The majority of 2019’s biggest initial exchange offerings (IEO), an alternative crowdfunding solution for crypto start-ups raising money, resulted in a negative return on investment, according to a report by bigX and SMC Capital.
Similar to an initial coin offering (ICO), an IEO is a token sale to raise funds for a new project, which is supervised by a cryptocurrency exchange, and allows investors to purchase new cryptocurrencies. IEOs raised USD1.7 billion in 2019, making them one of the blockchain market’s biggest stories of the year.
bigX, a fintech firm based in Estonia, alongside SMC Capital, a blockchain-focused VC and consulting company, has analysed a list of the top 15 IEOs of 2019. Their study found that as of March 2020, 74 per cent of the largest IEOs were yielding a negative return on investment (ROI).
Only four projects out of the top 15 were still providing investors with a positive ROI. The average loss for projects in the red was -53 per cent, while the average ROI for successful projects was +209 per cent.
The best performing token was Matic, a company providing secure cryptocurrency transactions, which offered a +577 per cent ROI after its launch on the Binance Launchpad exchange, the largest cryptocurrency exchange by traded volume.
Meanwhile, MultiVac at -92 per cent, and VeriBlock at -94 per cent were the worst performing IEOs that made the top 15.
John Slyusarev, managing partner at SMC Capital and strategic advisor to bigX, says that there is still a “positive dynamic” in IEOs, despite a dwindling level of funds raised and a fall in the number of projects, prompting fears that 2019 would be “the last year for IEO”.
Slyusarev mentions the recent example of India-based exchange, WazirX, which led a successful IEO that raised USD2 million, and is currently providing investors with the notable ROI of +892 per cent.
He continues: “But considering the ROIs of top 15 IEOs, we can see the same picture that we’ve already seen two years ago in the ICO era, start-ups becoming public too fast, and spending all their attention and resources on boosting the token price instead of product development. As a result, the majority of IEOs’ tokens lose the lion share of their value during the first quarter of being public.”
“Although many projects do raise money, most end up spending the majority of funds raised (up to 85 per cent) on market-making to support the token price,” says Slyusarev.
He concludes: “We can consider IEO as the last echo of the ICO era when young age start-ups were able to raise millions of dollars with no product and clear scenarios of their future.”