The Initial Coin Offering, One Year Later

I received an e-mail from my domain registrar about two weeks ago, a notification they had renewed benjacoin.com. That meant two things: I was out $21.76, and it had been about a year since we embarked on our ICO journey.

It has been a wild and, frankly, exhausting ride that has brought some of the highest highs, lowest lows, and interesting interestings of my career.

Rather than let this arbitrary milestone come and go quietly, I thought it best to share some of what we’ve learned along the way.

First: we were right about something.

In July 2017, we wrote “we are not participating in any paid promotion,” we meant it, and everyone thought we were stupid. We talked about this a lot at events and in chats.

When Twitter, Google, Facebook, and others banned cryptocurrency advertising eight months later, they acknowledged there was a high risk of fraud.

ICO ads didn’t smell right from the beginning and I’m proud we stayed away.

We were also wrong about something.

Tokens who ran a sale between Q1-Q3 2017 were often a little dodgy about when and where they would eventually list their token for trade on an exchange. I believed this meant token projects would accept funds and leave the token buyers holding the bag by never enabling a liquid market.

My mistake: it isn’t just up to the token project ownership to list a token, especially thanks to decentralized exchanges like EtherDelta and IDEX.market. Anyone can submit a token for listing. D’oh.

We also now know a token presenting itself as a utility token should not be concerned with exchange availability. If the token is intended for a specific purpose, why would it matter if, when, or where it’s listed? Turns out, this is a view shared by the SEC. Exchange availability makes any case for “utility token” tougher.

Maybe those other projects were right to keep quiet about exchange plans.

Speaking of exchanges: we had no idea what was about to happen, and we have no idea what’s going to happen next.

1. During the benjaCoin sale, I e-mailed a second-tier exchange about listing with them. They asked for $4,000 and I laughed. Five months later, while advising another token sale project, I e-mailed the same exchange about listing this new project. They asked for $240,000 and I laughed. Two months later, while advising another-another token sale project, I e-mailed the same exchange. They asked for $400,000 and I laughed. I have no real idea what’s about to happen to these prices, but I do know it’ll change…

2. 
   

   …and that’s probably because exchanges are facing a lot of regulatory pressure. My opinion is the SEC had difficulty chasing down every bad/fraudulent token sale so they looked to kill multiple birds with one stone by putting heat on where these tokens live: exchanges.You’re seeing exchanges performing a full KYC/AML process with its users and paying closer attention to the tokens that it lists. These are important controls.

Oh, and we were wrong about another big thing.

We decided to launch our own token because we felt Benja Incorporated needed to have control over the token asset — we thought partnering with another blockchain ad exchange represented too much of a risk.

If we were doing it all over today, we would have launched a new platform that Benja would join.

The reason is simple: marrying the value of a token to the success (or failure) of a single corporation is risky business. If the token were accepted by ten different companies, it would be easier to maintain an active community of buyers and holders.

There are some items we totally missed.

• Community development doesn’t stop with the sale. We thought we could run the sale, then put our heads down and get to work before coming up for air when development was done. People didn’t like that, and now we’ve hired a community manager to take these tasks on.
• If you want to be where all the cool kids are — like on CoinMarketCap, EthLEND, and major exchanges — the name of the game is volume. Volume is so important, I have been approached by multiple organizations who offered to execute wash trades to artificially pump that all-mighty 24-hour volume number. I’m also bummed to say I’m aware of at least one exchange that, as part of their paid listing service, promises to “maintain a minimum amount of volume.”Life is hard for a token project that is in development for a B2B platform where trades between parties are likely to be large, once monthly events. We may have structured our token function if we knew how important volume would be.
• Most cryptocurrency conferences are complete bullshit. Many event and conference industry professionals saw green, pursued, and started putting together laughably bad conferences. There is (seemingly) at least one per week near San Francisco, where the entire event is funded by hopeful token sale projects paying to present on stage and have a booth. This needs to stop. These projects spend $1,000–20,000 to stand on stage and be one of 40–50 projects to pitch… to a room that is almost all other token sale projects. Stop stop stop.

We had no idea how rich the token media folks were about to get.

Most token listing sites accept ad dollars or paid promotion (and it isn’t always clear to the end-user, but that’s another topic). Podcasts like Bad Crypto e-mail token projects, saying their listeners requested coverage of the token project and that they’d love to do a feature — for $12–15k (and it isn’t always clear to the end-user). People are getting paid and it doesn’t seem to be slowing down.

A few other thoughts:

We thought the Chinese ICO ban would crush the market. It didn’t.

We thought the Russian restrictions on Telegram would force major crypto communities to another platform. They didn’t.

We thought the U.S. Government would have introduced a new asset classification for crypto token. It hasn’t yet. Then we saw the Zuckerberg testimony, heard the questions coming from those who comprise our government, and we suddenly understood.

But that means…

Token sales are going way, way, way underground. That’s a bad thing for regulators, buyers, and the broader space. Unofficial, unorganized, often anonymous token buying groups are taking a lot of deal flow, making the participation in a token sale harder and sketchier than before.

But it’s a good thing for one group: lawyers. I have worked with more than a dozen token projects and each of them has spent an incredible amount of time and money working with lawyers to craft their version of a compliant path to a token sale.

I was with one project while they interviewed five lawyers and they received seven different answers to the same question. That’s not a bad lawyer joke — it’s the truth.

Truth is there is no iron-clad, compliant path to a token sale or ICO for a U.S.-based business. Lawyers are only selling their version and hoping they’re right. (This is why many companies have gone to a Private Placement Memorandum, but more on that another time.)

Post-ICO life has been many things: challenging, exhausting, humbling, and fun. I could wax poetic about the journey for paragraphs, but I have to get back to work. It’s full steam ahead on year two.

Andrew J. Chapin is the Co-Founder & CEO of Benja, head of the benjaCoin token project, author of Art of the Initial Coin Offering, and a token advisor for several projects. This November, Andrew is running the New York City marathon for Athletes to End Alzheimer’s.