Crypto fall fails to drown initial coin offerings

It took all of six days, two hours, and 30 minutes for Zebi, a Hyderabad-based blockchain startup, to raise $2 million through a presale of its initial coin offering (ICO), clearing some of the dark clouds prevailing over the cryptocurrency market.
 
Digital currencies such as bitcoin are experiencing unprecedented volatility and have come under the scanners of local tax officials and regulators, but for Indian startups looking to raise capital through ICOs, it’s business as usual. 
 
More than half-a-dozen companies ET spoke to are going ahead with their ICO plans unperturbed, betting on the strength of their products. “We have a global product that already has a live customer in the Andhra Pradesh government, which is rare in the blockchain world,” said Babu Munagala, chief executive of Zebi. “That helped us succeed in the presale in the otherwise tough environment.” 
 
Zebi’s presale, which closed a day ahead of schedule on Monday, is part of the company’s $10 million (Rs 64 crore) ICO planned for March.
Faster Route to Raise Funds
 
The ICO is being conducted in Singapore and in ethereum, a crypto-currency much less valuable than bitcoin, but presently more stable.
 
The rush for ICOs is understandable. It allows startups to crowd-source capital by issuing their own digital tokens, making for a faster fundraising route than through, say, venture capital firms.
 
But because of regulatory uncertainties in India over crypto-currencies and ICOs, domestic startups prefer conducting their offerings in places such as Cayman Islands, Switzerland and Singapore.
 
Bengaluru-based Springrole, a blockchain-based networking site similar to LinkedIn, is preparing for a $10-12 million ICO shortly in Panama. And Mumbai-based Machaao, a platform for real-time prediction leagues for sports, is planning a $5-8 million ICO in March via a foreign entity.
 
Reliance Capital-backed Nucleus Vision, a blockchain-based contactless identity management system, has been an exception, raising $40 million in January in one of the most-anticipated ICOs from India.
 
“We believe this is the perfect time to raise money through ICOs,” said Kartik Mandaville, CEO of Springrole. “The prices of bitcoin and ethereum have been dropping, which compels investors to diversify their bets and participate in coin offerings.”
 
That said, the ICO market has a dark underbelly. Hackers stole more than 10% of $4 billion raised in 372 global ICOs between 2015 and 2017, according to a recent report by professional services firm EY. Hackers have also managed to get access to investor information provided to coin issuers. Velix, an identity verification system on blockchain, was last month forced to suspend its presale due to multiple security breach attempts. There’s a bigger problem. “Close to 80% of the ICOs are fake and users have fallen for it in the past,” said Ashwarya Singh, CEO of Drivezy. The Y-Combinator-backed vehicle-rental platform raised $5 million through an ICO that ended last month and intends to raise another $15 million through more coin offerings.
 
Several ICO-bound companies are resorting to self-regulation to ensure credibility.
 
Cashaa, a banking app on blockchain, raised $33.11million in its presale in December, of which it rejected $14.34 million on grounds of noncompliance and unaccounted funds. “Close to 43% of the money that came in was non-compliant with our (know-your-customer) and (antimoney laundering) norms,” said CEO Kumar Gaurav. “Rejecting murky sources will help us in the long run.”
 
The Indian government has not yet firmed its stance on ICOs, but has issued warnings against investing in crypto-currencies, stating that digital currencies pose financial and legal risks.
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