Click Ventures Blockchain Ecosystem Report 2018 - Proudly supported by: Tech.eu

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Click Ventures Blockchain Ecosystem Report 2018 - Proudly supported by: Tech.eu
Click Ventures
    Blockchain Ecosystem Report 2018
        S

            Proudly supported by:

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Click Ventures Blockchain Ecosystem Report 2018 - Proudly supported by: Tech.eu
Background
In alphabetical order

                    Click Ventures
                    Click Ventures is an early stage venture capital firm investing in highly scalable technology startups across a variety of promising
                    sectors. Click Ventures's two seed funds have been named top performing funds (Vintage 2003-2015 Funds) globally by Preqin,
                    We actively support the global expansion of the portfolio companies with our 1,000+ global government and speaker level connections
                    and media network, and have created a global portfolio network and has invested across 10 countries.

                    Funderbeam
                    Funderbeam is creating a world where companies are funded and traded across borders. Funderbeam consists of 3 parts: 1) Free
                    worldclass data intelligence for investors and founders; 2) Funding: Private/crowd syndicates for equity funding; 3) Trading: All
                    investments are instantly tradable; investors choose how long to keep investment. All trades are secured by blockchain.

                    Oddup
                    Oddup is an indispensable resource for investors, investment banks, venture capitalists, accelerators, corporate innovators and
                    management consultancies seeking detailed information and greater clarity in the fragmented and foggy startup sector, the ICO
                    landscape, or the cryptocurrency investment market.

                    Tech.eu
                    Tech.eu is the premier source of European technology news, data and market intelligence, providing unprecedented insights into the
                    tech startup, investment, M&A and IPO activity across Europe (including Israel, Russia and Turkey). Founded in 2013, Tech.eu combines
                    solid editorial products with data-driven market intelligence reports across investment stages, geographies and sectors, as well as event,
                    research and consultancy services

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Click Ventures Blockchain Ecosystem Report 2018 - Proudly supported by: Tech.eu
Credits
We would like to acknowledge the following for their contribution to the report

    Event Partners                                                                      Click Ventures Summer Fellow 2018
                                Community Partners                                               Blockchain Team

                                                                                                 Frederick Ng
                                                                                                 Analyst and Project Lead
                                                                                                 Click Ventures

                                                                                                 Chan Cheuk Yiu
                                                                                                 Lead Writer, Blockchain Fellow 2018
                                                                                                 London School of Economics
                                                                                                 and Political Science

                                                                                  Research Team
    Media Partner
                                                                                                 Vera Ho
                                                                                                 London School of Economics and Political Science

                                                                                                 Vaishali Jain
                                                                                                 Hong Kong University of Science and Technology

                                                                                                 Tulika Gupta
                                                                                                 Harvard Business School

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Click Ventures Blockchain Ecosystem Report 2018 - Proudly supported by: Tech.eu
Editor’s Word
Carman Chan, Founder and Managing Partner, Click Ventures

                                     True to its form, the Blockchain ecosystem has gone through yet another eventful,
                                     somewhat crazy year in 2018. We witnessed the rise and fall of ICO and crypto prices, the
                                     emergence of security token offering and stablecoins, invention of new investment
                                     methods like the SAFT and many other new innovations that we all need to learn about-
                                     this is the reason why we have decided to produce this Blockchain Ecosystem Report to
                                     consolidate these learning,

                                     At Click, we are truly excited about the Blockchain disruption. It has the potential to render
                                     many of the current world’s inefficient processes obsolete, solve many real world problems
                                     that involve trust or the lack thereof, create new asset classes, and automate many
                                     procedures as the smart contract technology grows more sophisticated over time. As the
                                     technology and ecosystem evolve, I am sure we will discover many more use cases across
                                     industries and verticals along the way.

                                     With these in mind, it is my pleasure to present to you the inaugural Click Ventures 2018
                                     Blockchain Ecosystem Report. Our heartfelt thanks go out to our global partners at Tech,eu,
                                     Funderbeam and Oddup, without whom the report will not be completed with such a
                                     global coverage.

                                     Happy reading!

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Click Ventures Blockchain Ecosystem Report 2018 - Proudly supported by: Tech.eu
Section 1:
                                                                      Blockchain Concepts Walkthrough
                                                                            b
                                                                       Blockchain in a nutshell
                                                                       Blockchain 1.0/2.0/3.0 and Smart Contracts

                                                                       Consensus algorithms and Types of Blockchain
                                                                       Blockchain use cases- selective examples and selected corporate use cases

                                                           g           Other Interesting Use cases: conversations on the ground
                                                                       Leading consortiums/initiatives
                                                                       Current Blockchain Limitations
                                  Section 2:
                  Blockchain Fundraising 101
                 ICO vs STO vs IPO vs VC: Conceptual differences
                                                                            c
                          Current state of ICO: fundraising figures
                         What is token: Utility vs Security Tokens

                                                           h
                                            Types of Token Sales
                                        ICO ecosystem player list

                                                                      Section 3:
                                                                      Cryptocurrency Regulations Update
                                  Section 4:
Data Collection Methodology and Background
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Click Ventures Blockchain Ecosystem Report 2018 - Proudly supported by: Tech.eu
01            02            03               04
                  Blockchain    Cryptocurrency   Data
    Blockchain    Fundraising   Regulations      Collection
    Concepts      101           Update           Methodology
                                                 and
    Walkthrough                                  Background

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Click Ventures Blockchain Ecosystem Report 2018 - Proudly supported by: Tech.eu
Blockchain in a Nutshell

A blockchain is a general digital ledger of transactions that are
executed on the network, e.g. using Bitcoin to buy a cup of coffee
is a transaction.

All users of the network, ‘Nodes’, have a copy of the transaction
records and can access them freely, a role previously played by
centralized institutions.

Therefore, the blockchain network is ‘decentralized’.

Transaction records within the blockchain are grouped into
‘blocks’. These blocks are time stamped when they are created
and ‘chained’ in number order of a block.

Some users of the network put up computational power or tokens
at stake (miners/validators) to validate the blocks of transactions,
and check that transactions records are not tampered with.

As an incentive, tokens (e.g. some Bitcoins) are given as reward for
their work, in transaction fees and/or block rewards. . For
example, bitcoin miners are given Bitcoins and Ethereum
validators are given Ether.

                                                                       Source: Agiboo

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Click Ventures Blockchain Ecosystem Report 2018 - Proudly supported by: Tech.eu
Blockchain 1.0:
Currency             Blockchain 1.0 is the creation of cryptocurrency, a virtual currency used for
                     payment purposes derived from the combination of cryptography and
                     currency. Bitcoin is an example of Blockchain 1.0.

                     ‘Cryptography’- Miners collect the transactions and compete by solving a
                     cryptographic problem. The winner can generate the ‘hash’ (turning large
                     chunks of transaction data into a line of numbers that represents the
                     transactions) to add to the blockchain using the cryptographic algorithm.

                     ‘Currency’- comes in the form of tokens, which is used to trade value
                     securely.

