Just like the digital currency industry, the ICO sector is facing its fair share of early adoption challenges such as compliance and security hurdles, as well as unpredictable market fluctuations.

Initial Coin Offerings (ICOs) rose to the limelight in 2017 as a novel form of fundraising for blockchain startups. These fundraisers, which are also popularly known as token sales, managed to raise more than $4 billion in 2017 alone and are continuing on their upward momentum in 2018 as well.

The ICO sector has to a great extent found its niche as an alternative to traditional venture funding options. Companies which go down this route at times manage to raise outstanding amounts in a matter of hours.

It is a popular choice for organizations that fail to qualify for the traditional venture funding model due to its high entry barrier. They also come in handy for companies that would rather not give away equity shares because issuers keep 100% of the company.

For a model that holds such high merit however, there has to be a catch. The innovative ICO sector in fact comes with quite a number of unique challenges. Take a look at some of the most significant ones that can be expected to feature prominently in 2018.

An Increase in Security Risks for Investors

One of the most outstanding challenges for ICOs is the lack of regulations to govern the space. What this essentially means is that in case things go wrong, there is no legal framework in place to look after investors interests.

This is what has made the industry particularly appealing to fraudsters. There have been reports of project websites going offline after raising investor funds and in such situations there isn’t much recourse available.

Regulatory Crackdowns

The increasing interest in ICOs and the cryptocurrency sector as a whole has also piqued the attention of authorities. As such, it is only a matter of time before various financial watchdogs implement crackdowns in a bid to streamline the space.

There is still a lot of legal uncertainty concerning such aspects as whether coins sold during ICOs are securities or simply utility tokens.

The main cause for confusion is that the approaches taken by various countries differ significantly. For instance, countries like Singapore and Switzerland are highly favorable to the growth of the ICO sector as they treat digital currencies as assets rather than securities.

Crypto Market Volatility

The evolution of regulations to govern the crypto industry as a whole and their constituent ICOs is bound to shake up the speculative market. The lack of clarity surrounding the space has been known to trigger massive investor sell-offs at the slightest hint that of unfavorable reports.

In countries like China and South Korea, there are new regulations in place that have been enacted to in a bid to tame the hype.

In view of these challenges and expected developments in the ICO sector, companies looking to use its crowdfunding model may have to carry out extra diligence to reduce the amount of risk to themselves and their investors.