ICO (initial coin offering) has caused much controversy and received much criticism in the last couple of years. This is exacerbated by acts of some promoters of STO (security token offering) services, who bash ICO unabatedly. As a poorly-funded entrepreneur in the blockchain industry, I hold a completely different view. In a series of four articles (and accompanying videos), I will discuss how I view ICO and why I do so.

To begin with, let us address the comment that ICO allows for no governance while STO is comparable to mature stock markets — this is a myth. ICO tokens provide functions to users of the issuer’s service. It allows for a positive feedback dynamic, which I will discuss separately in another article, that creates the perfect win–win situation. If Nike lowers the quality of their sneakers and make them ugly, their customers will quickly switch to another brand. This simple economic response is sufficient to force Nike do the best they can to retain their customers. The same holds for ICO tokens. If every decision of the company must be consulted with token holders, we should be certain that little will ever be decided, and the company cannot be profitable, which is also the condition for which token holders can see the values of their holdings increase.

In addition to the question of governance, some have also hinted that companies that conduct ICOs have long lists of disclaimers that protect them from all forms of wrongdoings. This is horribly wrong. Legal duties cannot be “disclaimed”. It would be ridiculous if one were to murder someone and be able to disclaim the responsibility for this horrendous act. Disclaimers are there to help ICO investors understand their rights. No, the company cannot be responsible for everything. Yes, there are scams, too many of them, who write lots of nonsense in their disclaimers that nevertheless holds no legal ground.

STO to me is an interesting extension to equity crowdfunding, though it doesn’t have to be limited to financing. It adds options for shares to be transferred easily and verified publicly; it potentially allows for cheaper transactions, too. However, the simple statement that STOs are compliant while ICOs are not is shaky: STOs can be uncompliant just as ICOs. There are sets of rules that vary from one jurisdiction to another. I will discuss this in a separate article. Moreover, STO at the current stage, and very likely forever, are far from mature stock markets. The level of due diligence required and the level of security provided are very different.

Having addressed that comment, I will explain why I think ICO is essential for blockchain startups now more than ever, and I will then comment on what has brought us here.

Simply put, few viable alternatives remain.

It used to be the case from 2015–2017 that VCs and other funds aggressively invested in blockchain projects. The smart ones took profit. The dumb ones got burnt. Given the prospect of a 2020–2021 global recession (which I covered in an earlier article on Medium), they simply aren’t investing in blockchain. Investors who remain enthusiastic about blockchain tend to be interested in ICO. It is here that we see a problem:

During the ICO craze, projects that had only a white paper and little business prospects were significantly overfunded. Scams aside, we know that in business, particularly entrepreneurship, there is no “done-deal” before the deal is formally sealed. Overfunding doesn’t solve all the problems; however, it exacerbated the frustration among investors when overfunded projects fail. Many got burnt. Enthusiasm has dwindled.

Now, the space is much more crowded than before, but the amount of funds available is greatly reduced. In our case, we have a clear plan for a potentially highly profitable business, which will also create considerable value in the economy and drive the adoption of blockchain and cryptocurrency. However, we know clearly that it is frankly impossible to raise the type of money that simpler projects were doing during the ICO craze. We only hope that enough funds can be raised to allow us develop our service and, perhaps, market it in a smaller scale. We certainly won’t be doing million-dollar airdrops in marketing stunts.

This leads us back to VC and ICO: If ICO never existed, I can imagine there being funds available for sensible blockchain projects from VCs. Because ICO exists, and because overfunding had been such a big issue, it is now possible that further developments and adoption in blockchain can be hindered or prevented.

The overwhelming existence of scams makes this doubly hard. It is not always hard to tell which ICO may be a scam, but the use of social media and forums can easily drown out sensible voices. Worse, scammers can make false accusations against sensible projects via these channels. They take more oxygen away from legitimate projects.

For all these reasons, be it misunderstanding, history, or scams, I think a healthier ICO environment is more important than ever for the continued growth of blockchain and cryptocurrency.

This article is written by the CEO of IdeaFeX, Dr Jiulin Teng. You can follow him on Twitter or LinkedIn.