                     Miners collect the new transactions into a block, then attempt to hash the
                     block to form a 256-bit block hash value using trial and error. Most of the
                     time the hash proves unsuccessful, in which case the miner will make slight
                     modifications to the block and try hashing the block again, over and over
                     billions of times. If the hash starts with enough zeros, the block has been
                     successfully mined and is sent into the Bitcoin network, where consequently
                     the hash becomes the identifier for the block. Whenever some miners
                     successfully mine a block, the process begins anew.

                     The successfully mined block is almost impossible to tamper with because
                     all previous blocks need to be re-encrypted in order to change the
                     transaction records in the block. As the network is decentralized and there
                     are many copies need to be re-encrypted, the bigger the network, the more
                     computing power it takes, and so bad actors are disincentivized to cheat
                     the system.

Source: Slideshare

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Click Ventures Blockchain Ecosystem Report 2018 - Proudly supported by: Tech.eu
Blockchain 2.0:
Smart Contracts
Blockchain 2.0 is the introduction of smart contracts on a protocol, such as
Ethereum or NEO.

Smart contracts are sets of programmable and executable rules/logic that
are irreversibly stored on the blockchain. When both parties have met the
pre-existing criteria, the agreed terms are automatically executed.

Project build application on a decentralized peer to peer network is often
referred to as ‘dApp’, where the project’s related transactions are
decentralized across the network, so there is no single point of failure.

‘Outcomes’ on the smart contracts are stored on the blockchain. Every party
on the protocol has a copy of these ‘outcomes’. For the smart contract to
be processed and validated on the network, some operational tokens (GAS,
NEO Gas) are paid for the verification.

 Editor’s Note:

 The Ethereum network uses a concept, “gas” for transactions, and the gas fee is
 denominated in ether (also called as Gwei in the case of GAS). NEO has its own GAS
 asset which has a separate value from the main native currency.

                                                                                      Source: Blockgeeks

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Click Ventures Blockchain Ecosystem Report 2018 - Proudly supported by: Tech.eu
Blockchain 3.0:
Other applications of Blockchain
                                                   In general, Blockchain 3.0 refers to attempts of applying the concept of
                                                   blockchain to different sectors where the technology can be useful in
                                                   tackling hard issues, such as situations where coordination
                                                   between parties (i.e. standards organisation, industry group, multilateral
                                                   organisation, international treaty) is difficult or where lack of trust amongst
                                                   multiple parties exist.

                                                   Blockchain 3.0 also includes attempts to fine tune the protocol in order to
                                                   speed up transaction approval speeds (increase throughput), manage
                                                   token price volatility and achieve interoperability between protocols (e.g.
                                                   swapping Ether with NEO and make sure both protocols are compatible).

                                                     Editor’s Note:

                                                     Blockchain is designed as an incentive system that can operate by a set of
                                                     predefined rules and in ideal cases does not need a centralized body to manage
                                                     and govern.

                                                     All parties trust these set of rules and logics instead a centralized body, so all
                                                     parties can transact without trusting each other- hence ‘trustless’.

                                                     Following this set of predefined rules enables full automation and therefore
                                                     creates the possibilities of software that can automatically execute transactions
                                                     and tasks, pay and be paid, totally self sustained and powered by AI to improve
                                                     themselves- the vision of “autonomous business agents”.
Some of the use cases explored in Blockchain 3.0
Source: Intelligent HQ

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Consensus Algorithms:
Proof-of-Work (PoW)
In layman terms, consensus algorithms are mechanisms created to verify
transaction records agreed by all parties in the blockchain network. They
encode the fundamental principles for resolving disputed transactions among
the parties in a blockchain network. As the design of blockchain is
decentralized, this is facilitated through the design of distributed consensus.

Proof of Work is the first generation of consensus algorithm.

Computers in the network (miners) collect transaction records into a block and
pass them through a computationally intensive hashing algorithm multiple
times to make sure it produces a line of numbers that correlates with the block,
solving a cryptographic problem. When completed, the hash becomes a
validator of the block of transaction.

After the block is validated and completed, they are then time stamped and
broadcasted so that everyone (nodes) has a copy of the record.

Many PoW protocols achieve alignment of incentives by distributing token
based rewards to miners who provide the validation service to the network. As
transaction volume and currency velocity goes up, so does the value of the
currency which attracts more miners to the network.

 Editor’s Note:

 The process evolves around “cryptographic problem” solved by trial and error, which consumes much computing power. Miner proves its integrity by doing the
 work. This mechanism also provides the “randomness” so that theoretically no miner can predict and take control of the network.
                                                                                                                                                               Source: Lisk Academy
 As an incentive, block reward or transaction fees, in terms of token or cryptocurrencies, are given to the first miner who solves the cryptographic puzzle.

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The 51% attack and
the Double Spend problem                                                                                          The 51% attack poses a theoretical risk to the integrity of the blockchain when
                                                                                                                  a group of miners take control of more than 50% of the mining capability
                                                                                                                  (hashrate) of the network.

                                                                                                                  A PoW algorithm is secured by having all miners (computers processing the
                                                                                                                  networks transactions) agree on the blockchain. Nodes look to each other to
                                                                                                                  verify what they are working on as the valid blockchain, acknowledging the
                                                                                                                  longest chain as the true version of the blockchain because more hashing
                                                                                                                  power has been committed to it, hence denoting that the majority agrees to
                                                                                                                  this version.

                                                                                                                  If the majority of miners are controlled by a single entity, they have the
                                                                                                                  potential to create the longest chain, dubbed the ‘truthful chain', forming the
                                                                                                                  basis of all balances of wallets. The corrupted group miners can purchase a
                                                                                                                  house, for instance, and broadcast the transaction to non-colluding nodes on
                                                                                                                  one version of the chain, while continuing to mine transactions from the
                                                                                                                  network forming another version of the blockchain without its order to
                                                                                                                  purchase a house, and not broadcasting this alternative chain to rest of the
                                                                                                                  network.

                                                                                                                  Once the purchase is complete, and the corrupted miners use their superior
                                                                                                                  mining power to create a longer chain by forming transaction blocks “quicker”,
                                                                                                                  they can post the longer, hence `truthful` version of the chain to the network
                                                                                                                  without its house purchasing transactions.

                                                                                                                  This will be recognized as the truthful version without the tokens spent,
                                                                                                                  allowing the wallets to be replenished and the entity to double spend its
                                                                                                                  tokens again.

                                                                                                                  Therefore, blockchain needs to be highly decentralized with a significantly big
How a 51% Attack may occur
                                                                                                                  network to avoid any entity taking 51% control.
Source: Coinmonks
                     Editor’s Note:
12                   As miners are competing with computing power and speed of solving the cryptographic problem, theoretically, quantum computing can change the dynamics by
                     solving the problem much quicker than the network consistently and therefore able to undermine integrity of the whole system.
Consensus Algorithms:
Proof of Stake (PoS)
Proof of Stake is a structure which does not utilise miners, but instead uses
validators.

The creator of the next block is chosen via a combination of random
selection and the amount of tokens he or she owns (wealth) or how long he
or she owned (age) (i.e. the stake).

In order to validate transactions and create blocks, the validators (the forger)
must first put some of their own coins at ‘stake’. If a person validates a
fraudulent transaction, he or she would lose the stake deposited.

In some projects, they will further punish the “cheater” by removing their
rights to participate as a validator in the future.

