Disillusioned Token Investors Demand Real Talk About Risk

ICOs, I don’t see results.

That’s the growing complaint among investors who are passionate about blockchain technology but frustrated with a lack of tangible progress on professional risk management strategies across major token projects.

“A lot of the projects that raise money, they’re not really reporting what they are spending it on,” said Meltem Demirors, founder of Athena Capital and chief strategy officer at startup CoinShares. “I don’t think you can responsibly talk about investing without talking about risk management.”

While Demirors might sound particularly critical, her thoughts align with other investors in the space who have been grumbling about the management of companies and teams that raise funds from initial coin offerings (ICOs).

Yet this disillusionment hasn’t slowed the race to get involved, with more than $6.3 billion raised through ICOs during the first quarter of 2018 alone – a sum which already surpasses the total raised by token sales in 2017.

Against that backdrop, veteran cryptocurrency investors are questioning whether many of these tokens actually add value compared to, say, traditional venture capital.

“What I worry about is, we still need to work out governance models with tokens,” said Jalak Jobanputra, founder of Future\Perfect Ventures. When she can’t tell what ownership, rights or utility the tokens represent, she would just rather stay safe with equity.

She said:

“We know equity works. It’s a proven model with governance.”

Progress reports

As Jobanputra pointed out, few projects that raised money in 2017 have proven the real value of their tokens by launching usable platforms. “I want to see them [token sale projects] start shipping products,” she said.

While that might sound like a big ask at this stage – after all, the industry is building infrastructure for a new digital economy, a long-term endeavor – investors like Jobanputra would at least like progress reports.

“The projects we’ve invested in have reporting on par with startups I invest in, which [means] monthly updates on tech, team, [business development] and market progress,” she said. “Successful founders have found that it is also a great way to enlist the collective investor network for help.”

But this is all too rare, Jobanputra said.

“I’d like to see more reports to follow up on who is building products,” she said. “How is this being applied to brick-and-mortar businesses?”

According to Demirors, self-reporting could help reduce trepidation and uncertainty among token holders. There are already standards for reporting and evaluating performance in the context of equity financing. The token economy needs similar processes to soothe not only investors, but also regulators who have been increasingly looking askance at the industry.

“If you’re exposed to these networks and assets, how are you tracking that? How are you putting those assets on your balance sheet? Do you mark to market, to cost? What are the implications for tax?” Demirors asked. “These things have profound implications for the success of these projects and also the way regulators view this space.”

Indeed, emerging platforms like the Brooklyn Project at ConsenSys and Messari, a startup founded by former CoinDesk CEO Ryan Selkis, are introducing much-desired crypto asset databases with information about token projects’ resources and progress…

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