The Nasdaq, which was the maiden stock exchange to facilitate all-electronic trading, has taken an issue with upcoming ICOs. Nasdaq chief Adena Friedman reportedly took aim at the digital token sales, which have been likened to initial public offerings (IPOs) in the securities markets as an alternative form of raising startup capital. So far ICOs have raised more than USD 2 billion.
Friedman’s concerns echo those of securities regulators who have warned investors about the risk of fraud in upcoming ICOs such as pump-and-dump schemes that leave investors high and dry. Speaking at a conference at Georgetown University in Washington, D.C., Friedman expressed her concerns: “There is no standard for disclosure. There are no protections for investors. There’s no ownership.”
To be fair, her concerns aren't without merit. According to a Bloomberg report, an investor recently lost USD 70,000 an ICO trade that went wrong. The buyer was attempting to participate in the AirSwap ICO, whose issuer incidentally is behind a decentralized cryptocurrency exchange. A USD 70,000 transaction fee was paid to ensure the order would execute, which it did, however by the time it had executed, the ICO had ended because their token cap was reached. The whereabouts of this money is still unknown, and although it looks like a case of bad timing, it should reiterate the need for caution when approaching ICOs.
This particular deal required approximately 1,700 ether to be completed, and the report suggests that the 237 ether that were lost must be forfeited by the buyer.
Upcoming ICOs: Bleeding Edge Technology
Meanwhile, Nasdaq's Friedman also refers to upcoming ICOs as a “bleeding edge type of construct,” adding: “Nasdaq doesn’t tend to get engaged in the bleeding edge.”
This ironic thing is Nasdaq was the entity to usher in electronic trading to global exchanges, which may not have been “bleeding edge” at the time but it certainly was cutting edge. And now electronic trading has reshaped the framework of securities trading. Trading specialists were largely replaced by computers, and stock market hours were expanded to before and after the traditional trading day. These activities all generate higher revenue for the exchanges, and upcoming ICOs would have contributed as well.
It’s not as though upcoming ICOs won’t have somewhere to list their digital tokens, but as highlighted, approach with caution. Airswap selling out of tokens ultimately shows the demand for their project and it was not their decision to pay a USD 70,000 transaction fee with the ICO drawing to a close. However this does highlight another risk surrounding ICOs, due diligence it very much advised.