Another One Of The World's Largest ICOs Is Collapsing

Tyler Durden's picture

Last month, we reported that the world’s largest ICO was imploding after just three months as its developers admitted they wouldn’t be able to deliver the tokens purchased during a $230 million July “presale” by the end of the year, as they had promised, causing an understandable furor among its investors.

Now, in the latest sign that the $3 billion ICO market is imploding, Bloomberg report’s that the value of formerly high flying Bancor, the world’s fifth-largest ICO by funds raised, has plunged by more than 50% since the company’s June ICO as investors have become disillusioned with its obscure product.

Bancor attracted big name venture capitalists like Tim Draper this year when it published a white paper proposing to create a kind of decentralized digital currency exchange that would allow holders of the Bancor tokens to exchange them for other digital currencies listed on their market-making platform - a functionality, its creators insisted, that would one day render digital currency exchanges obsolete.

But while it’s founders delivered a compelling pitch, beneath the surface was a product that was, at best, needless complex, and at worst, downright nonsensical.

Of course, the obliqueness of Bancor's plan showcases a common trope in the ICO market whereby companies say they’re “improving” on the “user experience” of a product that most users are already satisfied with - except instead of creating a more streamlined solution, they propose to make it needlessly more complex by involving “decentralized” systems and monetizable tokens.

The result is a soup of hypertechnical gibberish, and a use-case that, tellingly, only the people building the product seem to understand. For many investors, that should trigger nightmarish flashbacks to synthetic CDOs (which are themselves experiencing something of a renaissance led by Citigroup) and other arcane credit derivatives that helped crash the economy and market in 2008.

Cornell professor Emin Gun Sirer, in a takedown of Bancor published shortly after the ICO, validated this view, arguing that Bancor’s formula is less efficient than simply making the market manually, Sirer says. And they say the technology could also be vulnerable to front running, where people make money off of the visibility of others’ transactions.

Here’s Bancor’s explanation of its functionality from its white paper:

Abstract: The Bancor Protocol enables the creation of networks of smart contract-based “Smart Token.” Smart Token hold balances of one or more other tokens--“Connectors”--and have a builtin autonomous conversion mechanism that allows any party to instantly purchase or sell the Smart Toke for one of its Connectors, directly through the Smart Toke contract, at a price calculated by a formula which balances buy and sell volumes.

 

Bancor believes that Smart Token can address the challenge of liquidity  faced by conventional tokens, cryptocurrencies, and community currencies on three levels. First, and most fundamentally, by being autonomously convertible for their Connectors, and with an unconstrained supply that grows in response to purchases, each individual Smart Token has built-in liquidity that does not depend on counterparties or exchanges. Second, Bancor has developed specialized Smart Token that enable inter-convertibility between any two other Smart Token or, with an added step, between any Smart Token and any conventional Ethereum network token. Third, Bancor’s ultimate vision is that users will create their own tokens and community currencies in the form of Smart Tokens™ that hold a common Connector, enabling any Smart Token™ in the network to be converted into any other. Bancor’s own Smart Token, BNT, is the common Connector in the first such network, which we call the Bancor Network.

And here's Bloomberg's translation.

Bancor protocol enables anyone to create a new type of digital coin called a Smart Token, which can hold and trade other tokens. This allows the Smart Token contract to serve as its own market maker, automatically providing so-called price discovery, and liquidity to other coins. So effectively, Bancor has created an exchange that will automatically price and trade any cryptocurrency that wants to list with it, as well as a token. The company says it will always have enough liquidity to make the market because the currencies have to build a reserve in Bancor tokens.

Initially, the notion that Bancor - which is named after the universal curency proposed by John Maynard Keynes - can “guarantee liquidity” for ICO tokens that have been shunned by major digital currency exchanges sounds like a vaguely useful market nich. And one could argue that there might be a niche. Today, the FT reported that GDAX, one of the largest cryptocurrency exchanges, said it wouldn’t list most ICOs because of doubts about their viability. But as one trader explains, when exchanges refuse to list a token, there's generally a good reason.

Kyle Samani, managing partner at Austin, Texas-based hedge fund Multicoin Capital, said the functionality Bancor provides isn’t needed. Tokens that can’t list on exchanges may simply not be good enough, he said.

"For assets that actually have value, there will be a market," Samani said. "For assets that people don’t want to buy... why should there be some pity-based programmatic market maker to provide liquidity? My inner capitalist is just dumbfounded by the concept of Bancor."

Even the venture capitalists don’t get it.

"I’m a big fan of what they’re building and think they are the most qualified team around to do it," Brock Pierce, co-founder of Blockchain Capital, an investor in Bancor’s tokens, said in an email. "Not everyone understands it."

