Recent Study Concludes: ICOs Have Failed To Keep Promises From Whitepaper, Regulation Is Crucial
A recent study conducted by the University of Pennsylvania Law School found that the top 50 ICOs of 2017 have failed to keep promises made in their Whitepaper and they were caught because of their codes. This study reflects the combined efforts of Pennsylvanian Law Professor, David A. Hoffman and PhD students within the fields of law, engineering and applied sciences.
Based on the findings, majority of the ICOs failed on keeping up with multiple statements made. After analyzing 50 ICOs, the researchers found that 25 percent of those who previously proposed a supply limit did not integrate the limitations in the original source code, 35 percent have failed to burn tokens as scheduled in their whitepapers, and 40 percent of tokens that have undergone some change did not provide updates.
Hoffman argues that most of the companies studied do not believe in the need for regulation, because the code supposedly takes care of such things. However, since many have failed to abide by their own goals, this poses risk to investors and contradicts their viewpoint on regulation. In particular, he said:
“Often ICOs are not embedding the governance promises they make – which protect investors against exploitation – in software code.”
Some Projects That Have Made The Study’s List Include:
The study has since revealed two projects that failed to keep their promises, which include Kin and Polybius.
The former is supposedly an instant messaging platform off of Kik and as per their whitepaper, 30 percent of the total supply of tokens were set aside to distribute among the team. However, the researchers found nothing indicating the said distribution in its code and concluded that it depends “entirely on the offline governance features of the project”.
The latter project promised investors of getting positive returns compared to traditional investment strategies. To see whether this promise was met, the team of researchers went over the code and found nothing more than, “modifiability functions in the smart contract code that extended well beyond contractual promises.”
If this isn’t enough, the study also found that the majority of the projects worked in a centralized manner, that is, the team involved were able to play around with their respective token’s rights. This presents a sense of control because such players never disclosed the changes to established investors.
After having presented the findings, the team went on to analyze it too see whether there exists a correlation between market demand and ICOs and what can be deemed as a viable solution. Based on the results, the researchers affirmed that ICO demand is influenced by market cycles – allowing investors to “play around with house money”. Another reason for the existence of such a correlation could potentially be the entrance of venture firms whom are testing the waters within the crypto sphere.
In resolving such an issue, a suggestion was offered, and it is none other than the need for regulation. As the team put it,
“Regulators, along with courts, will also contribute to increasing formalization of ICO Code Standards. The rise of trusted intermediaries appears to be the next necessary step in the maturation of this revolutionary financial form.”
What are your thoughts on this matter? Do you think the notion of decentralization is what permits said ICO conductors to hide things from investors? Let us know in the comments below!