DeFi, IEO and ICO. What did people from the cryptocurrency industry make the most money on?
In three years, there have been three booms in the world of digital money, during each of which token quotes have shown hundreds and thousands of percent growth.
Everyone is already accustomed to the fact that from time to time in the field of cryptocurrencies something appears that is rapidly gaining popularity, instantly expands and then blows away just as quickly. In 2017, these were ICOs that turned the digital money market into a real financial bubble, then there was an IEO boom, and now projects from the DeFi sphere demonstrate high profitability.
Initial Coin Offering (ICO) projects were popular in 2017. They are associated with the growth of the digital money market to a bubble, as well as an increase in the value of Ethereum to a historic high of $1400 in January 2018 (now the largest altcoin by capitalization is 71% cheaper and costs about $400). Most of the ICOs were launched on the Ethereum blockchain. Due to high demand, the price of the token grew, but as soon as startups started selling stocks, this put pressure on the quotes and led to their sharp drop.
Last summer, The Block analyst Larry Cermak reported that over 5,600 ICOs were carried out all the time, which managed to attract about $64.5 billion. The median return on ICOs in the US dollar at that time was minus 87% and continued to fall.
The failure of the ICO concept is explained by the mismatch between the interests of managers and investors. Companies had a product that was at a very early stage of development, and mostly non-professional investors who did not understand the topic invested in it. Also, many projects attracted funding without a minimum viable product.
The peak of the initial token offerings was in December 2017. Now it is extremely difficult to assess the profitability of ICOs, since many projects have simply ceased to exist. The average amount attracted by developers is $36.2 million. Only 10.8% have a positive return, but the real numbers may be even lower.
For example, the EOS project, which attracted over $4.1 billion in ICO funding, sold its tokens at $0.93. In April 2018, their price reached an all-time high of $22.89, and their yield exceeded 2360%. At the moment, the average market rate of the asset is $2.63, which is 183% higher than the initial placement price.
In early 2019, the Initial Exchange Offering (IEO) space exploded in popularity. It can be said unequivocally that IEOs appeared as a result of ICOs, becoming their more transparent and less risky way of making money. The risks are less, because each project that offers its tokens is selected, and the listing of its tokens is guaranteed.
The developers of projects are not looking for investors, but the cryptocurrency exchange selects promising teams and promotes their coins among its users. The company is launching a special platform for conducting crowdsales (now all the largest crypto-exchanges have such platforms). Initially, IEOs took place on a first come, first served basis, completed in a matter of seconds and had technical problems due to too high a number of applicants, most of whom did not have time to buy even a few tokens.
Therefore, Binance proposed a "lottery" scheme that many exchanges now use. Investors wishing to participate in the IEO must keep their own exchange token in their wallet for a certain period of time before the crowdsale, for example, two weeks. After that, in accordance with his balance, the user receives a certain number of lottery tickets, each of which may turn out to be winning and will allow him to buy new tokens for a predetermined amount.
Interest in IEO peaked in the first half of 2019, after which attention began to decline sharply. For example, in May, projects for the initial placement of tokens attracted funding for $1.2 billion, but in June this amount fell by 88%, to $125 million.
At the start, almost all IEOs showed hundreds and even thousands of percent of growth, but as a result, many of they were at a loss.
The token of one of the most anticipated projects Fetch.ai was selling at $0.097 at the start, at its peak it reached $0.415, that is, the potential profit exceeded 300%. However, then the value of the altcoin plummeted and never recovered. Now it is $0.046, since IEO the drop has exceeded 50%.
In the summer of 2020, a new industry gained popularity - Decentralized Finance (DeFi). These are applications, exchanges, services for issuing loans and opening deposits, and much more. The key idea behind these platforms is that developers have no control over user funds.
For example, Uniswap is currently the most popular decentralized marketplace. To trade on it and other similar exchanges, the user does not need to create an account and leave funds on it. They are stored in a personal wallet. Uniswap connects traders, the transaction takes place directly between their wallets.
Many DeFi projects have their own cryptocurrency. Mostly, these are tokens issued on the Ethereum blockchain. The most popular coin in the decentralized finance industry is YFI. At the start of trading in mid-July, it traded at $32; in mid-September, the price rose above $41,000, by more than 128,000%. Altcoin is currently trading at $13,382 and the market has been declining for the past month and a half. During this time, many DeFi tokens lost up to 96% in value.
However, the volume of blocked funds continues to grow, on October 25 it reached a new all-time high of $12.445 billion. It can hardly be said that the popularity of DeFi projects has declined, rather the opposite, vice-president of the Russian Association of Cryptocurrencies and Blockchain (RACIB) Valery Petrov. It only increases due to the fact that the hype has decreased, and the number of participants who deliberately work with DeFi projects has stabilized.
All DeFi projects that showed an unreasonably high growth in the formal cost of their instruments are eliminated. There remain only those who, according to an understandable and economically sound scheme, present their investors with an opportunity to earn. This is a normal development of events due to the fact that after the initial surge of interest, scammers are eliminated and a normally working core remains.
Cryptorg.Exchange CEO Andrey Podolyan did not agree with the fact that the popularity of DeFi began to decline. He explained that the market correction began due to the fact that strong inflation is pressing on token quotes. The number of investors in decentralized finance remains high and new projects continue to emerge.
“Most likely, with DeFi it will be the same as in 2018-2019 with the crypto market, only the strongest projects will survive. A new boom is already underway, and it began around spring. Many exchanges actively offer staking or participation in their own liquidity pools. The largest exchange pools amount to hundreds of millions of dollars”, Podolyan suggested.
If we talk about the future interest in cryptocurrencies, most likely it will be associated with the emergence of regulation, which is taking an increasingly conscious form both in Russia and abroad, Petrov is sure. He does not exclude that the issue of digital financial assets in accordance with the new laws will become the basis for further investor interest in the field of cryptocurrencies. The development of this area will be significantly influenced by the emergence of digital currencies of central banks (CBDC), under which the clearing will be "cleared" from commercial cryptocurrencies.
“Most likely we will see that CBDC will gradually come to the fore, and commercial solutions, which are now called cryptocurrencies, will be more and more niche in nature”, the specialist predicted.
For example, central banks around the world are now showing interest in issuing CBDCs.
So far, the leader among the largest countries is China, which has already conducted the first test distribution of its digital yuan to the population. The CBDC was also announced by the Bank of Russia. The regulator released a report for public comment, in which it announced that it will study the issue of issuing a digital ruble, which should become the third form of money and will be handled together with cash and non-cash rubles. However, the decision to issue the asset has not yet been made.