Token-Based Financing -Part 10

2. Whose market is this?

There is no evidence proving that investors are well protected in the ICO market. Some people call for the entire market to be closed due to fraud, while others want the government to shut it out. Each method is raised for considerations about costs and benefits.

a. Irrational prosperity

Reputation is the key to understanding the ICO market, but it can be stolen. Taking the immaturity of the market and “speculative mania” into consideration, as of the beginning of 2019, there is ample evidence that the high valuation of the ICO market is more like a bubble than an accurate assessment of promising projects. In a sense, the bubble is the least surprising and controllable explanation for the rapid volatility of ICO market prices. Regulators need to focus on more difficult tasks, which means piercing the future bubble with better information requirements. However, irrational prosperity is not the only driver of demand for ICO.

b. Illegal demand

A large part of the demand for cryptoassets is driven by money launderers, tax evaders and other illegal cash holders. If facilitating criminal payments is indeed the main driving factor, it is not surprising that investors do not seem to care whether the issuer’s fulfillment of its commitment is achieved through smart contract code.