TL;DR: Fear of missing out (FOMO) has taken hold of cryptocurrency enthusiasts once again. A precursor to the latest hype was the invention of a somewhat exotic new investment idea: initial exchange offerings (IEOs). With giant exchanges such as Binance entering the fray, it might be a great time to consider some of the risks, using a recent post-mortem of the Ocean Protocol IEO. To reformulate a phrase Kendrick Lamar made famous, be humble or be humbled. Chill. It’s time to chill.
Crypto Markets Humble Those Who Believe They’re Smarter: The Ocean Protocol IEO “Disaster”
Initial exchange offerings (IEOs) are the latest craze. As was the case with their initial coin offering (ICO) counterparts, due diligence is necessary. Ocean Protocol was last year’s “it” project, all the rage. According to one review, “it is a project that’s been talked about in high regard for some time. They have a solid and experience background in big data, showing previous success outside of the crypto/blockchain space. They have identified a clear market and use case for blockchain used in a decentralised manner.”
Everything seemed to be in place as far as market fit: the problem of data scattered about meant a loss of analysis, unable to be shared. Ocean Protocol was an attempt to address such a situation. “Their white papers have been some of the best that I have read, and there is clearly something there that’s worth pursuing,” the reviewer gushed. With the general speculative token market down some 95%, a relatively inexpensive IEO seemed to carry with it only upsides, especially if it caught an unexpected wave.
When Ocean Protocol brought their IEO, the project was valued on Bittrex more than $30 million. They decided “to peg the value also at 12c per token and a fundraising total of $31.6m. The same as the presale. Seed for what it’s worth was 10.6c,” the reviewer noted. “You may have already started to see the problem here. Presale investors are massively up in terms of BTC value over the period essentially getting their investment protected during the bear market.”
Why Would They Listen to Some Guy on Telegram
A frustrating hallmark of some ICOs, precursors to IEOs, was a tendency to dump their bags on launch. Combine that with too many exchanges notoriously lacking liquidity, and something of a perfect storm was brewing. The project soon sank “-70% or so right away and their Telegram and social channels are a mess. They’ve gone to ground it seems,” the reviewer lamented. “You have to ask questions of [exchanges like] Bittrex here. IEOs came about to provide a token a place to be traded after launch, but they are also supposed to be doing due diligence on behalf of their investors. A big dump like this, whilst really is on investors for not doing research, should also be partly on Bittrex,” he insisted.
The Ocean Protocol reviewer apparently attempted to engage on forums such as Telegram, previously pointing to what he saw as plainly obvious about what was going to happen. He appealed to “official team members that this was un-investable and it was inevitable, but they did not listen (and to be fair why would they listen to some guy on Telegram, in crypto, while they’re trying to run a business).”
With a a market cap in the tens of millions, compared to a much lower IEO average, it was clear where things were headed. “They also only released 15% of tokens in the launch leaving a total supply of around 1.4 billion tokens,” the reviewer stressed. He’s used the experience to pass along a few basic filters or lessons, aspects to consider about such investments going forward:
- Have they done a pre-sale? If so, when was it and what valuation was BTC/ETH at when they did it [(ETH was near $1,000 at the Ocean Protocol start)]
- How has the market responded since they did a pre-sale
- During the ICO/IEO what are they valuing their project at, looking at circulating supply
- What’s the risk in new liquidity coming on to the market? (locked tokens from the team, general team funds, marketing fund, business growth fund)
- How much % of total supply does the team hold. You can tell if they’re being greedy.
- How much of the project have they built already? Most startups fail. Have they genuinely shown something that might indicate real world use?
DISCLOSURE: The author holds cryptocurrency as part of his financial portfolio, including BCH.
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