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ICO bankruptcy: what happens with tokens of failed projects

15 February 2018 21:00, UTC
Margareth Nail

According to experts, the majority of ICO projects are unviable and even, considering the amount of the funds attracted, find it difficult to implement a highly demanded product.

27-10-2017 00:00:00  |   Guest posts

Apart from this, some projects are simply fraudulent. After project failure due to various reasons (the project team was inexperienced, a product was not well received by the market, it was a scam project), an investor is left alone, feeling confused and not knowing what to do with tokens. Bitnewstoday decided to ask experts whether the ICO project bankruptcy means the loss of investment and tokens or there is still a chance to recover some of investment.

In most cases of fraud, tokens of a scam project turn into dust. For example, from recent scam projects the Lithuanian project Prodeum can be mentioned. Its team ran away with investors’ funds without waiting for the completion of ICO. Investors losses range by various estimations between 1,5 million and 6 million dollars. It is unlikely that investors of this as well as of other scam projects will recover their investment.

However, team’s running away does not necessarily means the imminent loss of tokens. For example, a coin of the Confido project, which was recognized as fraudulent by the cryptocommunity, is still traded on the exchange. By the end of January, the CFD capitalization was 1,5 million dollars and the price for one coin was about 0,13 dollars.

The project Confido during its ICO attracted 375,000 dollars in November last year. On the 7th of November the coin was traded on the exchange for 0,335143 dollars. Over the next week and a half, the altcoin steadily grew in value and by the 13th of November reached the value of 1,17 dollars. However, after an information had appeared on the Internet about the team deleting all accounts and its website becoming unavailable, the coin fell below 0,01 dollars. On the 30th of November it was traded for 0,005574 dollars (historical minimum).

In December CFD started to grow and in January it showed two sharp rises in the value. On the 6th of January the coin’s value grew almost 4 times in comparison with its value on the 5th of January. Then there was a sharp fall followed by the growth. By the end of January, the coin’s value fell to 0,13 dollars but did not reach its lowest level. It is difficult to predict what will happen next. Bitnewstoday will follow the coin’s value of this failed project.

Pic. Dynamics of Confido token
Source: according to coinmarketcap.com

In most cases if a project fails (unintentionally) tokens are instantly lost. “This process resembles a fire: when money is burnt in a fire it means the money disappears. The same happens with tokens”, – mentioned Vadim Onishchenko, the founder and CEO of Selfllery.

James Song, CEO and co-founder of Exsulcoin, compared tokens of failed projects with СDs from the ‘90s: “CDs surround us, bring back memories, but over time there is always something new, so CDs are shifted to the basement and later are thrown away”.

Very interestingly, Mihail Lala, founder of WAWLLET expressed the view: “For quite a long time, tokens of failed projects will have zero value, and in 50 years they will probably be of great numismatic value”.

In addition, Grant Blaisdell, co-founder and chief marketing officer of Coinfirm, mentions that if tokens were securities (or in some countries were under Securities Law), then the project bankruptcy proceedings would be regulated within the relevant legislative framework and investors would have a better chance to recover their investment. “However, the majority of tokens’ owners of the failed projects will be left with nothing and we hope that they are aware of the risks. The ICO project bankruptcy proceedings are not yet established, but their implementation is a matter of time”, – concluded the expert.

According to experts, if a project was worthy and its failure was mainly due to the team inexperience, investors have a better chance of not losing their funds.

If initially a project was based on strong ideas and tokens were issued to attract finance for the development of project ideas, in this case a token may survive “the fall of its founder”, - believes one of the experts.

“If a project is beneficial for the market, tokens will be bought up for a low cost and a code will be redistributed”, – agrees with the previous expert Chris Keshian, co-founder of the Apex Token Fund. 

Professionals believe that insurance can improve significantly the ICO market.

“ICO insurance is surely and undoubtedly is a unique way for a company”, - believes the expert. However, this requires the market to reach a new level of the development, at which scam risks will be reduced to the minimum. Some experts believe that insurance products would be introduced in the cryptomarket only after a strong regulatory framework of the ICO industry had been implemented.