As an incentive, the validator takes transaction fees (in the form of tokens)
instead of block rewards.

                                                                                   Source: Hackernoon

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Consensus Algorithms:
Delegated Proof of Stake (DPoS)
                                  Delegated Proof of Stake uses a limited number of nodes to propose
                                  and validate blocks to the blockchain. This can increase the
                                  transaction speed and thus solve the scalability problem of PoW.
                                  Some projects that use DPoS includes EOS, Ark, Bitshares and
                                  Steem.

                                  The above figure illustrated one example of the DPoS. Those who
                                  get voted in are called delegates/witnesses. Tokens are given to the
                                  top 100 witnesses and the top 20 witnesses are paid regularly. The
                                  users’ vote strength depends on the amount of tokens (stake) they
                                  own.

                                  The more they own, the more influence the person has on the
                                  network. However as the community grows, it's going to become
                                  increasingly hard to remain a witness due to increased competition.

                                  With voting being ongoing and constant, the desire to remain being
                                  a witness help to maintain a high quality of work in validating
                                  transactions.

                                      Editor’s Note:

                                      PoS has a disadvantage that people with less token holding (stake) has less
                                      chance to be a creator of the next block.

                                      DPoS solve this problem by allowing the small holders to vote for their
                                      representatives, namely delegates/witnesses who are the trusted entities to
Source: NK                            execute the block creation. On the other hand, small holders can also vote
                                      out these previously selected entities if they cannot be trusted.

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Types of Blockchain
Public vs Private vs Federated Blockchain

There are two major types of blockchain- public chains and private chains.
Federated chain is a subset of Private chain.

High profile blockchain protocols Ethereum ,EOS, NEO are public chains.
Public chain’s main differentiation from private chain is that it is open to
anyone to participate, from downloading the blockchain data to viewing the
network’s past transactions, to validating data as miners/validators on the
network. In these public chains, participants remain anonymous.

Private blockchains are open to a limited number of participants whose
identities are all known, allowing only internal, pre-approved parties to write
on the blockchain.

There are two forms of permissioned blockchain: fully private, or federated
chain. The private blockchain operates within an organization, while the
federated chain operates between organizations.

Currently, one big difference between public and private chains is the
transaction speed. Private chains operate much quicker, because only a
handful of pre-approved nodes need to speak and verify with each other,
while public chain need to reach consensus across potentially hundreds
and thousands of nodes.

                                                                                  Large corporates tend to work with vendors like IBM to develop private/federated chains.
                                                                                                                                                           Source: Toptal

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Blockchain use cases 1
                                                                         Real Estate
                         A lot of promises have been made regarding the blockchain technology, but
                         most innovations observed, up to 2018, involve using blockchain for
                         disintermediation, indexing and storage of data under one immutable, shared
                         ledger, process automation using immutable smart contracts and attempts to
                         build autonomous agents to trade blockchain recorded data.

                         Initiatives are trying to use smart contracts to help the property market become
                         more efficient through implanting conditional clauses to execute real estate
                         transactions as participated by multiple involved parties, reducing back-and-forth
                         time and associated overheads, while creating immutable price history for a
                         property.

                         Blockchain has the potential to record rental and purchase contracts into one
                         blockchain ledger visible to multiple parties, as well as eradicating the need for
                         third party intermediaries.

                         Other potential use cases include title search. All the information, including the
                         registration of mortgages, other liens and encumbrances, can be indexed on the
                         blockchain network, reducing the need of a title Insurance. This leverage the
                         indexing ability and traceability of blockchain.

                         In 2018, several blockchain projects have targeted at tokenizing property
                         ownership, including the highly anticipated Harbor protocol, to introduce a more
                         standardized and cheaper way to achieve seller financing, joint purchase (vs
                         partnership or setting up a corporation to buy) or fractional ownership, as well as
                         represent ownership and governance of common spaces and other factors.

                                                                                                Source: Deloitte

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Blockchain use cases 2
Gaming
Cryptokitties, an Ethereum based game, where ownerships of virtual
kitties are recorded on the Ethereum blockchain, have attracted the likes
of A16Z and Union Square Ventures, among other venture capital firms
and investors, to put US$12M in March 2018 for this blockchain based
gaming project.

Gaming has long been plagued by intellectual property theft of in-game
items including virtual character skins, in-game tools among others.

Virtual assets can be recorded on an immutable blockchain ledger to help
prevent these types of theft. A hacker will have to ensure that the right
nodes in the decentralized network are hacked with accurate timing,
decipher through hashed blocks and overwrite previous blocks in order to
complete a gaming asset theft.

                                                                            Editor’s Note:

                                                                            In the past, developers have tried to create markets for virtual items within their game worlds or cross-game
                                                                            platforms. However, the virtual items are stored via centralized hosting and according to the modern intellectual
                                                                            property rules, this makes those virtual items the property of the company instead of the player.

                                                                            Therefore, blockchain enables the virtual items, price and transaction stored in a distributed ledger and thereby
                                                                            facilitates a totally new asset class for these virtual items in the industries such as digital art, gaming and virtual
                                                                            reality to form.

                                                                                                                                                                                Source: Cryptokitties

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Blockchain use cases 3
                                                                                                  Marketing and Advertising
                                                                                                   Advertisers face the problem of gaining measurable ROIs on
                                                                                                   advertisements due to proliferation of click bots which masked the real
                                                                                                   engagement rates with potential users.

                                                                                                   By verifying real users with their blockchain identities. This potentially
                                                                                                   gives advertiser the ability to measure real interactions. Examples like the
                                                                                                   BAT projects reward users who voluntarily opt-in to target advertising
                                                                                                   online.

                                                                                                   The consensual nature of the blockchain network also mean that the
                                                                                                   control of personal data is given back to the users, and any use of data
                                                                                                   can be traceable by the blockchain. This can potentially reduce the
                                                                                                   misuse by a centralized institution which can hold one’s data and resell to
                                                                                                   advertisers without the users’ acknowledgement or consent.

A blockchain enabled digital marketing ecosystem proposed by the Basic Attention Token project.
Source: BAT

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Blockchain use cases 4
E-Commerce and Retail
As an illustrative example, during the recent Double-11 sales, China based
Ant Financial collaborated with e-commerce giant Alibaba to track the
origin of up to US$150M worth of products sold during the 24-hour sales
worldwide.

In the case of e-commerce and retail, the current state of blockchain
technology is utilized to index the source of goods, from production to
delivery, immutability to offer transparency in the production and delivery
process, adding to consumer confidence. Initiatives such as IBM Food
Trust sees mega retailers including Walmart and Unilever leveraging
blockchain to add transparency to food supply chains.

                                                                              Source: HK Silicon

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Blockchain use cases 5
                                                                                                                              Law
                                                                In the world of criminal law, the chain of custody can be indexed and
                                                                stored on an immutable ledger when evidence went missing or being
                                                                accidentally destroyed. Using blockchain to store and standardize all of
                                                                these evidence could cover the function of a paper trail, but become
                                                                indestructible with decentralized ownership of the records across the
                                                                nodes on the network.

                                                                Other applications within the legal field leveraging similar characteristics
                                                                of blockchain include patents, licensing and IP rights (copyrights,
                                                                trademarks).

