Adj. Professor Institute of Finance Haute école de gestion Fribourg Chemin du Musée 4 CH-1700 Fribourg patrick.schueffel@hefr.ch, www.heg-fr.ch LinkedIn: https://www.linkedin.com/in/patrick-schueffel/
  • 15. Q & A March 2019 Prof. Patrick Schueffel LET’S DISCUSS!