Fabian Vogelsteller, one of the authors of the popular ERC-20 token standard for ethereum-based ICOs has reportedly proposed a New ICO model which will protect investors from ICO frauds.
Vogelsteller spoke on Tuesday at the Devcon Conference, the annual gathering of Ethereum Developer and stakeholders held in Prague. According to him, the new approach to Initial Coin Offerings (ICOs) will better protect investors from scam token sales.
ICOs—the crowdfunding process popular among cryptocurrency and blockchain startups—became popular last year as the beam of attention focused on cryptocurrencies and blockchain projects. Due to the unregulated nature of ICOs in most countries, fraudulent elements used this medium to defraud unsuspecting investors—some ICOs literally disappeared after their token sale.
How the New ICO Approach will work
The system Vogelsteller proposes is basically an ICO model that allows investors to return their tokens at any stage of the project hence its name, “reversible ICO” (RICO). He explained that the model will use a special-purpose smart contract which will allow the investor to exchange the purchased token for his original investment at any stage of the project.
“You are able to take your funds back at any point in time and do it simply by sending your tokens back,” Vogelsteller was quoted as saying.
Restoring Confidence in the ICO Model
He further explained that the system will increase the confidence of investors who know they can opt out of the investment when ICOs do not fulfill their obligations.
The ICO space is in dire need of such confidence given the low returns from ICOs in the last couple of months. As Smartereum reported, ICOs in September posted the lowest revenues in 17 months. This comes after a similar return in August, the lowest in 16 months, according to data released by Autonomous Research.
This dearth of profitable ICOs has been blamed on the prolonged bear market which has led an investor to stick with big and trusted players. This can be seen in the increasing market share dominance of bitcoin over other cryptocurrencies. New tokens issued at ICOs are deemed risky—the added risk of ICO scam has not helped.
Challenges of the New ICO Model
Vogelsteller’s solution comes with its own problems, however. Notable among them is the instability this may bring to funds raised by startups during ICOs. If investors are allowed to withdraw their investments at any point in the project, the startups cannot rely on those funds when planning the project and may have to seek other conventional sources of investment. He explained that the startups will need more “core funding” from private investors while also noting that other investors can pick up tokens returned by an investor in the RICO system.
Do you think ICOs should consider the R-ICO system?