                                                                Smart contracts, which can potentially be programmed in clauses
                                                                detailed in a physical contract, may help to eliminate litigation and turn
                                                                commercial lawyers into advisory function.

     How Blockchain may be applied in the Criminal Law field.
     Source: Kinesense

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Blockchain use cases 6
Healthcare
One case where blockchain finds a use case in healthcare is to address
the drug traceability problems. 10% to 30% of the drugs sold in developing
countries are counterfeit, and the counterfeit drug market is an annually
US$200B problem.

With a private blockchain with verified parties, including manufacturer,
wholesaler, pharmacist and patients acting as nodes in the blockchain
network, each new transaction added to a block is immutable and time
stamped, making it easy to track a product and make sure the information
cannot be altered.

The intrinsic properties of blockchain — such as data security and
authenticity — can help in tackling some other major problems in
healthcare, including indexing clinical trial results (immutability) to avoid
trial result forgery, collecting individual health data from wearables and
other IoT devices and storing them on a permission based distributed
ledger, and electronic medical billing supported by smart contract
executions amongst other use cases.

                                                                                Source: IBM Blockchain

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Blockchain use cases 7
                                                           Trade Finance
                         Cross border trade finance requires exchanges for paper-based
                         documentation related to letters of credit which usually take between 5-
                         10 days. Through using blockchain ledger trusted by multiple involved
                         trade parties, the exchange was demonstrated to be executed in 24
                         hours.

                         The use of smart contracts also has the potential to facilitate process
                         automation in different stages of a cross border trades, which is to be
                         executed upon satisfaction of pre-conditions, such as bills of lading and
                         invoice financing based on blockchain certified events, with less human
                         supervision and quicker execution time.

                           Editor’s Note:

                           A lot of the blockchain applications are created around increasing efficiency with
                           automation.

                           In the above use case, users who has already applied trade financing are recorded
                           on blockchain, thereby reducing the risk of duplicated financing from two different
                           providers on the same trade or invoice.

Source: Deloitte

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Corporates Experimenting with Blockchain
       Selected corporate blockchain use cases
                                                                   Special Team

         Mining                                                      Energy                                                           Remittance
                                                                   Supply Chain                                                  Santander uses xCurrent,
    BHP Billiton will use                                                                                                      Ripple’s payment processing
                                                                 Petmex, a Mexican state
  blockchain to record the                                                                                                     solution, to settle transactions
                                                                owned energy company,
movements of wellbore rock
                                                               explores using blockchain to
and fluid samples, and better
                                                                manage the complicated
   secure real-time data
                                                                  web of suppliers and
                                                                   business operations

                                 Syndicated Loans                                                   Healthcare                                                           Car Purchase
                                                                                                   Provider Data
                                 Using a private blockchain,                                                                                                          Docusign and Visa built a
                                                                                               United Healthcare and other
                                BBVA was able to arrange a                                                                                                              prototype to use smart
                                                                                               providers store updated data
                                $150M loan for Red Electrica                                                                                                         contracts to simplify leasing
                                                                                                 on blockchain to reduce
                                along with co-lenders MUFG                                                                                                             or buying a car, allowing
                                                                                                     lengthy payment
                                      and BNP Paribas                                                                                                                  buyers
                                                                                                                                                                       Bank of to complete
                                                                                                                                                                                  investment the
                                                                                               reconciliation process due to
                                                                                                                                                                      transaction electronically
                                                                                                      inaccurate data

                                                                    Flight Delay                                                Fighting Counterfeit
                                                                     Insurance                                                         Drugs
                                                                AXA digitally records flight                                     Pfizer uses federated chain to
                                                               insurance in smart contracts                                      track drug identifiers and who
                                                                  connected to global air                                      touched what drug at what time,
                                                                  traffic data feed. Policy                                    making it difficult for counterfeit
        23                                                       holders are automatically                                     products to enter the production
                                                                  compensated in delays.                                                      chain
Leading Blockchain Consortiums
Some of the leading names across sectors

                                                                Formed by 250+ corporate
                                                               members and led by the non-
Insurance         Legal               Risk Management
                                                                 profit Linux Foundation

                                                                                                   Selected
Supply Chain      Gaming               Energy
                                                                                                 Blockchain
                                                                                                Consortiums

Automotive        Transport                       Consortium includes 80+ of the
                                                 world’s largest financial institutions,
                                                   regulators, and central banks

Healthcare        Trade Finance

                                                    Backed by JP Morgan, CME Group, Microsoft
 24                                                         and 380+ other members
Current Blockchain Limitations 1                               THROUGHPUT

                                                                     Throughput is essentially the speed at which transactions can be processed,
                                                                                         factoring block difficulty and costs.

                                                                     The limiting throughput limits the ability of a blockchain to scale by handling
                                                                                                   more transactions.

                                                                        The speed of the network is only as quick as it takes for the consensus
                                                                         mechanisms to verify transactions (PoW, PoS, DPoS), measured by
                                                                                             transactions per second.

                                                                       Bitcoin can only process 7 transactions per second due to the amount of
                                                                      work miners have to do (proof of integrity by proof of work) before they can
                                                                       validate a block of data. Ethereum can only process 20 transactions per
                                                                                         second in its proof of stake algorithm.

                                                                      The current transaction speed of Blockchain platforms do not measure up
                                                                            with traditional transaction methods such as Paypal and Visa.

                                                                      Editor’s Note:

                                                                      As PoW is slow and energy consuming, new designs for the consensus systems aim at
 Source: Howmuch,net                                                  increasing the transaction speed and also reducing the energy consumption so that
                                                                      they are more scalable and environmentally friendly..

                       throughput interoperability privacy volatility storage
25
Current Blockchain Limitations 2                                                             INTEROPERABILITY

                                                                                                                          Interoperability is the ability to share information freely across
                                                                                                                                           different Blockchain protocols.

                                                                                                                             One of the major limitations of the Blockchain platforms
                                                                                                                            currently is that information on different chains cannot be
                                                                                                                          shared. (the information on Bitcoin cannot be shared with the
                                                                                                                                     information on Ethereum and vice versa).

                                                                                                                         The smart contracts underlying decentralised applications also
                                                                                                                          vary, depending on the Blockchain platform. As such, we are
                                                                                                                          still faced with the problem of data silo, where information is
                                                                                                                                            ‘centralised’ on one platform.

Just a snapshot of a small part of the blockchain ecosystem at the moment, Interoperability among all these projects is a big challenge
Source: COMPOUND

                                    throughput interoperability privacy volatility storage
26
Current Blockchain Limitations 3                                   PRIVACY

                                                                  As all users of the public blockchain network can view the past transactions and activities
                                                                                        on the blockchain, privacy is an area of concern.

                                                                   On the other hand, in a lot of the blockchain projects, users are only linked to a private
                                                                   key instead of personal identity. Therefore, there are risk of money laundering kind of
                                                                                                           activities.

                                                                    Editor’s Note:

                                                                    Blockchain is transparent in terms of transaction data and therefore it leads to
                                                                    privacy issue. For example, if a user is using the same address for all related activities,
                                                                    a malicious user can trace the public address and all its past transactions in attempt
                                                                    to reveal information and benefit from so.

