Do ICOs fail more than startups; $400m acquisition of Crypto exchange; $10m in Crypto-games per week - via Autonomous ↻NEXT

Hi fellow futurists -- here are our top 3 favorite thoughts.

Most ICOs Have Already Failed - But So What? 

An article on Bitcoin.com discussed some rough metrics for ICOs to date, claiming that of the 902 ICOs from last year according to Token Data, already 46% have failed. That's $104 million down the drain -- not to mention the opportunity cost of token appreciation and the funds that disappeared through various scams. So are things as bad as the article makes them out to be? We dove into the numbers, and came away with the opposite conclusion.

In looking at the Token Data underlying data set, there is an important distinction. And that is the difference between failing to raise capital and failing to execute on an idea after having raised capital. The Bitcoin.com article combines these two into a larger headline. But when we look at the "failing to raise" stats, things are not so dire. In 2016, that number is 14% and in 2017 it is 28%. This is in line with the intuition that it is now harder to raise money in crypto than before as investors become more discerning. But it is still far easier than raising money on Kickstarter, for example, which sees a 64% failure rate.

And second -- if we do the math on operational failure in 2017 ICOs, the answer comes out to 18%. That may seem like a lot in a short period of time. But we can compare this to the percentage of Seed stage startups that fail to raise Series A, thereby failing to achieve enough operational traction to move to the next round. A Mattermark data set suggests that 68% of early stage companies wipe out without going to the next round, and CB Insights shows similar numbers, with 40% failing to raise and 14% exiting the market. Runway for venture-backed companies is usually 18-24 months. If ICOs continue to fail at their current pace, perhaps the numbers will look even more extreme than traditional startups. But today, 18% is far below the 60-70% comparison.

Source: Autonomous NEXT, TokenData, CB Insights, Mattermark

  $400 Million Acquisition of Crypto Exchange. 

Fintech startup Circle bought crypto exchange Poloniex, allegedly in a $400 million transaction. What's Circle? It's a mobile wallet / neobank that let's users text money to each other, with technology rooted in Bitcoin payments. Think about it as a combination of Venmo and WePay. According to Crunchbase, Circle has 50-100 employees and raised $136 million from Goldman Sachs, IDG China, Breyer Capital, Accel and General Catalyst. There is no way these guys have $400 million cash on hand, so we would expect this to be in large part an equity deal. And the latest Circle post-money valuation is about $500 million, so this was a big gulp if the reported numbers are correct.

What's Poloniex? Poloniex was an early exchange in the space that was quick to list new alternative tokens. It provided access to Ethereum before Coinbase did. In the process of getting popular, it acquired more users than it could handle. It was well known in the ecosystem that the company’s customer support took a very long time, and that conflict resolution processes were overwhelmed. This transaction should benefit Poloniex customers with new features and support services, while giving Circle a larger revenue base in the crypto economy.

One angle that gets lost in all the ICO talk is equity checks into blockchain and crypto companies by venture investors. About $1 billion was invested into the ecosystem from the venture side in 2017, of which $400 million was from Corporates; and over $300 million was invested in the first 2 months of 2018. In terms of the $400 million acquisition price, this would put the Poloniex below Coinbase’s $1.6 billion valuation, but well above that of enterprise blockchain unicorns like Chain ($130 million) or R3 ($250 million). So it is certainly motivational to see a transaction that bridges that public and private crypto worlds, and values tokens as an asset class rather than a mere operating improvement.

Some are also focusing on the fact that Goldman has a stake in Circle. As security tokens gather steam, with projects like Polymath raising $60 million and air-dropping their tokens to a large community base, traditional investment banks need to think about the future of their business. This is an existential question for the securities industry, and building correct exposure will be key over the next 5 years. Or the investment banks will end up like the music labels.

Source: Circle, Autonomous NEXT (Pitchbook data)

  $10 Million In Crypto-Games per Week

We've talked before about how important CryptoKitties was to the new web -- with all sorts of technologies like artificial intelligence, augmented reality, streaming video and online commerce getting their start from pictures of cute animals. Content is the killer app of the Internet. And putting aside adult content, video games have been a key driver for the development of online communities (e.g., MMORPGs), virtual economies (e.g., Second Life), video technology (e.g., Twitch), bandwidth development (e.g., Battlenet), hardware that runs AI and Bitcoin mining (e.g., GPUs), and many other key pieces that are responsible for innovation across the web.

It's not a surprise to see that, when analyzing the spending volume in decentralized apps on the Ethereum blockchain, over $10 million of economic activity is happening weekly in gaming, according to tracker DappRadar. So if we put aside the financial speculation in crypto currencies, i.e., trading them as assets or launching fundraises, what's most vibrant in the public ecosystem is video games. From CryptoKitties to EtherIslands or CryptoCities or EtherBots, developers are creating software that functions like a toy around digital assets. In a case of imitation being a source of flattery, decentralized gaming Chinese blockchain TRON launched a Crypto Puppies game for Chinese users and now has $3 billion marketcap.

And this, in our view, is the key insight about the space. What matters most is not the network or the mining, but the ability to make digital assets scarce and transferable. If it works for digital toys, it will work for digital equities, attention tokens, land titles and so forth. Games are the perfect proofs of concept for ownership and designing economic systems, as they are starting from scratch, and are not entangled with existing regulatory and legal regimes. How games turn into reality however, is a matter for the sovereigns. See the latest actions from the SEC, the Milken Institute's report on Fintech legislation, of the German Federal Financial Services Supervisory Authority's statements to see how we are progressing.

Source: DappRadar, Tron Games

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