In defending Bancor, one adviser had the temerity to argue that consumers don’t understand how exchanges work, and that Bancor’s concept is somehow more straightforward, which is an obviously absurd thing to say.

But even if Bancor tokens did have a clearly defined use-case, it wouldn’t make a difference if the company couldn’t implement it, or if nobody used their product ( the network effect is obviously crucial for these tokens to thrive). Right now, Bancor tokens are - to borrow a conspicuously apt analogy from Cornell Professor Gun Sirer - “like a child’s swimming pool placed in an ocean.” Essentially a less liquid, more volatile version of Ether. Bancor was built on top of the Ethereum protocol, and Gun Sirer said buyers needed ethereum to purchase Bancor during the crowdsale - a claim Bancor disputed.

However, while Gun Sirer’s criticisms appear thoughtful, his perspective is automatically rendered suspect by the fact that he’s an adviser to Tezos, an ICO that raised more than $230 - the largest haul so far - but has been plagued by missed deadlines and internal strife, as we noted above.

Bancor, which penned a thorough - but glib - rebuttal to Gun Sirer’s comments, claims its product is already in demand. To wit, thirty tokens are already using, or planning to use, its platform, it says. But given the performance of the tokens, vanishingly few people are trading on it.

Still, Draper, the project's most visible backer says it’s only a matter of time before the tech blossoms and the value of Bancor tokens soars.

Backed by billionaire venture capitalist Tim Draper, Bancor is the fifth-largest ICO by amount raised by startups, which totals more than $3 billion this year. "All of these projects are in development," Draper said in an email. "Wait two years, and I believe we will all be blown away by what these people can do for the world.”

But let us stop you right there.

As many of our long-time readers are probably aware, venture capitalists and entrepreneurs talking about how their (in this case, nonexistent) tech will ‘change the world’ is a red flag that a given venture might be headed for the rocks.

And most crucially, large digital-currency traders agree that the functionality isn’t needed. At best, Bancor is what some in the digital currency and blockchain communities would call “a solution in search of a problem.”

* * *

When Bancor raised an astonishing $153 million during its coin offering in June, it instantly transformed its creators into millionaires.

And after a brief but tantalizing run of gains, it appears Bancor’s investors will now be left holding the bag. The only question now, it seems, is how long before it goes to zero.
 

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DrumpFired's picture

There will be a lot of losers in the tulip I mean bitcoin fiasco.

 

Like some others on here I am awaiting a reputable analysis of said investments. 

 

Shepwave analysts continue to be only main stream analysts calling markets correctly year after year. I would like to see them weigh in on the crypro currency.

FemDayTrader's picture

I would not call the buyers of cryptos losers. I have seen others on here voice a concern and a desire for shlempwave to analyze the cryptos.  I don't think they will touch it. Not yet anyway.  I see some big dips coming in the cryptos coming very soon and it will show a lot of gamblers the door. 

Mister Ponzi's picture

Done properly, ICO investments can involve much less risks than many uninformed observers here suggest. There are great projects out there with experienced teams and already viable products with the potential to disrupt certain industries but those projects raise only relatively small amounts of money: 20 or 30 millions. Of course, those are still start-ups and therefore very risky but those projects do really have asymmetric profiles allowing investors to book large gains even with modest amounts invested. I wouldn't invest in ICOs, though, that aim to raise such large amounts of money like Bancor with dubious products (or quite frequently no product at all). As with any investment you should try to stack the odds of success as far as possible in your favor.

aurum4040's picture

Exactly. At this point, I am enjoying the fact that most are too lazy and unintelligent to have the vision required to make sound investment decisions in the blockchain space - even after Bitcoin goes from pennies to $7k. The talk of relying on Schlepwave is hilarious at best. Better prices longer for those that understand now, I will take it. 

Thought Processor's picture

 

 

Yes, the seeds of the future are being planted right now.  And as always some will not make it.  

On the flip side however there will be a few that grow to heights as of yet unimaginable.  

Should be fun to watch.

Hugh_Jorgan's picture

Hmmph... ICOs are tanking? Who could have seen THAT coming?

Oh yeah, lots of people...

Mister Ponzi's picture

Many are tanking but the good ones (see my post above) still provide excellent returns. Let me cite the ICO of the ICON Foundation as an example. Branded as "Korea's Ethereum" the ICO took place on September 20 and the token prices equaled roughly 0.1€ per Token. The amount raised was modest, the team and advisors are excellent, and the model has tremendous potential. The tokens have been allocated but are still blocked until KYC and AML procedures have been completed. So, trading volume in the token is very light and price signals, therefore, are very noisy. But for the last 48 hours the price has stabilized somewhere in the 1€ area meaning that ICO investors have made ten times their money. That was no surprise given the ICO valuation compared to the valuation of peers and the potential of the project.