                                                                    On the flipside, in the early days, users of cryptocurrencies do not go through strict
                                                                    KYC (Know your Customer) process and central record-keeping mechanism (like
                                                                    banks) and therefore regulators find it difficult to trace the identity of the users linked
                                                                    to a public address with suspicious activities, as public blockchain users are
Examples of Privacy Coins                                           anonymous.
Source: Steemit

                            throughput interoperability privacy volatility storage
 27
Current Blockchain Limitations 4                                            VOLATILITY

                                                                          Volatility is the measure of the price deviation of a financial asset over a given period
                                                                          of time. Four years of volatility in the stock market can be covered in a month in the
                                                                                             cryptocurrency markets as demonstrated in 2018.

                                                                          Therefore, it is safe to say the value of cryptocurrencies are extremely volatile to this
                                                                          date. This volatility makes it difficult for cryptocurrencies to be used reliably for day-
                                                                                          to-day transactions or holding cryptocurrency as assets.

                                                                         Editor’s Note:

                                                                         There are many discussion around this topic - some argue that cryptocurrencies do
                                                                         not have intrinsic value, and therefore it is difficult to value its price; some also argue
                                                                         the lack of regulatory oversight allows for market manipulation which introduces
                                                                         volatility in crypto prices.
Examples of Bitcoin Volatility
Source: Coindesk

                                 throughput interoperability privacy volatility storage
 28
Current Blockchain Limitations 5                                             STORAGE ISSUES

                                                                               A ‘wallet is a software that stores cryptocurrencies and part of what enables a person
                                                                                                         to send and receive cryptocurrencies.

                                                                                It stores the private key (a randomised 256-bit long alphanumeric password shared
                                                                                   only the user to decrypt messages encrypted with a sender’s public key) which
                                                                                                            enables access to crypto tokens.

                                                                                 Various forms of wallets exist, from hot wallets (accessible on internet) to cold
                                                                                wallets (not accessible on internet, e.g. a USB drive or a piece of paper which one
                                                                                                    uses to write the password) are available.

                                                                               Storage of cryptocurrencies have long been a concern to the space because of the
                                                                               vulnerability displayed by various hacks over the course of cryptocurrency history.

A history of cryptocurerncy thefts.
Souce: Insider Pro

                                      throughput interoperability privacy volatility storage
  29
Other Interesting Use cases:
                                        conversations on the ground

      To further illustrate the most up to date activities, hot topics and use cases in the blockchain ecosystem,
       Click Ventures has partnered with a few industry leading events such as Money20/20 and Token 2049
     among others to interview the most exciting ecosystem players and project owners to share their innovation
                                                   and observations.

         Click Ventures is launching VC on Air, a Podcast and video streaming platform to interview industry
     heavyweights (top entrepreneurs, venture capitalists and leading figures in the startup ecosystem) to brings
            together a knowledge sharing community in Asia. Stay tuned to our media channel for more.

           Read the following session to get a preview for some interesting conversations we had in 2018!

30
Conversations on the ground
Project owners

                                                                                                                                                 “Know-your-customer is a
                                                                                                                                                    painful and repetitive
                                                                                                                                                   process when opening
                                                      “Blockchain injects                                                                           accounts at financial
                                                     trust into the dispute                                                                              institutions…
                                                      resolution process”                                                                        The whole KYC process is
                                                                                                                                                very inefficient in the current
                                                                                                                                                    traditional industry.” .

                                    Federico Ast                                                                                Edmund Lowell
                                   Co-Founder, Kleros                                                                               Founder, SelfKey*

       Existing centralized systems e.g. e-commerce site solving a purchase order        Banks cannot quickly and easily access up-to-date identity data, validate the data, or
         dispute does not have their incentives aligned to solving the dispute“. For      screen it to satisfy their regulatory requirements. Different departments in the same
     instance, if the online site has a very small number of customer service reps, so   bank may need to do the KYC process from scratch again when their clients need to
              their incentive may be to solve the dispute as soon as possible,                                  apply for a service from another department.
                                       but not correctly.
                                                                                          SelfKey tries to build a blockchain based digital identity so that a user only needs to
       Kleros attempts to build a blockchain powered arbitration service provider,         upload personal detail once, and sends them to the counterparty to validate via
       allowing people to outsource their disputes to a jury which purchases and                                               blockchain.
       stakes tokens to resolve a dispute to get rewarded later for its input, all the
     while their voting decisions all made visible on an immutable blockchain for the    Due to the immuatable nature of blockchain, the owner may then make attestations
      network to judge whether the jury has been fair. By doing so, it aims to inject    of his/her truthful identity verified by other trusted parties on the network, instead of
                         trust into the dispute resolution process.”                                      sharing the same identity proofs over and over again.
31
                                                                                         *Selfkey is a Click Ventures portfolio company
Conversations on the ground
Blockchain Infrastructure Builders

                                                             “In order for legitimate ICO                                                                “Airdropping creates
                                                           projects to be successful, they                                                               network effect. If you
                                                               require a mechanism to                                                                   can distribute them in
                                                             manage the compliance of                                                                   an easy way, receivers
                                                             their tokens that addresses                                                                get more exposure to
                                                            the jurisdictional variances in                                                                   the tokens”
                                                           both regulation and corporate
                                                                     governance”

                                         Matthew Unger                                                                            Ron Berstein
                                         Co-Founder, iComply*                                                                     CEO, Paradex.io**

     Token issuance platforms face challenges from multijurisdictional operations as              Paradex believes that everything that can be tokenized and will be
       they attempt to cope with the requirements from the SEC, CFTC, FINRA and                 tokenized. In order for the token economy to be adopted by the mass,
     FinCEN (just US ones) and other different regulations across various jurisdictions.      they need to be easily accessed. Facilitating an easy-to-use way for early
                                                                                                  adopters to buy/sell tokens directly at their wallets is one path of
          iComply attempts to complete the compliance layer in the blockchain                                                 achieving so.
       ecosystem, allowing crypto exchanges and projects to conduct compliant
        token issuance and secondary trading with coverage of 150+ jurisdictions               Paradex hopes to build robust, peer-to-peer relay where users from all
     globally. It also enables projects to achieve full cycle token management (think            parts of the world can buy and sell ERC20 tokens on the Ethereum
       cap-table management for the crypto world), and builds a global database                                 blockchain in a decentralized fashion.
     bridging the blockchain and non-blockchain world of both compliant and non-
                               compliant crypto transactions.

32
          *iComply is a Click Ventures portfolio company                                           ** Paradex.io was acquired by Coinbase in May 2018
Conversations on the ground
Token Issuers

                                                                                                                                    “Security token has the
                                                                                                                                       potential to assist
                                                            “Our vision is to
                                                                                                                                   seamless, global, capital
                                                             create a token
                                                                                                                                   formation; instantaneous
                                                            for any asset in
                                                                                                                                     settlement for unique,
                                                             the world and
                                                                                                                                   unforgeable assets, and
                                                            trade with each
                                                                                                                                 lowers security trading fees,
                                                                 other”
                                                                                                                                         among others.”

