Pay $4B ICOs Now, Worry Later?

We all know that, when it comes to investing, initial coin offerings (ICOs) are a horse of a different color. The allure of cryptocurrencies is one that smacks of “get rich, sometimes real quick” timing. Though much remains to be seen in terms of use cases for tokens, and how blockchain can be used to bring sensitive data (not just payments) hither and yon between parties without a hitch, speculation still reigns.

There might be signs, though, that speculation is hitting a peak. Why? That’s because its … kind of unusual to dole out dollars with no questions asked, or at least only questions that are the most basic in nature, such as: Where do I pay and how much?

Let’s step back for a minute. Say that nephew Jack comes to say he needs $100. The reason: a hot new company he has in startup mode. Jack’s company, he swears, makes something that will go up in value. He’ll give that something back; the lender will have that something then sell it to someone else who will pay dearly for it — because it will be part of a new wave of technology. Oh, but that something? It’s not out on the market yet. Untried. Untested. Not much more than, to paraphrase a drama surrounding a salesman, a smile and a shoeshine.

So it seems, with Block.one — one of a block of ICOs — that Thursday (May 31) grabbed $4 billion for a product that is yet to be in production. The offering has been going on for roughly a year.

The facts so far: The startup is based in the Cayman Islands. The $4 billion is eye-popping on a normal come-to-market day. The $4 billion is in fact big enough that it makes most other offerings that have come to market, even on traditional exchanges, looks a bit anemic. The largest offering this year, so far, behind this one has been AXA Equitable Holdings, which came to market for $2.8 billion.

CNBC reported that the mechanics of Block.one and the offering was marked by investors using crypto — in this case 7.1 million units of Ether (a cryptocurrency) — in return for the hundreds of millions of tokens issued by the company. Ether is worth roughly $576 a pop, so the total tally raised clocked in at $4.1 billion.

Notably, and as reported by The Wall Street Journal (WSJ), investors in the United States and China have not been able to participate in the ICO, with regulators training a relatively sharper eye on such offerings in recent months.

CNBC noted, “This amount could change depending on the price of Ether once the sale closes,” so the $4.1 billion rendered via Ether could be either more or less and perhaps a lot more or a lot less. Yet, still, no one knows just how that $4 billion will be allocated to get that platform up and running. Well, that’s not entirely true, as $1 billion is being earmarked for developers.

As far as muscling up the development team, the company is in the midst of developing a blockchain platform, known as EOS.IO. There’s a long road between development and deployment, but as some sources surmised to CNBC, CEO Brendan Blumer and CTO Dan Larimer are both held in high esteem in the industry and have been around the block with blockchain, experienced as they are with other startups in the space.

The jury is still out when it comes to what may come out of the EOS mainnet — which is when the company moves away from the Ethereum blockchain to its own space, so to speak. The promise is that open ledger transforms the way we pay, cutting out middlemen with speed and security.

Some concerns this week have been seen in the push to have developers embrace the code — perhaps when Qihoo 360, a Chinese cybersecurity company, pointed out that vulnerabilities have existed that would have allowed bad actors to attack the code … and even manipulate transactions. The company has said it has addressed those vulnerabilities. In the meantime, the company will look for its software to be developed by others after the initial release.

Would anyone buy a Ferrari that had a little engine trouble at the factory? Some might, some will — some will itch to be in the driver’s seat no matter what. But as WSJ noted this week, the fact “that a little known startup could raise so much money without a concrete plan for it speaks to trends in the topsy-turvy world of cryptocurrencies and views of the future of the online world.”