3 posts tagged

Fails

Crypto cemetary – Dead ICO number rises

The rising market competition, new world regulations and investor overfed with scam projects and ideas had led to the point that most of ICOs tend to fail more and more times. As the market is already overwhelmed with the blockchain-based solutions and countless fraud attempts looking like the new industry solutions. Due to the latest statistics, there are already more than a thousand cryptocurrency projects that actually ceased to exist.

The analytical data provided by the DeadCoins and Coinopsy suggests that among such projects, ones can be found which show directly no hints of any planned developments or future activity in its protocol. The crypto coin cemetery is filling up despite to the market experiencing a specific cooldown since the last year. The  Dead Coins lists around 800 tokens which are out of the game for now, while Coinopsy estimates that more than 1,000 that had met their infamous fate.

Fewer than 4 percent of ICOs with market caps of $50 million to $100 million was successful or promising, according to a March analysis from ICO advisory firm Satis Group. Most ICOs were raising money without having an experienced development team or an actual product, just white papers studded with promises.

At the moment, the blockchain startups are faring worse than their counterparts in other industries. Going back in the past, in 2013 and 2014 precisely 103 companies received initial seed or angel funding in, but only 28% percent managed to raise additional financing, according to CB Insights’s report. For comparison – that number went up to 46 % of the 1,098 tech companies that raised a second round in the U.S. between 2008 and 2010. Among tech companies, 14 % went on to a fourth round, while only 2 percent of the blockchain companies did, the researcher found.

Such projects as BRIG, for example, represent the pure scam aimed to lure out money from its investors’ pockets. It goes way worse after that with the numerous fraudulent project such as one of the brothers Jack & Jay Brigov and Titanium for a fact. By the way, the latest one is an investigation which is being handled by the Securities and Exchange Commission USA (SEC) itself. Other latest scams worth mentioning are the CryptoMeth, Droplex, OreoCoin, and Roulettecoin.

Noteworthy is the amount of money wasted – the average amount of money stolen or lost due to these ICO projects gets close to several billion dollars of investment.
Even even though up to this points, numerous legislative acts had been issued in many countries, financial regulators which continuously check the issuers of tokens for legitimacy, the overall amateurness of investor’s approach often neglect one basic rule. Before investing in any suspicious activity which requires an initial project analysis at least, try not to invest all the money you have hoping to get huge profits sooner or later by reaching millions of dollars in extremely questionable projects.

Another enormous problems of ICOs are their either incompetent or openly fraud teams. The widespread disappearance of project authors took part quite often last year mostly – after getting the astronomic amount of investment into “innovative projects or platforms” on their assets globally, CEOs one after another started to disappear alongside with their bags of money flying off to offshore zones or private islands, having their future secured and backed by bankrupt investors.
Numerous exciting stories and legends about website malfunctions or the sudden “death” of developers count here as well.

Hackers and cybercriminals represented another common threat, which affected even the decent projects and their teams. That includes the direct strike on initial coin offering campaigns while the token sale stages, wallets and exchanges hits and more, which resulted in both investors and project creators suffering from this activity.

However, earlier this month, SEC chief Jay Clayton said that his agency’s fight against fraudulent ICO is just beginning. At the same time, companies that raise funds through sales of digital tokens should not have any illusions and think that the government will treat them differently than to firms participating in the traditional securities market.

The previous results of the Satis Group study indicated the amount of $ 1 billion collected by the fraudulent ICOs in 2017. Out of the thousands, 271 projects had issues with the White Paper plagiarism, either had employees who pretended to be somebody they are not or had another vicious indicator of fraud activities.
Moreover, an additional study conducted after had shown that only 8% of the tokens after ICO were able to get listed on the well-reputable exchange.

No doubt, we are about to see a lot more abandoned ICO that never make it to exchange and overall ICO investments may become unprofitable. Due to CoinSchedule info, ICOs have raised $11.75 billion only during 2018 up to this point.

2018   Blockchain   Crypto industry   Fails   Fraud projects   ICO

How to return ICO investments?

Being an ICO investor is a tricky thing – no matter how good at digital economics or how smart you are, lack can eventually run out. Nowadays, according to various estimates, fraudulent ICOs activity had brought their creators from up to $ 1 billion incomes of dirty money.

For now, there are different examples when the fraudster ICO organizers got eventually busted and brought to justice. The US SEC is among the best performing in this area up to date.

It is known that in 2017 the founders of the Munchen project were forced to return $ 15 million to investors after the SEC investigation. Moreover, In early April 2018, the organizers of ICO “Centra” were arrested – that one which managed to raise $ 32 million. The SEC especially, in particular, indicates that the founders of the project promised to invest in creating a debit card, which will be supported by Visa and MasterCard payment systems and will allow you to convert cryptocurrency into fiat money easily.