                                Michael Oved                                                                   Thomas Borrel
                               Co-Founder, Airswap                                                      Chief Product Officer, Polymath

       Centralized exchanges have proven themselves to be vulnerable to              Security token has the potential to assist seamless, global, capital formation;
     hacks as demonstrate by the many past instances. AirSwap is building a     instantaneous settlement for unique, unforgeable assets, and lowers security trading
     decentralized exchange powered by search. Buyers, sellers, people and                                       fees, among others.
     programs can connect and trade wallet to wallet using smart contracts.
                                                                                    In order to make this upgrade possible, Polymath believes there needs to be a
      It plans to use smart contracts on the Ethereum blockchain to pair up      standard for security tokens that utilizes these benefits while satisfying regulations,
        buyers and sellers automatically, eliminating the need for a central       and is thus building the ST-20 token standard. With a standard in place, security
                             authority to match trades.                          token issuers, investors, exchanges, wallets, custody providers, and regulators can
                                                                                   become comfortable with this technology, interoperability becomes easier, and
                                                                                                             adoption can be widespread.

33
Conversations on the ground
Investor and Consortium

                                                                                                                                   “I was impressed and
                                                                                                                                 inspired by the Hangzhou
                                                                                                                                 Internet Court’s use of the
                                                                                                                                 blockchain technology to
                                                                                                                                       settle disputes”

                                      Will Wang                                                                     Pindar Wong
              Head of BD and Investment (North America), Huobi ECO                             Chief Architect, Belt and Road Blockchain Consortium

     Some institutional investors in the blockchain space is investing to build an    The Belt and Road initiative covers 65 economies with expected increase in trade
                                      ecosystem.                                     activities amongst these countries as the initiative rolls out. As supply chains evolve
                                                                                        into highly automated, data-driven ecosystems, these countries will need the
       For instance, Huobi Group set up the Huobi Global Ecosystem Fund, a            transparency, immutability and accountability that blockchains provide to reduce
      US$200M fund to support blockchain funds, incubators, wallets, miners,                                            trade friction.
                             market data vendors etc.
                                                                                       For trade that originates or terminates along the 65 Belt and Road economies, the
       They also initiated the Blockchain+ Industry Alliance for the purpose of           Belt and Road Blockchain Consortium “strives to develop buy-side business
       better serving the real economy and helping companies in traditional              standards for “Electronic-ID Disputed Resolution Processes and standardized
         industries adopt blockchain technology and the token economy.               interoperable smart contract standards that increase trust and transparency in cross-
                                                                                                                          border trade.”

34
01            02            03               04
     Blockchain                  Cryptocurrency   Data
     Concepts
                   Blockchain    Regulations      Collection
     Walkthrough   Fundraising   Update           Methodology
                                                  and
                   101                            Background

35
ICO vs STO vs IPO vs VC: The Conceptual Differences

     Initial Coin Offering
     (ICO)
     ICO is a fundraising method used by blockchain startups to sell new form of cryptocurrency
     or token that can be used in the product/service they wish to build in the future, in
     exchange for fiat currency, or common cryptocurrencies such as Bitcoin or Ether to support
     their development now.

     At the time of the ICO, most instances the product isn’t ready for launch yet. Also, because
     of laws around securities, companies usually try to issue utility token instead of security
     tokens to avoid the regulatory overhead. The ICO is thus similar to a pre-order for product or
     services (i.e. utility) provided by the company. Unlike an IPO, the company does not sell its
     shares or its control over the company (non-dilutive) if they are issuing utility token.

     The fundraising target is to meet at least the ‘soft cap’ (minimum amount). If the ‘soft cap’
     isn’t met, the funds are returned to the investors. If the soft cap is met, the company can still
     allow oversubscription until the hard cap is met if such is defined at the beginning of the
     fundraising project. The tokens can then be listed on cryptocurrency exchanges (similar to
     an IPO) where people can trade the tokens.

                    Editor’s Note:

                    One difference of ICO and KickStarter kind of crowdfunding is that
                    companies usually list their coin or token in an exchange (like securities in        Source: IEC
                    IPO) and thus provide a secondary market for the token trading as well
                    as potential speculation opportunities in some cases.
36
ICO vs STO vs IPO vs VC: The Conceptual Differences

     Security Token Offering
     (STO)
     In 2018, especially towards the second half of the year, STOs becomes the buzzword as the
     ICO hype slowly faded away.

     Security token issuance platforms such as TZero, Harbor, Polymath, Securitize have raised
     funds in 2018 to chase this vision.

     A security token can be digitally represent any number of real-world assets, from resorts to
     loans, to shares of a company. Security tokens are subject to securities regulations related
     to the issuing country of the STO and different country has different securities rules and it
     represent investor rights, where in contrary many utility tokens that raised funds through
     ICOs may not give the same assurance of rights as an STO.

     The vision of security token offering is to turn initially illiquid real world assets could
     potentially make them easier to access and trade over the internet, thereby increasing
     liquidity and unlock a more global capital market.

     Greater efficiency may also be achieved if smart contracts can be deployed such as to                                                        Securities Token Exchanges provide secondary trading to investors globally while most stock
                                                                                                                                                  exchanges mainly provides trading to local investors. Enabling multi-jurisdiction regulations and
     execute dividend payouts, ensure voting rights amongst other privileges enjoyed by a                                                         automate the transactions according to regulations from different jurisdictions of the potential
     shareholder, all the while reducing overhead to monitor these payouts, paperwork required                                                    buyers and sellers is a must in order to make Security Token exchanges viable.
     and potentially undercut middlemen who charge premium to structure these securities.
                                                                                                                                                                                                                         Source: The Block
             Editor’s Note:
             Security Token embraces innovation in a way that the underlying security could be in different form instead of company shares alone. For example, it can be tied to the revenue
37           sharing of a certain product or project without diluting the shares of the company at all. Exchanges that provide security token trading would also be subject to the security
             regulations.
ICO vs IPO vs VC: The Conceptual Differences

     Initial Public Offering
     (IPO)
     Unlike ICO, the listed company is legally obliged to
     answer to its shareholders and the process of listing
     is dilutive as the public hold shares to the company.

     A company first sell its shares or stocks on a public
     exchange to expand and raise funds for its usually
     already-mature business. The process of the IPO is
     heavily regulated. The company must meet a
     number of legal requirements before launching an
     IPO.

                                                             For illustrative purposes on explaining how IPO works.
                                                                                                      Source: NYSE

38
ICO vs IPO vs VC: The Conceptual Differences

     Venture Capital (VC)
     Companies (including blockchain projects) reach out to Venture
     Capital firms to injection of capital in an early stage. As early stage
     startups normally lack access to bank loans or public capital
     markets, venture capital funding is one avenue for them to expand
     and fundraise.

     At this point, the company may or may not have a working product.

     The fundraising process from venture capital firms is dilutive as
     they typically take shares in the company. In return, venture capital
     firm provides monetary resources, technical and managerial
     expertise.

     The fundraising process helps projects raises funds from the
     institutional investors (the VCs), who are usually backed by other
     institutional investors and accredited investors.

