5 Reasons Why ICO Transparency is Crucial
The number of ICOs continues to grow. Now, many people are waking up to the reality that this market is in dire need of more transparency. Otherwise, the whole system, including ICO start-ups and investors, is standing on shaky ground. Take this recent case as an example where one investor lost $70,000 while trying to invest in the just concluded AirSwap ICO. That is money they will probably never see again. How do we avoid such occurrences and other problems that arise with risky and even not so risky ICOs? Let’s start by breaking down the five main reasons why transparency is a must in the current ICO marketplace.
1. It will eliminate the need for government regulation.
It is an undeniable fact that the remarkable rise of ICOs has been due in large part to the zero regulation environment in which they operate. If all governments were to commence ICO regulations today, ICO proliferation would slow down significantly.
In extreme cases, governments might choose to do away with ICOs altogether. They may feel that they’re a threat to investors. A case in point is China, which recently banned all ICOs, dealing the crypto world a major blow. To avoid the escalation of what happened in China, as well as the implementation of stifling regulations like the SEC is now considering, it is imperative that ICOs become more transparent. This will send a message of openness to governments. Thus the need for regulations can diminish in the near future. Transparency a must if ICOs are to thrive in a low regulation environment.
2. Transparency will attract more investors.
ICOs are attracting record investment figures. Yet they are not drawing in major institutional capital that would propel them to the next level. Why is that? It’s simple. Institutional investors are afraid of losing their investments in ICO transactions that lack transparency. They want to know exactly what the ICO stands for and who the teams are behind them. Cases like the recent ReCoin ICO that was stopped by the SEC for being a scam do not improve the situation. This weakens the credibility of all ICOs when something like this happens. They only fuel investor fears as the wave of ICO scams increases.
For ICOs to attract major capital, they need more transparency. Transparency should focus on issues including:
1-Who are these teams behind ICOs?
2-What is the raised capital expected to do?
3-What is the real real-world value of the token?
If ICOs can attract the big money that comes with institutional investors, then more innovative products will come to the market, helping anchor ICOs as the primary tool that startups can use to raise capital. No longer will they have to go through the lengthy, bureaucratic processes involved such as the loans and initial public offerings (IPOs). The future of ICOs is therefore anchored on transparency.
3. Transparency offers protection to small investors.
Imagine investing a few hundred dollars in an ICO only to lose it all under unclear circumstances. Sounds horrible, right? It’s bad enough to lose your money, but even worse when you’re not even sure why. The sad thing is that it happens because investors are not provided with complete information on what exactly they are investing in. Many ICOs are advertised online with the promise of huge returns. Some do deliver, but the percentage of failures where small investors lose money is quite high. The number of scams in ICOs needs to go down, but how can this happen?
ICOs need to be transparent on exactly what services they are anchored to. Plus they must do so in clear and easy to understand language. Only then will investors have a chance to make an informed decision when looking to invest in an ICO. This way, when someone puts in money and loses it, they cannot blame it on the ICO, but rather on incorrect financial decision making at a personal level.
On top of that, if small investors are confident that ICOs are transparent, they will invest even more, hence propelling ICOs to even greater heights. After all, small investors are the backbone of the recent success of ICOs.
4. Transparency in ICOs can eliminate criminal investors.
One of the reasons that China provided for banning ICOs in their country was the lack of KYC (Know Your Customer). These procedures help determine who exactly is investing. The United States is also considering regulating ICOs for similar reasons. Going by the effects of international terror groups on day-to-day lives, it makes sense for ICOs to become more transparent even without the need for governments to intervene.
This way, ICOs will not only be financially aboveboard, but morally right as well. No one would want to invest in the same ICO as some terrorist group, or with some rogue government trying to launder money by bypassing sanctions set by the international community.
On top of that, enhancing transparency to eliminate dirty money kills two birds with one stone. For starters, it lowers the chances of governments taking a punitive regulatory approach to ICOs. Secondly, it protects ICOs from becoming a conduit for international criminal organizations looking to move cash for their different motives. Many of them aim at harming society in different parts of the world.
5. Transparency may reduce the incidence of failure in ICOs.
ICOs fail for many reasons, one of them being low-quality value propositions that are hidden from investors. When ICO creators know that they do not have to be transparent in their activities, they have the incentive to push out low-quality tokens that are guaranteed to fail. This is an unlikely scenario if the ICO environment is transparent.
Low-quality ICOs would not see the light of day, as they would most likely be bashed by the online community even before launch. Under such an environment, developers would have to think harder before they put up tokens for sale in an ICO.
The result? There would be a significant decline in failing ICOs as more effort would be put on increasing each ICO’s value offering. This would also likely have the chain effect of increasing the level of investments coming into ICOs, thereby growing them even further.
It is clear that the case for increased transparency in ICOs is strong. Transparency has the potential to not only eliminate the need for government regulation in the ICO space, but also pull in more investors. This can only be good for the future growth of cryptocurrencies. Join us at TruDex and stay informed of the latest cryptocurrency news while enjoying all the tools needed for eliminating confusion and making informed ICO investment decisions.
By Nicholas Kithinji