Kataryna Habeliia November 4, 2020
Table of Contents [hide]
- 1 ICO, IEO, or DeFi. What did you earn the most from?
- 1.1 ICO
- 1.1.1 ICO problems
- 1.1.2 Profitability
- 1.2 IEO
- 1.2.1 IEO Problems
- 1.2.2 Profitability
- 1.3 DeFi
- 1.3.1 Defi problems
- 1.3.2 The profitability of Defi projects
- 1.4 Future
ICO, IEO, or DeFi. What did you earn the most from?
There have been three booms in the cryptocurrency world in three years. During each of which the quotes of tokens showed hundreds and thousands of percent growth
From time to time, something appears in crypto space that rapidly gains popularity, instantly expands, and then blows away just as quickly. ICOs turned the digital money market into a real financial bubble in 2017. Then there was a boom in IEO. Projects of DeFi industry demonstrate the highest returns for 2020. In this article, we will tell you more about these areas and calculate which one brought the greatest profitability.
Most recently, in 2017, we saw a real boom in ICOs. However, from that time to the present day, a lot of people managed to be disappointed in them. Initial Coin Offering is a fairly new type of investment, its emergence is associated with the emergence of cryptocurrencies and their development. That is, ICO is cryptocurrency crowdfunding, fundraising for something on the side. Most often they are directed to the development of various projects. This is similar to a listing on a stock exchange. Investors exchange their Bitcoins or Ethereum for another cryptocurrency provided by ICO. Subsequently, it can be exchanged for the product of the company that carries out the ICO. It is also possible to trade it on exchanges. If there is a demand for this currency, the investor wins.
Next, we will consider the risks of ICO in more detail:
- The most common, are the risks of incorrect estimation of the value of tokens that are placed during the ICO. This is primarily due to the fact that ICO projects for the most part are only at the idea stage. They begin to be implemented, as a rule, 12 months or even more after the ICO. When evaluating a token, a large number of variables should be taken into account, so if we are talking about a project under development, it is very difficult to give an adequate estimate.
- Problems of bad faith in those teams that carry out ICO. In many cases, there are vulnerabilities in a smart contract containing ICO terms. It is rather problematic for investors to independently check how the declared and real conditions coincide. Only a qualified programmer can read what is contained in a smart contract.
- The risk of being subjected to a hacker attack. Hackers have an increased interest in ICOs, so the problem of cyberattacks is very acute. The main task facing the organizers of the ICO is to attract investors, while security issues, most often, remain practically unattended.
Last summer, The Block analyst Larry Cermak reported that over 5,600 ICOs were carried out over the entire period, which managed to raise about $ 64.5 billion.
Already in 2018, an alternative to ICOs appeared — initial exchange offerings (IEO). They, unlike ICOs, are managed by an exchange, which on behalf of a startup wants to raise funds using its own tokens. IEO gives crypto projects the opportunity to raise investments directly on exchanges.
In the considered method of raising funds, a cryptocurrency exchange acts as a counterparty. Thanks to this, the process of fundraising is facilitated, and some control is also carried out over it. Tokensale is carried out directly through the trading platform. In this case, smart contracts are not used. The exchange is launching a special crowdsale platform for this, for example, the BitXmi Launchpad platform. A team of analytical specialists selects the most promising projects for it. User agreements are signed between crypto exchanges and startups, after which they collect funds together.
The most common IEO risks are:
- investors still risk their own funds. Despite the fact that the exchanges choose the most promising projects, no one can provide investors with guarantees that the profit will be large;
- the number of crowdsales held from 2018 to the present is not yet significant enough to draw conclusions about the benefits of new sites;
- all the same, as in the case of the ICO, legal uncertainty remains. Regulators of various countries still cannot decide on the best way to control the activities of organizations implementing IEO.
One of the last successful IEOs can rightfully be considered the CNNS project. The target for fundraising was the US $ 3.6 million. This IEO managed to reach $ 112 million in subscriptions, which was 31 times the cap.
DeFi are services similar to classical financial instruments that run on the blockchain. DeFi projects provide a standard set of services for financial services, such as lending, transfers, trading on the exchange and account maintenance, and also issue their own cryptocurrency.
At the same time, DeFi declares advantages characteristic of the cryptocurrency industry — decentralization, anonymity, lack of regulatory influence, and accessibility. This is their main feature: in the DeFi world, there is practically no control over user actions, and the life of a project is controlled not by its creator, but by the community.
One-day projects are the main, but not the only problem of the DeFi market. It is the activity of users of decentralized services who conduct a huge number of microtransactions that are named among the possible reasons for the unprecedented rise in gas prices in the Ethereum network. In this regard, there are concerns that an increase in its value may at some point make transactions on the blockchain impossible.
In addition, the problem of platform security is quite acute: for example, in April 2020 alone, five major attacks on decentralized services were recorded. In one of the cases, hackers managed to steal $ 25 million, and, albeit in a much smaller amount, funds from users of one of the largest decentralized exchanges, Uniswap, were stolen.
The profitability of Defi projects
The most notable event of 2020 in the cryptocurrency industry was the abnormally high growth of the DeFi market. DeFi project tokens have become one of the most profitable assets on the market: the ROI of some of them shows incredible results, bringing investors thousands of percent of profit.
If we talk about the future interest in cryptocurrencies, most likely it will be associated with the emergence of regulation, which is taking an increasingly conscious form in different countries. Perhaps the release of digital financial assets regulated by law and will become the basis for further investor interest in the field of cryptocurrencies. The emergence of digital currencies of central banks (CBDC) will have a significant impact on the development of this area.
Central banks from leading economies around the world are showing interest in issuing CBDCs. At the moment, the leader is China, which is successfully testing the digital yuan among the population. Governments and central banks of countries such as India, Canada, Russia, Estonia, Iran, Sweden, Singapore, and Egypt are also considering the possibility of issuing national digital currencies.
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