Changpeng Zhao, CEO of Binance, the world’s biggest cryptocurrency exchange, says that ICOs are not just “good-to-have” but “necessary” to promote technological development and economic growth. In a lengthy post on LinkedIn he argues that for investors, “the fast movers will reap exponential benefits” and tells us “Don’t get left behind”.

ICOs are currently under scrutiny from the media and regulators due to a string of high profile scams and instances of financial mismanagement. The SEC has stepped up its attention on the fledgling sector, claiming jurisdiction over the space after SEC chair Jay Clayton told the US Senate Banking Committee last December, “I believe that every ICO I’ve seen is a security”.

However, according to Zhao, the ICO model is still superior to the traditional VC (venture capital) model. Central to Zhao’s argument is the ease of raising funds by issuing tokens. Zhao suggests that it is “about 100 times easier” than dealing with VCs, which implies that there “may be 100 times more startups, well-funded startups, where ICOs are allowed”.

Comparing two countries, one of which allows ICOs, and one which does not, the ICO-friendly territory will have “100 times more well-funded startups”. In such a situation, Zhao asks, “what would their relative speed of technological advancement and economic development be?” and “which country will become wealthier over time?

For Zhao ICOs are better for countries, startups and investors. Fundraising is so much more efficient that a company’s leadership, particularly its CEO, can focus more on its product.

Not only can an ICO raise more money, more quickly, but because of the distributed nature of the investors, the company will benefit from “thousands of people around the world” who will “use your product as soon as it is launched, spend all day beta testing your product, or discuss with you about new neat (and sometimes useless) features that you haven’t thought about.”

The flexibility of the ICO model also makes investment an option for those who do not have spare millions of dollars. Although some VCs will take money from smaller investors, there will be a minimum investment amount, management fees and no say in where your money goes.

On Scams and Failure

The two major arguments levelled against ICOs are scams and a high failure rate. On the first Zhao believes that they “exist everywhere, in every industry” and “We don’t need to re-invent the wheel here” as “the same law enforcement dealing with scams in traditional industries still apply in new industries”.

On the failure rate Zhao points out that traditional startups also frequently fail. If anything, ones pursuing the ICO model may have a better chance of success as the leadership can focus more on the product and less on courting investment. Also, “ICOs help jumpstart the project with an initial user base”, which allows for immediate feedback on the product.  

Zhao does not pretend that everything is fine in the sector but notes that “we are still in early days of the industry”; problems should be expected, and then solved. After all, “if we had given up e-commerce/internet because there was identity theft or credit card fraud, where would the world be today?” Progress comes from solving the problems, and “whoever deals with the issues best will be the winners”.

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