The England-headquartered professional services firm E&Y (formerly Ernst & Young) published its research on initial coin offerings, having analyzed a total of 372 projects.

The analysis of investments (Q1 2015 to November 2017) indicates that the total amount of raised funds amounts to $3.7 billion, which is twice as much as the size of venture capital put in blockchain projects. Besides, another $400,000 million was collected by the companies based in China that were obliged to pay the funds back to the investors, following the country's September ban on ICOs. In two years (from July 2015 to March 2017), investments increased by $190 million, while in April last year, the market experienced a sudden jump causing the volume of ICO investments to soar from $290 million to $1.05 billion in just three months; by November 2017, there was another 4-time increase. Starting from the end of the last year, however, the ICO market volume has been declining as the number of projects reaching their fundraising targets has been decreasing: in June 2017 one could observe the 93% figure, and in November 2017 it declined to the 23% level.

The majority of ICOs were held in the US ($1.031 billion), China ($452 million, Hong Kong included), and Russia ($310 million). Speaking of the regulation and support of blockchain projects, the leading countries are different from those above. The paper shows that in a 2008–2015 timeframe, regulators had not been considering the crypto market. The first states to support ICOs back in 2016 were Singapore, Switzerland, and the Isle of Man. For the first half of 2017, Russia was among the crypto-friendly countries, too. Out of all countries mentioned above, the Isle of Man is the only one that hasn't changed its attitude towards the market and continues to support it actively.

Also in 2016, regulators from China, Japan, Malaysia, and Russia were the first to discuss the crypto space and alert their citizens to the threats it posed. In January 2017, Japan pioneered to regulate cryptocurrency in a manner consistent with the existing law; in June, the US and Canada adopted the same scheme, and three months later, the list extended to Singapore, Australia, Estonia, New Zealand, and Lithuania. The most successful blockchain projects are implemented in the segments such as blockchain infrastructure, finance, social network content and ads, and gaming and VR.

Most of the ICO projects use existing blockchain platforms—according to the ICO watch list data as of December 2017, the most popular blockchain was that of Ethereum, which was used to run 77% of the ICOs analyzed. 13% created platforms of their own, and 4% used Waves.

ICO-related risks are caused by smart contracts that determine the functionality anкуd terms of token use and may include hidden conditions or coding errors. The risks also arise due to unreliable token valuation based on FOMO (fear of missing out) rather than forecasts on project development or token nature. The factor that does also matter is a growing number of hacker attacks.

Regarding hijacks, the report says that over 10% of the funds raised through initial coin offerings have been stolen or lost. The founders of the projects are focused on attracting investors but not making their projects secure, and that's why the majority of attacks are aimed at the largest ICOs—hackers are attracted by volume, FOMO, lack of the centralized management, irreversible transactions, and information chaos. By 2017, phishing had become the most widely spread type of a hacker attack, followed by DDoS, hack of a website or an application, cyber attacks carried out with the help of the affected company's employees/IT infrastructure/investors, and hack of exchanges and wallets.

Risks incurred by investors may be a result of a token nature, not necessarily a scam. The vast majority of projects do not need blockchain or cryptocurrency, and that's why they do not proceed from the concept to the implementation, or the implementation proves to fail. Projects that have actually released their product often start accepting fiat money, thereby diminishing the value of their token.

White papers of such projects are often filled with cliches, which may be appealing to inexperienced investors but say nothing about the project itself. The most widespread of them are "the new generation platform," "the first project in a multi-billion industry," "the decentralized marketplace handing over control to users," "we create the community/ecosystem/economy," "no corrupted centralized authorities," and "the most undervalued token."

ICO PlexCorps, whose assets were frozen by the SEC due to violating the law, used the following phrasing:

"PlexCoin is the next decentralized worldwide cryptocurrency, based on the Ethereum structure. Its mission is to broaden the possibilities of uses and to increase the number of users by simplifying the process of managing cryptocurrency to the maximum."

Returning to the token valuation issue, researchers think that today tokens are similar to gold or fashion collections when limited supply drives high demand. In most cases, the popularity of another new digital currency is achieved due to the hype, the white paper quality, and the token sale techniques—either with fixed token price and emission or the other way round, when both price and emission are defined once the ICO concludes. In the second case, investors are concerned because of the unknown total size of financing.

The document reads:

"The traditional token valuation as a means of payment is based on parameters that are difficult to determine at the development stage—balance between the number of tokens (T) and their turnover for the period (V) with the price (P) and the volume of services (Q) on the platform for the same period: TV = PQ.

[. . .]

Also, tokens have a dual nature, which makes valuation even more difficult. Investors expect an increase in token price and customers—with a decrease in the cost of services, which is expressed in tokens. So the value of a utility token is inverse to the cost of a service unit."

At the end of the paper, authors suggest a set of rules for each of the participating parties, which, if those collaborate effectively, can develop blockchain into an effective financing tool for quality blockchain projects.

That being said, founders must:

 Provide clear justification for blockchain and own utility token;

 Make the ICO process similar to IPO to balance token price;

 Ensure that funds and personal data are secured during and after ICO;

 Ensure legal compliance not only in the country of registration but also in all the countries where project operations and token use are planned.

What investors should do is:

 Make use of public blockchain transparency for "advanced due diligence," analyze the code of the smart contract and the platform, which should usually be available;

 Invest "smart money": avoid FOMO and look to contribute expertise in addition to simple financing.

The regulators' role is to:

 Link the "crypto" terminology to existing definitions (in limited cases, introduce new ones); ICO and blockchain are just new tools and should not be above the "legacy" law;

 Standardize minimum requirements for reporting: public blockchain allows automated reporting and increased project transparency;

 Protect the rights of utility token holders until this token can be used to pay for platform services;

 Regulate the token turnover, including changes in token supply and functionality;

 Cooperate with regulators from other jurisdictions, at least with jurisdictions with the largest number of ICOs and where most investors and crypto exchanges are located.