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NextGen Magazine


Study: Only 20 Percent of ICOs Actually Do What Disclosures Say They Do

Chris Gaetano
Published Date:
Aug 7, 2018

A recent study has confirmed that many initial coin offerings (ICOs) are either defective or outright scams, as fewer than one quarter actually do what backers say they do, according to MarketWatch. The study, which came out of University of Pennsylvania, compared the computer code and white papers (the public document outlining how an ICO works) of the 50 largest ICOs in 2016, which had raised a combined $2.6 billion of the $3.7 billion in total ICOs. What they found was that only 20 percent of ICOs had computer code that actually did what their promoters claimed in their white papers. For example, in order to protect their value, certain ICOs will engage in what's called supply burning, that is destroying unsold coins to modify the supply and control prices. Of those that promise supply burning in their white papers, the study found that 35 percent do not technically have the ability to do so in their code. It's even worse when it comes to vesting, the period before investors can sell their stake in the company. Of the 37 ICOs that promised vesting, only 8 had code that actually enabled it. The paper's authors noted that vesting is particularly important in an area as unregulated as cryptocurrencies; without vesting, it would be quite easy for a founder to simply walk away with the cash. Finally, even if these functions are in the code, there's little guarantee they will stay there, as at least 10 firms have no rules in place prohibiting founders from modifying the code in the future, which opens the process up to further abuse.