ChumbaWumba's picture

If a) the mission can be explained simply yet comprehensively in a sentence or two, b) it passes the 'I could see why people give a shit' test and c) It's a competent team, then you have a winning ICO

PrezTrump's picture

The con artist shepwave troll would do great in cryptos

quadraspleen's picture

ICOs are not crypto currencies. At any level. They are tokens.
A fool and their money are easily parted

Global Douche's picture

Not entirely true. Some utilize newer Blockchain technologies or hybrids thereof. But as with cryptos, not all are going to survive and some are outright fucking scams!

"If you want a stable full of ponies, every one of them can't be Black Beauty! - WJM"

OpenThePodBayDoorHAL's picture

Elephant in the room: crypto doesn't scale.

Bitcoin is at 4 tps, Ethereum around 15. Visa at 40,000. To scale Ethereum they're proposing things like "infinite shards". But that requires the 256-bit Ethereum Virtual Machine to do the processing, where true parallel processing is not possible. Now an Intel chip can scale, bigtime, but asking individual miner machines to do this computational work with the EVM on a distributed basis is a fantasy.

So oh, oh, let's solve offchain with things like hashlocked balance proofs. Oops, we already have "offchain": it's called "banking".

And the regulatory risk around crypto approaches infinity. Have a listen to the SEC lawyer in this clip at 18:30. He's pretty grumpy, because it seems obvious to him that Bitcoin is a security. So before you can pay for that coffee with it you would have to exchange a prospectus and a suitability questionnaire. LOL

https://www.youtube.com/watch?v=SJCSO5BsJJY&t=1649s

 

 

Buck Johnson's picture

Why do you think that I'm trying to invest in a crypto that is less than a penny and hope it shoots up.  I don't mind risking 100 dollars on one of those and watch for it to go up, if not oh well.  We all know that this is going to end badly.

 

 

Is-Be's picture
Acronym Definition ICO Information Commissioner's Office (UK) ICO Icon (File Name Extension) ICO In Case Of ICO Institut Catala d'Oncologia (Catalan Institute of Oncology) ICO Inner City Outings ICO Independent Company ICO In Care Of ICO International Catholic Organizations ICO Industrial Commission of Ohio ICO Sicogon Island, Philippines (Airport Code) ICO Idle Cut-Off (mixture control in piston powered aircraft) ICO Intensive Corrections Order (Australian criminal justice) ICO Interagency Committee on Oceanography ICO International Communist Opposition (old anti-communist league) ICO Ingénierie du Confort et de l'Eau (French energy performance association) ICO Incident Command Officer ICO Installation & Checkout ICO Initial Cost of Ownership ICO International Congress of Ophtalmology ICO International Computer Olympiad ICO Illinois Chamber Orchestra ICO Integrated Contract/Contractor Order ICO Instrumentation Control Operator ICO Integration and Coordination Office ICO In-house Computing Option ICO International Culture Organization (Kainan University, Taiwan) ICO Item Change Order ICO Integration Coaching ICO Intracellular Organism ICO Initial Calibration Only ICO International Committee of the PRCA ICO Internet Connected Office ICO Internet Connectivity Option ICO International Culture Organization (Kainan University; Taiwan) ICO Initial Cash Outlay ICO International Coffee Organization ICO Intellectual Capital Office (PatentCafe) ICO International College for Officers (Salvation Army) ICO Iranian Cultural Organization ICO International Cooperative Opportunities ICO Instituto de Crédito Oficial (Spain: Official Credit Institute) ICO International Commission for Optics ICO Interface Control Officer ICO Interfaith Community Organization ICO Intermediate Circular Orbit ICO International Cocoa Organization ICO International Congress on Obesity ICO Interim Court Order ICO International Council of Ophthalmology (San Francisco, CA)
jmack's picture

Idiot

Commenter

Outbreak

Global Douche's picture

Some ICO's will flourish, but many will fail epically. Put only $$ into one that you're not afraid of losing. Be aware too that some of the technology is essentially at the same stage that Bitcoin was in it's first year or two. Some have but a few of what they're planning on rolling out, and the bugs may not have been worked out. Furthermore, scammers will phish and phuck whatever angle they can, so watch out for these sharks.

