Vitalik Buterin expects the vast majority of initial coin offerings to collapse. At the ETHWaterloo hackathon, the Ethereum co-founder told judges from Coinbase, Consensys, Slock.It, and Augur that ni
Vitalik Buterin expects the vast majority of initial coin offerings to collapse. At the ETHWaterloo hackathon, the Ethereum co-founder told judges from Coinbase, Consensys, Slock.It, and Augur that nine out of ten ERC20 tokens launched on his protocol will crash to zero over time.
"It is an established fact that ninety percent of startups fail," Buterin said. "And it should also be an established fact that 90 percent of these ERC20s on CoinMarketCap are going to go to zero."
Buterin has flagged a structural problem in token projects: they concentrate power in the hands of a small development team or venture capital firm, even though the Ethereum blockchain itself distributes control across thousands of nodes. This tension, he believes, undermines the technology's core promise.
The current wave of token launches—what Buterin calls "tokens 1.0"—teems with "very bad ideas." Many lack working software. Others are not viable at all. Some are scams.
EtherDelta, a decentralized exchange, offers a counterexample. The platform generates revenue by taking 0.3 percent of each trade and routing that to its developers. It never needed an ICO and already turns a profit. Buterin sees potential in the model, though he acknowledges that sustaining decentralized projects without upfront capital remains a puzzle.
"This, basically, is tokens 1.0," Buterin explained. "There are some good ideas, there are a lot of very bad ideas, and there's a lot of very, very bad ideas, and quite a few scams as well. I expect that tokens 2.0 and the kinds of things that people will start building in 2018 and 2019 will generally be of substantially higher quality. Especially once we start seeing what the consequences of the first wave of tokens are in the medium-to-longer term. What is a good role for them and what is a role that doesn't really make sense?"
ICOs have pulled in over $2 billion so far this year. A handful of projects—three or four with $200 million hauls—have captured media attention by marketing to mainstream investors new to cryptocurrency. But Buterin notes that smaller, less publicized projects address more interesting problems.
"People talk a lot about three or four projects with $200 million ICOs and so forth but there is also the long tail of much smaller projects that often do very interesting things that we often just never end up hearing about," he said.
History suggests most will fail. Early-stage tech companies collapse at high rates, and token-funded platforms will face the same pressures—difficulty sustaining business models, hurdles in building working products, competition for users. As the Ethereum protocol becomes faster, more flexible, and more robust, and as the consequences of this first batch become apparent, Buterin expects the next wave of projects will be more viable and practical.
