Blockchain & Money: Session 19: Primary Markets, ICOs, and Venture Capital, Part 1, by M.I.T. Sloan School of Management with Professor Gary Gensler

Session 19: Primary Markets, ICOs, and Venture Capital, Part 1

Overview: Readings and Study Questions; Review of Bakkt Discussion; Initial Coin Offering (ICO) Characteristics; Evaluating ICOs; ICO Statistics; Conclusions.

Session 19: Study Questions
- What is the new crowdfunding mechanism of blockchain technology–initial coin offerings (ICOs)?
- What attributes help distinguish successful ICOs? Why have so many ICOs failed?
- What has the wave of ICOs meant for the venture capital field?

Session 19: Readings
- ‘All-Time Cumulative ICO Funding’, CoinDesk.
- ‘Initial Coin Offerings and the Value of Crypto Tokens’, Catalini and Gans.
- ’10 keys for evaluating Initial Coin Offering (ICO investments)’, Crypto Potato.
- ‘Nearly Half of 2017 Cryptocurrency “ICO” Projects Have Already Died’, Forbes.
- ‘The Rise of the ICO, and What It Could Mean for Venture Capital’, Visual Capitalist.
- ‘How to Launch An ICO, A Detailed Guide’, Coin Telegraph.
- Optional: ‘J.R. Willett: How I Invented the First ICO’, radarZero.

Initial Coin Offerings (ICOs)
- Proceeds used to build networks
- Tokens usually issued prior to being functional
- Development, while open source, is largely centralized
- Promoters allocate themselves ‘premined’ tokens
- Tokens are fungible & transferable
- Scarcity is fostered with preset ‘Monetary policy’
- Purchasers anticipate profits through appreciation

Evaluating ICOs
- Assess Viability of Token Use Case
- Whitepaper Details and Source Code
- The Team
- Venture Capital Involvement
- Media and Community–Reddit, Medium, BitcoinTalk, …
- Monetary Policy
- Token Distribution
- Regulatory Compliance

Use Cases: Assessing Costs & Benefits
- Strategic questions?
  - What is the value creation proposition?
  - What problem or ‘pain point’ is being solved?
  - What are competitors doing to address similar ‘pain points’?
  - Why is blockchain technology and native token the best solution?
- Specifics of the blockchain technology and native token use case?
  - Which costs of verification or networking can be reduced?
  - Which transactions need recording?
  - Which stakeholders need write and read access to ledgers?
  - What is the customer interface and how is it better than current interface?
- Costs of technical challenges and transition?
  - What tradeoffs are necessary?
    - scalability, performance, privacy, security, interoperability & coordination
  - Can Permissioned blockchain or Traditional Data Base adequately address use case?
  - How can broad adoption be realized?
- Are net benefits sufficient?

ICO & Blockchain VC Markets 2018 3Q
- $1.8 Billion ICO Raised–Down 78% from Q2
- $1.0 Billion Blockchain VC Raised
- 597 ICO Projects
  - 84% on Ethereum platform
  - 4% Listed on Exchanges
  - 57% raised less than $100,000
  - 67% of DApp ICOs were unsuccessful

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