July 24, 2018 / ICO

Most Leading ICO 2017 Were Centralized


On July 18, researchers from the University of Pennsylvania published the report, the entitled “Capitalism of coins” (Coin-Operated Capitalism).  The document is result of “the cross-disciplinary project covering the law, economy and computer science” as professor David Hoffman said.

Researchers have analysed 50 leading ICO which general market capitalization has made $3,8 billion, and cumulative profit — $2,6 billion. Hoffman explains:

We researched 50 leading ICO’s in 2017, analyzing their white paper, terms and conditions, all available codes and all publications on social networks.

One of key conclusions to which researchers had come consists that many ICO didn’t promise investors protection against insider transactions. In other words, there are no guarantees that tokens won’t become an objects of a whales pumping and dumping.

What’s worse, many projects that directly gave such promises, eventually did not implement them in their code. So, the promises were not kept:

  • 80% of the 37 projects that promised to lead;
  • 25% from 32 ICO, the tokens promising restriction of tokens stock;
  • 35% from 17 projects promising to burn coins.

Besides, from ten projects with tokens which can be modified (such as Bancor) only four have warned about this opportunity in English.

A significant number of ICOs also exaggerated in their white papers the real level of decentralization, since their activities still require trust and centralized decision-making.

Similar modification capabilities were found, for example, in Polybius. The smart contract code for this project has undergone changes that go far beyond “simple changes in voting rules for token owners.”

The researchers conclusions also undermined the belief in the idea that “code is the law”, and self-regulation really works. Investors have to trust the development team. They wait a product, which one advertises in their white paper. On the other hand, they have to trust in that, “that old-fashioned rules of use will be guided by the common contract law, or in the fact that the code which in fact nobody will begin to decipher (or won’t be able to make it) will allow to keep these promises”.

Not surprisingly, while 92% of the blockchain projects fail, and the average life expectancy of the startup is 1.22 years. Do not forget that more than 80% of projects were fraud, as evidenced by the data of another recent report.

The researchers came to the following conclusion:

As smart contracts become increasingly important in transactions, courts and regulators will inevitably encounter them as part of daily practice. Perhaps, the lawyers will have the task to determine the quality of the smart contract in order to decide whether its authors actually fulfilled the obligations stipulated in the paper contract or in the base law.

Recently U.S. Securities and Exchange Commission said that “decentralized” cryptocurrencies, such as bitcoin and ethereum, do not belong to securities.  A study by the University of Pennsylvania staff that many tokens are centralized gives the SEC a reason to consider them unregistered securities.


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