However, the investigation showed that the project had no relationship with cooperation either with Visa or MasterCard firms. Another fine example is from Canadian origin, where the court sentenced the organizer of Plex Coin ICO Dominique Lacroix to two months in prison and a fine of $ 10,000, and the company PlexCorps he founded – to a fine of $ 100,000. The SEC had done a good job here, no wonder.

The latest statistics show, that SEC is very active in the ICO field, but outside the US authorities are not yet successfully combating fraudulent crypto projects. Fact is, the needed ultimate legislation rules are still not established worldwide which makes the prevention of fraud a tough task to accomplish.

Nevertheless, there is still a set of legal instruments, and the necessary steps exist aimed to protect your rights and investments and not to become a victim or consider that the company does not fulfill its obligations for some reason. In fact, for most investors, it does not matter why they lost money in the first place – deception or because of the useless work of the organizers of the ICO. It is essential for them to return the money or at least part of it.

What to do before going to court or police?

In case you think that you have been deceived and want to start an actual case:
First, you need to collect the maximum amount of evidence available to you that you have been cheated or that you owe money. Making screenshots proving the fact of deception or fraud is necessary.

That could be the following stuff:

White Paper with the description of the project, advertising banners, correspondence in Telegram and other messengers will do. Also, it is essential to save and download all communication by e-mail.

If you had any telephone conversations with the fraudsters – you could ask the telephone company to print out the history of your calls, that wo;; serve as perfect proof. If you have personally met with company representatives, you need to specify the address where the meeting was held, the date of the meeting, and try to attract witnesses.

In case your meeting took place in overcrowded business centers, you should have a record of your visit at the security checkpoints. Documents from camcorders can also be saved there, which can later be requested by official representatives and the police. As a result, you should have an impressive folder with information, from which you can already apply to the court or the police. It remains a matter of small – to understand who specifically to write a statement.

Understanding the demanding side

Most ICOs have the same structure at modern market. An issuing company, as a rule, is explicitly created for the ICO, which issues tokens and accepts investors’ money. Very often, such companies are registered in the Cayman Islands, Seychelles or Bermuda, or in ICO-friendly jurisdictions such as Singapore and Estonia. Many ICOs, especially fraudulent, do not specify the information about the company-issuer not in White Paper, or anywhere else. Usually, one can find it in Token Sale Agreement.

However, the issuing company does not conduct operational activities. Moreover, information about the operating company is even more challenging to find – its traces could be seen only by indirect signs. That could be tricky as if the organizers initially wanted to deceive the investors. Most likely, one will first have to demand money from the issuing company.

Visiting the court

The court appeal against the company-issuer for inflicted financial damages could be regarged as the protection in situations where the actions of the responsible person do not contain the corpus delicti. The judicial procedure is relevant for cases when it is not a matter of fraud, but merely an unsuccessful project in which the organizer has not fulfilled his obligations and is in no hurry to return the money. However, in the case of fraud, recourse to a court with a claim against the issuing company can also become an effective way of protection.

One need to present a claim to the issuing company about the return of funds or compensation for damage before going to court with an appropriate application and the evidence collected. With a favorable outcome in court, one will be given a monetary claim to the issuer.

There is a decent worldwide trend – the fewer and fewer jurisdictions are available overtime in which beneficiaries manage to hide from taxes and creditors. Banks exchange information about the funds more actively and there are fewer loopholes. No wonder that over time, opportunities to pursue the issuing company and the real organizers of the ICO will only expand.

However, one can demand to return the money through court only where the company is registered. In case it is registered in the most popular off-shores like Cayman Islands, then one will have to visit the local court. The cost of doing business in the Caymans is up to $50,000 , in Singapore $ 75-125,000 – without regard to state duties, translation services, and other related costs. That is, either one’s investment in the scam-project should significantly exceed the possible costs of conducting the case in a foreign court, or one will need to file a class action together with other cheated investors.

When and how to contact the police

If there is an obvious deception (for example, the organizers received money, did not conduct an ICO and stopped communication), it would be appropriate to contact the police. The criminal case provides additional opportunities, which is a significant plus. For example, an investigator can obtain all the necessary information much faster than if one requested it through a court.

However, there are also several disadvantages: since there is very small legal practice, it will be difficult for the police to understand the matter of this category. The task is to bring the maximum amount of evidence of the violation of the law, and the statement is as simple as possible to describe the crime.

On the other hand, there is a parallel practice when, for example, clients money are stolen from a current bank account. In such cases, the crime scene is considered to be the bank’s registration address, although it is clear that the theft itself occurred somewhere on the Internet. So in the fraudulent ICO crime scene, there may be an address where the computer was located when you invested money in ICO.

