At the ETHWaterloo hackathon held in Canada and judged by representatives from companies including Coinbase, Consensys, Slock.It and Augur, Ethereum co-founder Vitalik Buterin stated that 90 percent of initial coin offering (ICO) projects or ERC20 tokens launched on top of the Ethereum protocol will likely fail in the long-term.
“It is an established fact that ninety percent of startups fail. And it should also be an established fact that 90 percent of these ERC20s on CoinMarketCap are going to go to zero.”
Buterin has previously emphasized that he considers the centralization of development in ICO projects as a serious flaw in many ERC20 token-based projects. While the Ethereum blockchain, the base infrastructure which supports the ERC20 token standard is decentralized, ICO projects are conducted by a closed group of developers, or in many cases, companies funded by venture capitalists.
In the current phase of development, which Buterin described as “tokens 1.0,” Buterin explained that the market and investors should expect the majority of projects to be “very bad ideas.” many of which are not viable projects, or lack working software. Meanwhile, there are already several decentralized applications built on top of the Ethereum protocol such as EtherDelta which are already succeeding commercially, having not had to raise money by conducting an ICO.
Evidently, it is challenging for developers to be incentivized for creating, developing, and sustaining decentralized applications without ICOs, or a reserve of capital. But, earlier this month, Buterin expressed optimism towards EtherDelta’s business model, which allocates a small fraction of trades (0.3 percent) as rewards to the developers who maintain the platform.
“This, basically, is tokens 1.0. There are some good ideas, there are a lot of very bad ideas, and there’s a lot of very, very bad ideas, and quite a few scams as well. I expect that tokens 2.0 and the kinds of things that people will start building in 2018 and 2019 will generally be of substantially higher quality. Especially once we start seeing what the consequences of the first wave of tokens are in the medium-to-longer term … What is a good role for them and what is a role that doesn’t really make sense?,” Buterin added.
In 2017 alone, companies have already raised over $2 billion from ICOS. Many have raised up to $200 million by appealing to mainstream investors who’ve not previously invested in cryptocurrencies. However, Buterin explained that there are smaller projects that show more promise who are not experiencing the same level of interest:
“People talk a lot about three or four projects with $200 million ICOs and so forth but there is also the long tail of much smaller projects that often do very interesting things that we often just never end up hearing about.”
Like the vast majority of early-stage tech startups that have failed over the last decade, the majority of companies raising money via ICOS will struggle to sustain their business models and fail to commercialize their blockchain platforms. As the ICO market matures and the Ethereum blockchain technology evolves into a more scalable, flexible, and robust blockchain network, Buterin believes that more viable, efficient, and practical decentralized applications will emerge on the long-term.