Bitcoin is now the kid who screams at the top of his lungs with the best sopranos at any supermarket, going through huge growing pains. These hard forks are pairs of shoes and baby teeth being shed. ICO's are the next step to get the fucking criminal bank$ (and too many attorneys) more out of our lives, thus the incredible resistance from many whom in some cases are likely returning favors previously granted them.

This advice, for what it's worth, applies equally to quality gold and silver equities. They're fighting for whatever oxygen they can get through the massive fart gas cloud which the Methane Manipulators continue emitting with nary a slap on the hand. After all, they remain the masters of government. Only the Market can collectively change this, and the shit MUST hit the fan before changes will be forced to take place by the pissed-off masses.

sebmurray's picture

A bunch of developers who thought they had a better way of doing things but didn't consider the practical realities of their solution. Probably one of the most common problems in software development, just juiced to the next level by a herd of ignoramuses who will throw money at anything blockchain related

TheytookERjobs's picture

Iota and Radix are the two most promising new cryptos. That's all you need to become rich next year. Disclaimer I have 700kg of silver

Bloody Fkn Muppet's picture

700? Ha ha, yeeeeeeeeeaaaaaaaahhhhhhhhh.

tmosley's picture

Never heard of Raddix, and it doesn't seem to show up in DDG.

Might be right about IOTA.

Economics Considered's picture

Crypto-coin ponzis are evolving super fast.  Already we have ponzi squared's // synthetic ponzi's !!

Memedada's picture

The FIAT-Ponzi is already synthetic. It is nothing but 0's and 1's in the central banks computers. Crypto-currencies are different than fiat-currencies - they are connected to the blochchain and some of them (like Bitcoin) are finite and based on a very-well defined cryptology.

Teja's picture

Even worse than you think. Fiat money is not created by the CB's, but by shady entities called "banks" each time they issue a credit to someone. Not really different from ICOs, only more regulated, and we had more time to get accustomed to them.

Blue Dog's picture

New money is created by the central banks and by banks when they lend. Banks aren't regulated per se. The big banks write their own regulations that their paid for politicians introduce and promote. Big banks keep their profits but their losses are covered by the taxpayer. Cryptos are free of political corruption.

beartoe's picture

Just wait unti the cryptos are traded in ETFs, Futures, Bonds and Options. They will be back in the same position as any fiat toilet paper controled by the elite/gov/CBs....except, you could not even wipe your ass with them. LMAO!

JibjeResearch's picture

I'm hoping that day comes faster... lolz ehehhe

Debugas's picture

product that was, at best, needless complex, and at worst, downright nonsensical.

 

The same can be told about bitcoin

 

Money should be simple to exchange and to check for counterfeit

Blue Dog's picture

The dollar is being counterfeited by the trillion every year. That's just what we know about. Bitcoin is limited to 21 million units. Bitcoin can't be counterfeited.

tmosley's picture

You can't have a fake bitcoin. It isn't possible.

Also, it is EXTREMELY simple to exchange. The only problem there is that transactions are expensive and too slow for POS systems, absent the acceptance of confirmationless transactions by the merchant.

Bloody Fkn Muppet's picture

Bitcoin is limited!

 

Fork. 

 

Bitcoin is limited!

 

Satoshis.

 

Bitcoin is limited!

 

Ethereum.

 

Bitcoin is limited!

 

Fork

 

etc...

Blue Dog's picture

Bitcoin IS limited. It will always be limited. Pieces of it may break off and have new names but that doesn't affect Bitcoin. It hit a new high today. It's up 73% for the month.

herkomilchen's picture

People who think forking creates new Bitcoins are completely clueless as to how cryptocurrency works.

I explain to them when Zimbabwe creates and prints New Zimbabwe Dollars this has zero impact on the US Dollar supply.  Or when more Platinum is discovered this does not affect the supply of Gold.  They understand that.

Then they claim the creation of a new altcoin, whether it initially allocates its coins according to the current Bitcoin ownership roster (a perhaps poorly named "fork") or starts from scratch (Etherium, etc.) increases the supply of Bitcoin!  Just clueless folk confused by digital money.

tmosley's picture

None of those effect the percentage of total purchasing power that you own after you buy.

Stop being stupid. If the Fed increased the money supply by giving a penny to every owner of a dollar bill, it would be fine. But they don't. They print up a bunch of money and give it to their friends, reallocating purchasing power.

NoBillsOfCredit's picture

Bankster troll? Definitely ignorant. A Satoshis is 100,000,000th of a Bitcoin.

PolishAmerican's picture

even more interesting is HOW after a FORK the forked coin all of a sudden reaches multibillion valuations....and coin gos to $500

so how many bitcoin variants will there we until it all gets OLD and people realize money does ot come from think air.