Anoter vital question that investigators may have is a problem with determining what Bitcoin is, cryptocurrency, tokens and so on. The legislation does not yet have a precise definition. For the police, the qualifications of such crimes may not be apparent, although there are signs of fraud (theft of property or the right to fraud). Here, by the way, one can recall the cases in which cases of robbery of game artifacts in computer games were considered.

The conduct of both a criminal and civil-law case, especially international – along (and also expensive) process. Therefore, no matter how trite it may sound, it is best to study all documents carefully and all available information, weigh risks at the investment stage. Also, just in case everything is fixed – it will come in handy.

However, it is better to describe the case in the application as simple as possible, without overloading with technical terms. If everything went well for you: the application was accepted, you were interviewed, and the case started according to your application, – the question arises that such crimes, as a rule, are of a transboundary nature. Investigators will have to send a request to conditional Singapore or the Cayman Islands so that local authorities can conduct the necessary investigative actions. The state has much more leverage to handle such cases than an ordinary citizen who is unlikely to wait for help from a foreign court.

2018   Crypto currency   Crypto industry   Fails   ICO   Investment

Rule of 56% – ICO fail number rises

While the cryptocurrency market is quite live, it is still far from its autumn 2017’s heights. Nevertheless, the ICO start-ups market shows the constant growing tendency – due to official statistics of ICORating, the amount of ICO projects in 2018 had significantly grown. The overall market dynamic is definitely positive. The volume of funds attracted worldwide through the ICO for the first quarter of 2018 was $ 3.3 billion. For comparison, in 2017 with the help of ICO funding model, $ 6.1 billion was raised.

For now, not only scam projects and fraud are the worst enemies of the investor though. While more than 4,000 ICO projects have managed to raise a combined total of around $12 billion during all the time – a majority of them fail within four months of their token sales, a new study suggests.

The latest research, conducted by a small team at Boston College in Massachusetts, found that a mere 44.2 percent of token projects are active into the fifth month or beyond, using their social footprint via Twitter as a live indicator.

About 56% of ICO start-ups ceased to exist during the first four months after the successful end of the token sale. According to many analysts, the most secure investment strategy for various tokens is the sale on the first day of trading. Either way, almost all investors get rid of coins purchased under the ICO in the first six months.

More than 1,000 different tokens have already ceased to exist, and overall return on investment is steadily declining.

It should be noted that the monthly investment in ICO projects still holds over $ 1 billion. This trend has been maintained since the beginning of 2018.

While the figures are perhaps shocking, they should maybe be taken with a pinch of salt, as the methodology of the study leaves some wiggle-room for ICOs to exist beyond that 120-day time-frame and not be indicated so in the data.
The tokens usually continue to grow in price, generating average buy-and-hold abnormal returns of 48% in the first 30 trading days.

Dead on arrival

Going for an experiment in determining the usual lifespan of an ICO project, the team behind the research, Hugo Benedetti and Leonard Kostovetsky, chose to use the availability and intensity of Twitter posts to analyze the lifespan of projects and found out that tweet absence during the fifth month meant the absolute project fail or, so to say, it’s death.

The analytics data of the research indicates that the safest way of performing for the projects would be managing to list on exchanges after the token has been launched:
“Breaking it down by category, 83% of the 694 ICOs that don’t report capital and don’t list on an exchange are inactive after 120 days. For the 420 ICOs that raise some capital but don’t list, this figure falls to 52%, and for the 440 ICOs that list on an exchange, only 16% are inactive in the fifth month.”

Moreover, their work beside went on with determining the value of ICOs as investments and the average returns over the different time-frames, after going on for the overall moves in the value of the cryptocurrency markets.
Fact is, the researchers Benedetti and Kostovetsky found that “in contrast to IPOs, tokens continue to generate abnormal positive average returns after the ICO,” with token values continuing to climb for six months after launching.

“We find evidence of significant ICO underpricing, with average returns of 179% from the ICO price to the first day’s opening market price, over a holding period that averages just 16 days. Even after imputing returns of -100% to ICOs that don’t list their tokens within 60 days and adjusting for the returns of the asset class, the representative ICO investor earns 82%.”

Conclusion

Further, the researchers say that startups sell their tokens during the ICO at a significant discount to the opening market price, generating an average return for  investors of 179%, accrued over an average holding period of 16 days from the ICO end date to the listing date.

During his interview, Kostovetsky told Bloomberg that “once you go beyond three months, at most six months, they don’t outperform other cryptocurrencies.”The strongest return is actually in the first month,” he added.

Anyway, the overall conclusion shows that, despite the shocking figures of failed projects, high rewards could be achieved for those that accept the risk of investing in “unproven pre-revenue platforms through unregulated offerings.”

However, the market future looks promising as a lot of promising startups in different areas continue to flourish every passing week.

2018   Blockchain   Crypto currency   Crypto industry   Fails   ICO