In the bull market of 2018, initial coin offering (ICO) projects in the crypto market raised tens of millions of dollars on average from investors in the public market to create decentralized applications (dApps) and systems.
Fast forward 12 months, most of the ICO projects that currently exist in the sector have either have no working products to show or an insufficient number of users to justify their valuation.
According to Martha Bennett, a principal analyst at Forrester Research, ICOs have struggled to find viable products with business models that failed to account for the occurrence of a potential bear market that could force projects to face a funding crunch.
ICOs have raised large sums of money in the past year with several ICOs raising up to $4 billion from the public market. Yet, based on the data provided by DappRadar, apart from IDEX and ForkDelta, none of the dApps in the market have more than 600 users.
Many of the top 100 cryptocurrency projects in the market, even those that have active developer communities and strong technologies like Augur, 0x, Decentraland, ICON, Wanchain, and Polymath, have found it to be difficult to secure an active user base and maintain a high level of user activity on decentralized systems.
The abovementioned projects have working products in place that are currently utilized by users in the Ethereum ecosystem for various use cases. For instance, Augur saw its daily volume spike up to nearly $3 million during the recent U.S. midterms.
But, the majority of ERC20 tokens and ICOs in the top 100 cryptocurrency rankings do not even have a working product to show that is actively used by users on a regular basis.
Considering the underwhelming performance of most dApps and ICO projects in the space, Forrester Research analyst Martha Bennett said that this year’s bear market has been a wake-up call for investors that funded multi-million dollar projects without working products and in many cases, a clear long-term vision, strategy, and solid business model.
Bennett said: “Sooner or later, this would have led to a contraction anyway. The crypto crash acted as both catalyst and wake-up call.”
Several large-scale companies like Coinbase and ConsenSys have also laid off a relatively small portion of their employees in the past two months,affected by the bear market and dropping prices of digital assets.
In October, Coinbase, one of the largest fiat-to-crypto exchanges in the global market, laid off 15 members of staff. This month, ConsenSys is said to have terminated the contracts of 13 percent of its employees, which is estimated to be around 130 individuals.
How to Move Forward
Lex Sokolin, the global director of fintech strategy at Autonomous Research, said that the entrance of new investors and capital could end up counterbalancing the sector in the months to come, and for commercial companies with strong profit margins like exchanges, that certainly could be the case.
“I’d be comfortable saying that the pricing pressure on digital assets in 2018 is likely to lead to 25-50-percent shutdowns and layoffs for current projects based on historical comparisons. However, the pace of new entrants and capital could counterbalance this contraction and still grow the sector overall.”
However, for ICOs, unless projects begin to start developing products that can actually be utilized by both cryptocurrency and casual users, it will be challenging to recover from the current state of the market.