Mendleyev table luckily has only a few money potential elements...,and all of them are trumped by gold... 

 

ponzi schemes...like imagination do not have a limit untl they suck ot all air. then collapse starts - luckily if it was gold meta does not evaporate.

bitcoin will.

Winston Churchill's picture

As I understand the BTC Satoshi prospectus they are limited until a simple majority of holders decide otherwise.

In other words they aren't limited, or no more limited than a corporation creating more stock by a simple

vote.Given that just a few holders have the majority of "shares" it can be diluted at will.

The whole scheme is more analagous to owning shares in Quicken,with the product being an

accounting system. not a currency or security at all.

Books are going to be written about this new variant of the Ponzi for the digital ages

for a 100 years.

The Satoshi scheme has a nice ring to it.

But ,but, but its been around for 10 years.So were the Ponzi company.Madoff and many more.

Investors who made profits had them clawed back when the schemes collapsed.

Nobody will listen though,greed its whats for dinner.

NoBillsOfCredit's picture

If what you say is true, it will never be in the interest of the majority to reduce the value of Bitcoin by making such a choice. Unlike the current debt based Ponzi money system, Bitcoin, Litecoin etc are open for all to see. This is not true of Bankster Ponzi. Just tell me EXACTLY how many FEDERAL RESERVE NOTES and their electronic equivalent exist today? You can't tell me because no one knows.

Winston Churchill's picture

That model is dying and the bankers all know it,and have known it probably from its inception.

Just because you cant think ahead, they can and do.Thats why they fund think tanks.

Just who are these few that hold the majority of BTC ?

With an unlimited fiat supply at zero cost, CBs could be the answer.

Owning both sides is their MO remember.

Heads they win,tails you lose.

newmacroman's picture

Don't we already have interchangable tokens of variable fiat intruments with a universal constant anchor called gold?

Take the total amout of $US and divide by number of trounces the treasury holds...

Freegold. The more a central bank prints tokens, the higher gold goes in that token.

El Hosel's picture

Put your two lips around my ICO and have a nice day.

Moving and Grooving's picture

'Put your two lips around my ICO and have a nice day'

 

'The only thing better than roses on the piano is tulips on the organ.'

 

 - My Grandfather

 

EDIT - he also used to say that the only thing better than honor was inner.

 

.

BallAndChained's picture

> Bancor attracted big name venture capitalists like Tim Draper this year when it published a white paper proposing to create a kind of decentralized digital currency exchange

> a functionality, its creators insisted, that would one day render digital currency exchanges obsolete

> beneath the surface was a product that was, at best, needless complex, and at worst, downright nonsensical.

 

Didn't tmosley say the same thing, that decentralized exchanges will replace the current centralized exchanges that can be targeted by governments you ignorant non-token holders? Smarter people than you holding fantasy tokens which make them geniuses are working on these decentralized exchanges you ignorant non-token holders?

Now this article says decentralized exchange is needlessly complex and downright nonsensical.

Sounds like tmosley invested heavily in Bancor you ignorant non-token holders. Smarter people than you bought into Bancor and they instantly became geniuses holding those fantasy tokens.

 

tmosley's picture

I warned people against ICOs, and especially this one. Your brain isn't working due to overwhelming cognitive dissonance.

I think I found the source of it--It now takes 5.72 ounces of gold to buy a bitcoin.

BallAndChained's picture

You were pumping decentralized exchanges as argument that governments can't control exchanges you ignorant Mr. cognitive dissonance.

The Cornell professor's comment of so inefficient and subject to front running applies to all decentralized exchanges.

Whether it was funded by ICO or not is completely irrelevant you ignorant fantasy token holder.

tmosley's picture

Decentrilized CRYPTO exchanges, not decentrilized FIAT exchanges.

And what is it about this story that makes you think that decentralized exchanges are going away?

BallAndChained's picture

If you are saying 1 to 1 personal transaction is a "decentralized exchange" then it just shows how much of a charlatan you are trying to fool people with that name. Putting up orders on a real "exchange" (noun not a verb) that executes automatically is not the same as a 1 to 1 swap where two people must be online at exactly the same time to do a manual crypto/bank transfer, or needs some arbitrator to prevent scams.

If the governments outlaw centralized CRYPTO exchanges that trade any non government crypto, then all the liquidity is gone. All the liquidity is on the centralized exchanges. Bitcon would be useless as a real currency when it is underground illegal 1 to 1 transaction with no liquidity. Not that Bitcon is being used as an everyday currency to begin with.

messystateofaffairs's picture

Shocking. How could this happen? I would have never thought it possible.