20Aug 2018

Your ICO Doesn’t Need a Token

by Henrik Andersson

We believe crypto assets have a specific function to play in providing the incentives to run a decentralised protocol. They are the fuel for running open, permissionless blockchains. The ICO hype created an environment where raising money became too easy. The result was that too many projects are trying to fit a token into a service or product where none is needed.

Blockchains are only valuable if they are decentralised. There are three major tenants of this technology and the applications running on top of them:

  • Creating censorship resistant applications: This can take many forms such as money, financial markets, gambling, prediction markets or social networks to name a few.
  • Creating permissionless applications: That is, an application that anyone can join. With Bitcoin you can be your own bank, or payment processor, without needing permission from a bank or credit card company.
  • Trustless applications: If we use a derivatives or a lending market, we don’t want to rely on the goodwill of a third party. With open source protocols anyone can inspect the code and the integrity of the application and engage in commerce with 0% counter-party risk.

This is a quote from fellow crypto hedge fund manager Tushar Jain:

Screen Shot 2018-08-20 at 4.49.31 pm.png

Don’t pitch something that’s an easy pass

Many projects are creating a token where Bitcoin or Ether could be used, or maybe one of the many stablecoins. This is especially true if you’re creating a simple payment for service.

We think these ICOs should be funded by equity. At Apollo Capital, we see a future with millions of decentralised applications — and these will primarily be funded by equity. Compound, is an excellent example of a decentralised application built on top of smart contracts running on Ethereum. Compound is funded by equity, they are not creating a specific token where none is needed. This is how Apollo Capital forsees value accruing in the Web 3.0 era:

On one end there will be 1,000,000s of applications mostly funded by equity. On the other end there will be 10s of core blockchains, such as Bitcoin, Ethereum, Dfinity et al. that run on, and in some cases are funded by, crypto assets. In between, we will have 1,000s of middleware crypto assets such as stablecoins, oracles, and file storage. Smart contracts built on top of blockchains will interact with these middleware building blocks. As an example, a smart contract interacting with a stablecoin and an oracle can provide the basics for an application providing trustless and permissionless lending and borrowing in this new decentralised world we call Web 3.0.

To sum it up — it is likely your ICO doesn’t need a token and if it doesn’t, it will become increasingly hard for you to get institutional funding for your project.

However, if your application is part of what is either a new core protocol or middleware project there might be a need for new a crypto asset. If you have unique technology and an ability to create the necessary network effect — come and speak with us!

Henrik Andersson

Henrik is the Chief Investment Officer at Apollo Crypto and is the fund manager for the Apollo Crypto Fund. He also acts as the fund advisor for the offshore Apollo Crypto investments funds, the Apollo Crypto Frontier Fund and the Apollo Crypto Market Neutral Fund. Henrik's expertise in traditional financial markets comes from spending a decade on Wall Street as a vice president in institutional equity sales. His exceptional understanding of DeFi comes from co-founding two successful DeFi protocols, mStable and dHEDGE.