New Research Argues That ICOs Aren’t as Scammy as Implied. Here’s the Problem, Though.

New Research Argues That ICOs Aren’t as Scammy as Implied. Here’s the Problem, Though.

by March 15, 2019

In a presentation shared with the attendees of the International Scientific Conference (#ISC2019) organized by The British Blockchain Association in London, researchers Daniel Liebau and Patrick Schueffel revealed a summary of their academic working paper entitled “Crypto-Currencies and ICOs: Are They Scams? An Empirical Study”.

This research came out in response to a growing number of academic studies that call ICO credibility into question.

A recent industry study by Statis Group said 80% of all ICOs are scams. Economist Nouriel Roubini called crypto “the mother of all scams” in his testimony to the US Senate Hearing on “Exploring the Cryptocurrency and Blockchain Ecosystem”, and Bitcoin maximalist Saifedean Ammous called Ethereum “a worthless scam” as well; a potshot in a series of tweets calling the Proof of Stake (PoS) consensus algorithm into question. Saifedean Ammous has never been a fan of Ethereum.

Daniel Liebau, one researcher in this new study said in response:

Daniel Liebau

Daniel Liebau

“As ICOs nevertheless receive increasing attention not only by the media but also by investors, we deem it a worthwhile endeavour to investigate the magnitude of true scams in this area.”

The researchers counter the popular scammy sentiment, stating that it’s generally acknowledged that poor economic performance doesn’t automatically equate to scams. 


The researchers opined that it is highly questionable that high failure rates are idiosyncratic to the novel phenomenon of the ICO. A more differentiated view on ICOs and potential scams is necessary.

The paper proposes that the magnitude of ICO scams is much smaller than initially expected, and attempts to explain the allegedly poor ICO performances by relating them to entrepreneurship-based studies.

In their empirical study, Daniel and Patrick found that:

1. Only one ICO has been identified as a scam
bitconnect ico scam meme

The only good thing to come out of the scam is this meme. (Image Credit: Jeffry Willis on YouTube)

Of all the ICOs considered in the study, the courts had ruled only 2.2% as a scam.

The study considered 45 subjects in their sample. Of those, three projects had been called scams: DinarDirham, E-dinar and Bitconnect. Of those, lawsuits were initiated against two of them (E-dinar and Bitconnect); and even among those, the court had ruled only Bitconnect as fraudulent for now, due to their ponzi scheme-like practices.

Even if one were to expand the definition of scammy ICOs to those beyond court cases, the three named only bring the percentage up to 6.7% of all ICOs analysed.

2. Not idiosyncratic to new technologies

Assuming a worst-case-scenario where all projects without fully transparent data are scams, ICOs would still only have a 49% failure rate.

In this situation, the research opines that 49% may not be idiosyncratic to the field of ICOs. A 51% survival rate is close to the 60% survival rate for new technology ventures. To the researchers, this nowhere near the 80% mentioned in previous reports. (Other research on the survival of new technology ventures suggests 40% do not make it)

3. The study found that ICO tokens would have yielded a hypothetical return of 698.71%

As a side note, the research found that an equal allocation of funds across all ICOs conducted in 2016 would still have yielded a total return of 698.71% over two years.

But Here’s a Problem with The Study

To come to these conclusions, the researchers searched for any news related to ICOs in 2016, and conducted a keyword check for terms like “scam”, “fraud”, “sham”, “deceit”, “con”, or “hoax”—as well as resulting legal proceedings or court cases along with any verdict was delivered yet.

More pertinent however, is the fact that the data is only derived from the 2016 cohort of ICOs, which the report rationalises as “having a long enough time frame required for potential plaintiffs to file legal proceedings against fraudulent ICOs”.

Thus, the results have been criticised as “less surprising”. Early adopters would be more genuine in intent, and therefore may not disprove the 80% figure Statis Group derived from 2017’s ICOs—the year that crypto-assets hit terminal mainstream velocity—even if one were to apply the same methodology to newer ICOs.

To put it in simpler terms, it seems like this new research attempts to discredit new observations based on old data. In crypto terms, 2016 might as well be a whole millennium ago.

The authors note that there are limitations to their research and therefore invite other researchers to build on their work. Most obvious is the extension of research on the time axis, to cover ICOs conducted in 2017 and 2018. Secondly, they encouraged other researchers to develop a “Crypto Scam Probability Index” to spot scams ex-ante (before the event).

Cryptocurrencies & ICOs: Are they scams? An empirical study from Dan Liebau

Featured image credit: Pixabay