Full disclosure: The author started following the dapp economy while writing for Qchain, an advertising dapp.

Ethereum is having a moment. The cryptocurrency and app platform—a cousin of the more popular bitcoin—has catapulted in price, increasing by around 3,000 percent since the beginning of the year. This is due in part to a Wild West of decentralized projects that have launched by crowdfunding on the platform. Major companies and financial institutions, too, are looking into using ethereum to develop applications based on its public ledger, called the blockchain.

But with so much money flying around, critics are worried that some ethereum ventures are starting to seem like suspicious Kickstarter projects: They promise the world with little to show, and are more than happy to take people's investments.

The investments themselves are not a surprise. Unlike bitcoin, ethereum was built for enterprise. Ethereum distinguishes itself from other cryptocurrencies with so-called smart contracts—code that automatically executes transactions once specific conditions are met, eliminating the need for expensive middlemen.

"Developers are irresponsibly collecting too much money for technology that doesn't exist."

The platform theoretically supports a more democratic way to develop services: Anyone can create "tokens" on the ethereum blockchain for any decentralized application (dapp) that they create. These tokens are sold during an ICO (Initial Coin Offering), the cryptocurrency analog of an initial public offering (IPO). Tokens, in essence, are tradeable units created to suit a company's needs—and they can represent anything from financial assets to loyalty points, depending on how they're coded. In some cases, they entitle buyers to a small share of the company's earnings, or allow them to vote on the direction of the enterprise.

By buying tokens, investors are not explicitly investing in ethereum the cryptocurrency, but are instead effectively placing a bet on the usefulness of the ethereum blockchain (and the ability for a company using the blockchain to create a useful, profitable business). As a result, ICOs create a perpetuating cycle of hype: More buzz about blockchain technology, more value for ethereum, more attention for dapp startups, and so on.

All of this may sound auspicious for the blockchain economy, but recent dapp ICOs—which have raised millions of dollars in mere minutes without having a single line of code deployed—have people worried that tokens could become a way for shady apps to get funded like Kickstarters that fail to follow through on their promises.

"Developers are irresponsibly collecting too much money for technology that doesn't exist," Jackson Palmer, the founder of the cryptocurrency Dogecoin, told me over email.

In the frenzy to buy into dapps, the worry is that uneducated investors may also easily be swayed to fund projects on hype alone, without stopping to consider their feasibility—and thus, overly optimistic parties are able to raise large amounts of capital for projects that may never materialize.

"While [these dapps] might not necessarily be running a scam purposefully, there is a strong chance that, due to a lack of development experience, they'll never actually release what they were telling people to invest in," Palmer said.

Image: Shutterstock

Peter Van Valkenburgh, the research director of the cryptocurrency think tank Coin Center, is optimistic about the innovative potential of ethereum, but expressed similar concerns. "What you're seeing is the emergence of a new asset," he said. "People can exploit others because there's a lot of noise."

The cryptofinance research group Smith + Crown, which curates a roster of ICOs, listed 66 ICOs that were initiated in May and June alone, and 34 scheduled to begin throughout July. Together, the five largest ethereum-based tokens currently comprise a market cap of over $1.5 billion. While none of these ICOs have crashed and burned as of yet, some have raised eyebrows, leaving observers with the impression that a storm is gathering. "We're in a bubble, and there's going to be a correction," Van Valkenburgh said.

In light of these wavering promises, ICOs are increasingly coming under public scrutiny.

Gnosis, a prominent market prediction dapp based on ethereum, raised a then-record-breaking $12.5 million in mere minutes without a usable product and no clear date for a release. According to its website, a series of betas were scheduled to be rolled out in Q2 of 2017.

"We are not far behind," Stefan George, the company's CTO, assured me over Slack. "I expect a beta release of our framework for the end of this month."

The ICO figure alone isn't what drew attention: The startup opted to sell only 5 percent of its tokens to investors, with the development team keeping 95 percent. The ICO resulted in the Gnosis project being valued at $300 million. Critics have loudly denounced this, saying that even though investors put up the money, the Gnosis team is sitting on most of the ICO's value. (Its competitor, Augur, which raised $5.3 million in an ICO in 2015 has been applauded for recently delivering a beta.)

Matchpool, a decentralized matchmaking and dating protocol, also attracted controversy after it raised $5.7 million in a crowdsale. A day later, the CEO converted a portion of the ICO funds into bitcoin, allegedly in order to hedge against what he described as ethereum's "volatile" price, causing a mild panic among investors. Maximus Richardson, a co-founder of the company, echoed the CEO's statement over Slack, telling me that all of Matchpool's ICO funds have since been converted to fiat money to keep the company in operation for the next few years.

These startling figures and arguably premature ICOs are hardly anomalies. There are nearly 500 dapps listed on Ethercasts, a curated list of dapps. These applications purportedly offer decentralized versions of everything from financial services, to healthcare, to blackjack and music platforms. The short-term goal for many of these dapps is to hold ICO crowdsales in order to support the development of their products—and because they are selling bits of code rather than shares or stakes in any traditional sense, they are currently not subject to securities laws and financial regulation.

Amid the laissez-faire landscape, companies materialize with utopian-sounding services and sleek websites, then immediately build hype for lucrative ICOs—often before establishing adequate expertise and grounding. Monaco card, a prepaid cryptocurrency debit card, secured approximately $25 million from its ICO in spite of a still-unsolidified affiliation with Visa (despite advertising itself as the Monaco VISA) and no explanation of how it will achieve its main selling point of "perfect interbank exchange rates." When asked on the company's public Slack about whether an official partnership with Visa exists, the company's CEO said, "We signed a deal with a Visa issuer and are in the process of becoming a program manager." Meanwhile, on the bitcointalk forums, anxious investors and enthusiasts are crossing their fingers that the card isn't a scam.

And Humaniq, which ambitiously aims to offer decentralized financial services for unbanked people around the world, collected $5.2 million from its ICO with a team largely composed of marketers and strategists: the project's tech development is being outsourced to three different companies. The company's roadmap outlines a beta release in May 2017 followed by a global app release in June 2017; as of this writing, no functional product has been publicly released. Reached via email, a Humaniq rep explained that a simple app interface will be released for Android on July 31, with a more fleshed out version for iOS and Android targeted for launch in September.

In light of these wavering promises, ICOs are increasingly coming under public scrutiny. Much in the same fashion that ethereum is a democratic platform for developing services, social platforms and forums are acting as a democratic force for regulation. Sketchy apps get called out on bitcointalk, Reddit, Twitter, and YouTube by crypto enthusiasts eager to warn their fellow investors. In Reddit's largest ethereum trading community, users are quick to point out red flags surrounding popular crowdsales.

Whether or not truly enriching ethereum products are actually developed to completion remains to be seen. For the time, the ethereum dapp space remains ripe for profits and lacking in substance for the blockchain ecosystem.