Token Of Risk

Initial Coin Offerings are all the rage, but while a few soar, many others crash and burn.

- Deepika Asthana

THE REWARDS CAN BE HUGE, but so are the risks. When blockchain platform NEO launched its Initial Coin Offering (ICO) in end-2017, it had each ‘coin’ or ‘token’ priced at $0.03. Those tokens are now trading around $73.25, which amounts to a gain of 2,46,067 per cent in a few months. Yet Cryptonetix, a digital currency which held its ICO around the same time, has since seen a 95 percent loss of value. The problem is that while ICOs are much the same as Initial Public Offerings (IPOs), in that they are both intended to raise funds for a company or project, the former are not held under the aegis of a stock exchange and do not come with any of the due diligence certificates, company resolutions and red herring prospectus that exchanges make mandatory for the latter. All they usually provide is a white paper setting out their objectives and the comfort that they use of blockchain technology, the indelible digital ledger that guarantees security and transparency (See Win Some, Lose Some).

The mode of payment is also laid down – it could be regular currency, or Bitcoin or any of the other cryptocurrencies. This means that the principle of caveat emptor – or the risk being entirely the buyer’s – applies with a vengeance in ICOs, more than with any other asset class.