                                                                               Source: Harvard Business Review

39
All data Insights provided by data partners Funderbeam, Tech.Eu, Oddup, tracking across 298 successfully completed
    and announced ICOs in 2018, including Block.one and Telegram.
    Ranking     Name           Founding         Registered       Short Description                                         Funds raised    ICO Date
                               Team from                                                                                   (US$)

                                               Cayman
                                                                Block.one is a software company that is producing the
                                                                                                                                                                       Top 10 Projects by
1              Block.one      Hong Kong
                                               Islands
                                                                EOSIO blockchain platform for the development of
                                                                decentralized applications (dapps)
                                                                                                                          $4.0B           1 June 2018
                                                                                                                                                                      Fundraising Amount
2              Telegram       Russia           Great Britain*
                                                                Telegram is like privacy focused instant messaging
                                                                application
                                                                                                                          $1.7B           1 May 2018
                                                                                                                                                                           of all time
                                                                                                                                                              As evidenced by the Top 10 list, the ICOs that raised the
                                                                TaTaTu is a video-on-demand and social platform to
                                               Cayman           reward users for watching movies, music videos, sports,                                       most amount of funds in all time were largely restricted
3             TaTaTu          N/A                                                                                       $575M             30 June 2018
                                               Islands          gaming and celebrity content, and get rewarded for                                              to the 1H 2018- a telling sign of the eventual market
                                                                watching and posting content.
                                                                                                                                                             slowdown in 2H 2018 along with the crypto market crash.
                                                                Dragon is creating tokens that can be converted to chips
4             Dragon          Macau            USA              at its physical casinos in Macau, and used to watch      $320M            15 March 2018        Our on-the-ground observation is that many projects
                                                                movies and sports                                                                              have switched to conducting private sales targeting
                                                                                                                                                              institutional and accredited investors as the sentiment
5             Huobi           China            SGP              Huobi Global is a cryptocurrency exchange                 $300M           28 February 2018               towards ICO projects went south.

                                                                Tezos is a self-amending cryptographic protocol that
                                                                                                                                                              Also noteworthy but not on the all time top-10 list are
6             Tezos           Israel           USA              supports smart contracts and offers a platform to build   $232M           12 July 2017        Basis, which raised US$133M in April 2018, and tZero,
                                                                decentralized applications                                                                     which raised US$134M in August 2018 respectively,
                                                                The Filecoin network hopes to allow anyone worldwide                                         representing market interest in Security Token Offering
                                                                to participate as storage providers. It also makes storage                                                   (STOs) and Stablecoins.
7             Filecoin        USA              USA                                                                         $205M          9 August 2017
                                                                resemble a commodity or utility by decoupling hard-
                                                                drive space from additional services.

                                                                Sirin Labs produces FINNEY, which are blockchain                          24 December
8             Sirin Labs      GBR              GBR                                                                        $158M
                                                                enabled smartphones.                                                      2017

                                                                Bancor is a decentralized liquidity network that provides
                                                                                                                                                             Editor’s Note:
9             Bancor          Israel           CHE              users with a simple, low-cost way to convert tokens       $153M           10 June 2017
                                                                directly from their wallets                                                                  As more blockchain related project moves toward token private
                                                                                                                                                             sales by selling token related interests instead of company shares
10            The DAO         N/A              N/A**
                                                                The DAO dubbed itself as the first 100% Decentralized
                                                                                                                          $152M           N/A
                                                                                                                                                             like traditional VC funding round, some of the new funding
                                                                Autonomous Organization                                                                      arrangements such as SAFT (Simple agreement of future token)
                                                                                                                                                             instead of SAFE (Simple agreement of future equity) emerged.
* British Virgin Islands
                                                                                                                                                             Also emerging are convertible tokens that can be converted to
** The DAO is a multi-jurisdictional attempt                                                                                                                 shares or shares that can be converted to tokens.
Europe came 2nd by counts of total ICO funding raised as well as ICO fundraising instances. The ICO
fundraising amount takes into account of Telegram's US$1.7B megaround. Discounting that, US$1.8B was
raised across 69 other counted ICO fundraising instances, with BVI taking 17 of these instances including
Telegram, Switzerland (6), Gibraltar (6), Lithuania (5) and Estonia (4).                                                                     ICO vs Total Funding
                                                                                                                                             (Including VC) in 2018

                                                                                                                                Asia attracted significant amount of ICO fundraising interests as
                                                                                                                                Singapore positioned itself as a friendly cryptocurrency hub,
                                                                                                                                championing blockchain initiatives such as the Project Ubin on the
                                                                                                                                central bank level, and offering clear regulatory guidelines as early as
                                                                                                                                end of 2017 as to what ICO projects fall under regulation of Monetary
                                                                                                                                Authority of Singapore.

                                                                                                                                Funderbeam’s database showed the quickest ICO fundraising amount
                                                                                                                                growth in Asia with total annual recorded ICO funding growing from
                                                                                                                                US$428M in 2017 to US$2.3B in 2018.

            Total funding including VC and ICO                                                                                  Rest of the World ranked 1st globally in terms of ICO fundraising in 2018.
                                                                                                                                This needs to be considered along the fact that the Block.one's US$4B
                                                                                                                                ICO (representing the EOS protocol) falls under this region with its
                                                                                                                                registered entity at Cayman Islands. Discounting this, around US$700M
                   Just ICO
                                                                                                                                has been raised across 9 fundraising instances this year.

                                                                                                                                By the count of ICO fundraising instances and associated ICO fundraising
                                                                                                                                amount, Rest of the World retained its ability to attract larger fundraising
North America ranked lowest in ICO fundraising amount on the database. From our observation, many ICO projects would            projects, including Block.one and Tatatu in 2018, and Filecoin (US$257M),
restricted US domiciled investors from partaking in the ICO fundraising exercise due to regulatory requirements. As a result,   Tezos (US$232M), Sirin Labs (US$158M) and Bankera (US$153M) in 2017.
the database showed that total ICO fundraising amount in North America in 2018 grew only 39% year on year, while Europe
grew 86% (discounting Telegram) and Asia grew close to 537% year on year as mentioned above.
Israel, which housed Tezos, one of the most prominent ICOs in 2017, announced that it would
not ban ICO in late 2017, pushed out a clear tax code on crypto related companies in February
2018, and its Securities Authority established clear definition of whether a token constitutes as
utility token or security in March 2018.
                                                                                                                             Top 10 ICO fundraising
                                                                        Lithuania announced the LBChain in early
                                                                                                                              by country of all time
                                                                        2018, a regulatory sandbox initiative led by
                                                                        the Bank of Lithuania scheduled to come            Given all the ICO fundraising activities in 2018, how
                                                                        live as early as 2019. It published a              did it change the Country league table of ICO
                                                                        document of ICO Guidelines that clarified on       fundraising of all time?
                                                                        regulation, taxation, accounting and Anti-
                                                                        Money laundering requirements of                   Cayman Island and United Kingdom shot to the top
                                                                        Lithuania based projects.                          of the league table in 2018, previously unseen in
                                                                                                                           2017, bolstered by the US$4B Block.one fundraising
                                                                                                                           and US$1.7B Telegram fundraising. Names that
                                                                                                                           dropped out of the league table, compared to 2017,
                                                                                                                           include Hong Kong and Finland.
US($)
                                                                                                                           These are replaced by Lithuania and Israel, both
                                                                                                                           countries pushing out regulations to promote
                                                                                                                           transparency within the field.

