What Do You Think of ICO’s?

Over the course of the last year, I have been watching the ICO market.  I haven’t traded it at all.  Some people I know trade them pretty actively.  I just took a peek at Ripple.

Ripple is an open-sourced payment network.  It listed its own currency, XRP in an initial cryptocurrency offering.  Yesterday, that currency had an aggregate market capitalization of $24.73 billion.  Ripple is very transparent about XRP.  They publish statistics on it.  The price is .24 US Dollar.  They post how many trades per second they do.  Here is how much XRP crypto there is.

TOTAL XRP HELD BY RIPPLE 6,703,220,632
TOTAL XRP DISTRIBUTED 38,291,387,790
TOTAL XRP TO BE PLACED IN ESCROW 55,000,000,000

Anyone can mathematically verify how much currency could enter the market.

If you go to a site like Crunchbase and look at the traditional venture metrics, you see something different.   The companies funding rounds look like a traditional venture capital backed startup.

Ripple did a $200,000 seed round in October of 2012. Their last round of venture capital was a $55M round in September of 2016. If you use rule of thumb valuations, the company is worth approximately $275M in enterprise value.

But, they hold a lot of XRP inside the company.  $13.2B of it to be exact.

When I first started thinking about cryptocurrency I thought you might see companies issue crypto instead of equity.  If it’s done strategically, issuing your own cryptocurrency is a good way to keep customers, and make your company sticky.  Cryptocurrencies are networks.  In an internet/information economy, the networked model works better than the centralized vertical silo.

A lot of grocers are shaking in their boots over the Amazon purchase of Whole Foods.  Maybe instead of thinking about traditional means of attacking and competing with Amazon/Whole Foods, they should be thinking in terms of an ICO to create a network around their business.  Back in 2014, I blogged about companies issuing their own currency.  Startups having success issuing currency will eventually reverberate through staid corporate boardrooms.

The thing is, there has to be a cohesive strategy associated with an ICO.  It can’t just be to put money on your balance sheet.  Ripple was successful because the ICO was 100% integrated with the strategic direction of the firm.

If you want to learn more about this stuff, read the book The Business Blockchain.  My good friend William Mougayar was on CNBC last week talking cryptocurrency.  Here is his hit.

  • awaldstein

    I really liked this post especially this:

    Cryptocurrencies are networks. In an internet/information economy, the networked model works better than the centralized vertical silo.

    Except for one point.

    You are implying that the response of Krogers or Albertsons to the threat of Whole Foods acquisition is an ICO.

    You are by definition implying that that they have a network.

    Something is not resonating here.

    It is an amazing tool. It is not a panacea for commodity price driven hard goods as not all businesses are networks and not all networks have community.

    • I don’t think they have a network. The only way to beat Amazon is create one. An ICO might be a path to create one, but it has to be integrated into a much broader strategy that focuses on end user. Too many grocers see themselves as the center of the universe and indispensable. That’s why they are late on trends. Integrating end to end from farmer to customer might be possible with a network. USV’s company https://laruchequiditoui.fr/fr might be able to do that

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