Wall Street Journal researchers have drawn some conclusions which should ring the alarm bells for investors. An analysis of around 3,300 projects which raised funds via Initial Coin Offerings (ICO), revealed that more than 15% of crypto projects have serious red flags. The study analyzed the whitepapers of all 3,300 projects launched between 2017 and 2018 and found that 513 of the 3,300 had committed plagiarism, misrepresented the identities of project founders, or promised unrealistic returns.
The Wall Street Journal examined the white papers of all projects listed on ICOBench.com, Tokendata.io, and ICORating.com. Sentences were compared to find any duplication by the reporters to check for plagiarism. Reporters observed over 10,000 sentences that appeared more than once. In the cases where there were no team members provided, the reverse image searching of photos provided was used to identify fake team listings. Fraudulent details regarding the team, founder or sponsors have been a common case for illicit crypto projects, the report claimed.
It was earlier reported that as many ICOs failed, many companies took advantage of this funding model to fraudulent projects. Thirty of these flagged 513 projects are reportedly under scrutiny by the regulators. Half of the websites have been shut down. Very few of these offerings responded to the questions posed by the investigators. In May 2018, US and Canadian regulators launched “Operation Crypto Sweep” to control the widespread fraud. SEC has also called for international support to control these frauds as many ICO sponsors are located outside the US but offer investment opportunities within the country. Many countries are facing similar problems due to the decentralized nature of cryptocurrencies.
Investors are putting their hopes in 2019. They are expecting that more sincere projects shall innovate, and there will be increasing regulations on non-credible offerings which will eventually be controlled. It is important to note that many of the real projects funded through ICO mechanism have given us working products. SIRIN Labs Finney and Brave Browser are few of the examples. And scammers have been known to take advantage of not only cryptocurrency but all popular investment classes. Growing scrutiny from regulators will be deterring crypto startups from the ICOs. Already, most of the startups are reportedly seeking funding through traditional routes of private and venture capital funding in hopes of bringing themselves into compliance. Some are even resorting to a new model called the security token offering (STO). Hopefully, everything will balance out in 2019.