Use-Case Eras: Return of the ICO

Use-cases will ultimately determine the fate of digital assets and, by extension, the default risk of its participants.  Better use-cases will drive growth and revenues.   Recently, a member of our Advisory Board argued that there have been several use-case eras which have characterised crypto’s development.  We are now in the “store of wealth” era.  Previously, there have been “money transmission” and “project funding” eras.  As we head into 2024, is the project funding use-case about to undergo a renaissance?There are 1,250 project tokens on Coingecko with market capitalisations of more than $10m.  The chart shows when they were each first dropped.  Activity peaked in early 2019 and early 2022 - the latter being what we’ve termed the project funding era.  Both peaks came 6 to 12 months after crypto prices peaked.  Presumably higher valuations increased capital supply and stimulated start-up activity.  But that takes time, hence the lag.  For example, in 2019, Libra-driven optimism led to ETH 2.0 competitors, like Hedera and Algorand, spinning up.

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The chart also shows the 2023 ICO slowdown.  Activity has halved from the “project funding” era.  Are conditions now right for a resurgence?  Asset prices are higher, so there’s more capital available.  The anticipated licensing of crypto ETF’s has generated market optimism, similar to that created by Libra.  Meanwhile, there’s substantial demand.  QED Investors recently analysed Silicon Valley Bank data and concluded that 53% of fintechs will be cashed out by Q3 2024*.  Firms need funding.The re-emergence of this use-case could be a significant milestone for crypto markets.  After all, the ongoing US regulatory lawsuits are centered on crypto’s classification as unregistered securities.  If people embrace rather than deny this categorisation, then the path is cleared for the creation of a dynamic, well funded capital market.  This could then lead to all kinds of financial innovation.Under this scenario, any asset with value could be algorithmically partitioned and traded.  Crytpo markets have already developed perpetual futures, a contract without an equivalent in TradFi markets.   Perhaps 2024 will eventually be viewed as a watershed year in financial engineering, like the creation of derivatives in sixteenth century Amsterdam or public limited companies in nineteenth century London.

_{* Morris, N.  (2024, January). Fintech Predictions for 2024.  QED Investor Newsletter.}