 Editor’s Note:

 Also worth mentioning is Thailand, which announced an ICO
 portal for projects that took effect on July 16 setting very clear
 frameworks on token categories (utility vs security), issuance            Canada dropped to the 10th on the table with minimal ICO fundraising movements, only
 company requirement among other requirements                              registering 5 recorded ICO project fundraising instances with less than US$40M announced
                                                                           raise in 2018.
 Detailed information on this can be found here.
The grey line shows the average round-sizes of global startup funding for all types of funding across stages,
including ICO rounds. The pink line shows only the average ICO round-sizes. All data is from 2015 onward.
                                                                                                                Average Fundraising Round
                                                                                                                   Size (Global) all time
                                                                                                                Across 298 recorded ICO fundraising instances in
                                                                                                                2018, including Block.one and Telegram, this brings
                                                                                                                an average ICO fundraising attempt of early stage
                                                                                                                blockchain projects in 2018 to on average close to
                                                                                                                US$45M, a staggering amount for many projects are
                                                                                                                in its early stage of development.

                                                                                                                As a reference, this amount brought ICO projects'
                                                                                                                total fundraising amount close to a North America
                                                                                                                Series B after startups' average round size (US$47M).

                                                                                                                It is however important to note that most of this
    US($)                                                                                                       fundraising activity happened in 1H 2018, during
                                                                                                                which 243 out of 298, or 82% of successful ICO
                                                                                                                fundraising attempts happened, raising nearly all of
                                                                                                                the US$12.3B raised in total in 2018.

  Editor’s Note:

  Moving into 2H 2018, less than US$1B has been raised across our recorded ICO fundraising instances.

  This is a key takeaway as it denotes a clear cooldown for the ICO fundraising market.
Average ICO Round Size (by
                                                                                                         region) all time
                                                                                                 The graph represents the average ICO round size from 2015
                                                                                                 to 2018. Each line is color-coded by region and divided by
                                                                                                 stage of funding. Note that Rest of the World has been
                                                                                                 excluded in this graph given the small sample size and
                                                                                                 presence of the big outlier, Block.one.

                                                                                                 As 2018 stands, US$25M seems to be the magic number for
                                                                                                 blockchain fundraising figures.

                                                                                              In Europe, which is home to Telegram's fundraising attempt, saw
                                                                                              its average shot up to close to US$50M. Discounting Telegram, the
                                                                                              figure will round up to US$26M across 69 instances, the most
                                                                                              across these 3 tracked regions in both average fundraising amount
    US($)                                                                                     and number of fundraising instances.

                                                                                              One of the reasons for this can be attributed to the larger number
                                                                                              of crypto-friendly jurisdictions in the region, with United Kingdom,
                                                                                              Switzerland, Gibraltar, Lithuania, Estonia, Russia, Israel,
                                                                                              Liechtenstein, Slovenia, Netherlands, Luxembourg, Belgium and
In a further breakdown by region and excluding Block.one, average ICO project raised would    Malta all registering more than one successful ICO fundraising
look to be around US$25M in North America and Asia, the drop in average ICO fundraising       attempts in 2018.
value from 2017 to 2018 due to higher number of successful ICO fundraising attempts in both
regions this year (North America- 54 to 74, Asia- from 16 to 53).
The circles represent startups who have raised ICO funding and their association with industries. Note that a
 startup can be associated with several industries.
 The size of each circle corresponds to the number of startups associated with that particular industry.

                                                                                                                                Top Sectors doing ICO
                                                                                                                                 Fundraising in 2018
                                                                                                                           This table shows industries with recognized ICO fundraising
                                                                                                                           success of more than 10 instances in 2018.

                                                                                                                           Financial services led the pack with 163 ICO related instances, with
                                                                                                                           some high profile ICO fundraising including Huobi and Basis
                                                                                                                           which aim to support liquidity and bring stability in the
                                                                                                                           cryptocurrency space respectively, to application focused
                                                                                                                           projects such as Self Key which strives to create blockchain
                                                                                                                           based identity systems, to Odyssey, which focuses on digital
                                                                                                                           asset trading and payment solutions. Financial services related
                                                                                                                           registered ICO fundraising attempts rose from 98 to 163 from 2017
                                                                                                                           to 2018.

                                                                                                                 Big Data and AI came 3rd with 20 instances. From our database, the most
                                                                                                                 successful related blockchain project by amount of ICO funding raised is
                                                                                                                 Neuromation, the Estonian based startup raising US$50M in early 2018 to
                                                                                                                 leverage tokenomics to create marketplace business models of reward
                                                                                                                 buy/sell of synthetic datasets on a blockchain enabled marketplace.

                                                                                                                 Other interesting use case involving blockchain in the AI space is
Cybersecurity rose through the ranks with 36 related instances, with                                             represented by SingularityNET, which raised US$36M in January 2018 to
project such as Atonomi leveraging the blockchain ledger to store                                                build an open-source protocol and collection of smart contracts for a
device identity, as well as enable device interoperability and                                                   decentralized market of coordinated AI services, with the vision to let
reputation in the IOT space over time.                                                                           anyone add an AI/machine learning service for use by the network, and
                                                                                                                 receive network payment tokens in exchange.
Utility vs Security Token

Utility Token vs Security Token became a huge debate because
there are many security laws that govern the latter, which leads to
many procedures/restrictions that a blockchain startup needs to
navigate to fundraise for their projects via the token route.

A common way used to tell one from the other is through the
‘Howey Test”, a US SEC standard. The criteria are as follow:

1. There is an investment of money
2. There is an expectation of profits
3. The investment of money is in a common enterprise
4. Any profit comes from the efforts of a promoter or third party

By US standard, when the token passes all criteria, it is a security; if
not, it is a utility token.

Please note that this is only a general guidance, each jurisdiction
may have a different interpretation as to what a security token is.

                                                                           Many tools are now used for the HoweyTest.
                                                                                                  Source: Blockspoint

46
Type of Token Sales

Blockchain projects have 3 stages of token sales- the Private
Sales, only to accredited and institutional investors, the Pre-sales,
and the ICO. In 2018, many resorted to just doing private sales:

Private Sales
Private Sales refers to the sale of tokens to private investors
before the token is made available to the public. This round is
usually for institutional and accredited investors only.

The tokens are typically sold at discount compared to the price of
the 2 later stages of the sale.

Tokens sold in this stage usually come with a lock up period,
meaning that investors can only sell their tokens after a certain
period of time, e.g. 6 months, to avoid dumping of tokens.

Pre-sales
Pre-sales are token sales which happen right before the public
sales. These events are marketed normally on the ICO website.           Editor’s Note:
The tokens sold at this round is sold at a discount to the price at
the ICO, and can be made available to the public in some cases.         Most of the token sales during private sales have a discount ranging from 20% up to 50% in 2018. This provides
                                                                        the private sales investors opportunities of making lucrative short term gain of up to 50% within a few months
Public Sales                                                            without lockup.
Public Sales is when the ICO is officially launched. After
completion of sales, the cryptocurrency may then be traded on           This mechanism has attracted a lot of speculators into the market and a “pump and dump” trend among these
cryptocurrency exchanges.                                               speculators.

47
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