Non-Fungible Tokens (NFT) vs. Initial Coin Offering (ICO): Are We in the Midst of Another Bubble?

Apr 19, 2021
NFT vs ICO logo

There’s an old saying on Wall Street that goes “if your taxi driver starts giving you stock tips, then it’s time to sell.” The meaning of course implies if the common man is privy to stock information, then the market must be at its peak growth phase and is due for a large correction sometime soon (what goes up, must come down). In today’s crypto market, we’re getting many of the same feelings lately. 

In this case, Paris Hilton or DOGE HODLers are the taxi drivers giving us stock tips and it seems everyone in the world knows about cryptocurrency due to the surging popularity of meme coins and non-fungible tokens (NFTs). Those who survived the 2017 crypto market crash are seeing similar signs to the Initial Coin Offering bubble and are preparing for yet another long, hard, cold crypto winter. 

However, this time, it’s different. Due to notable increases in tangible adoption, the strength of Decentralized Finance (DeFi), and the revolutionary concept of NFTs, this most recent bull cycle is not going to be a “flash in the pan” like 2017 but instead, here to stay. 

The ICO boom of 2017: What went wrong (and what went right)?

2017 was a bubble in the purest sense of the word

To fully understand the complexities of today’s bull run and how it differs from those in the past, it will help to take a quick look at the ICO boom of 2017 and see what exactly happened. Many call that bubble the “craziest bubble ever” and it saw Bitcoin skyrocket over 800% in six months only to crash all the way back down 700%+ in another six months.  For those in the industry since its early days, that crash was not a big surprise. However, the way it started was a revolutionary period that saw human innovation and corporate fundraising combine in ways never seen before.

Several legitimate startups created tokens on the Ethereum blockchain and sold them in their ICO, generating millions of dollars in just a few days. (e.g. NEO raised $28 million in 2017). These early ICOs were backed by real, productive concepts, concrete use cases, and a transparent team structure. 

The millions made in the ICOs in these cases made sense. However, word quickly got around of this innovation and suddenly, people started entering the market who perhaps didn’t fully grasp the complexity of building a proper ICO or investing in it. Also, many were just downright fraudulent. 

In 2018, a report from Stasis concluded that 80% of ICOs were scams

As a result, far more people entered the market than the actual technology and complete infrastructure could handle. The industry simply wasn’t ready and once everyone realized it, the market dumped in a bloody fashion. The subsequent three-year bear market allowed the industry to catch up to the demand which is why we now have much more solid infrastructure and use cases than ever before. 

Decentralized Finance (DeFi): Value backed by use

Unlike ICOs where value was backed by nothing more than an idea, Decentralized Finance platforms (DeFi) are backed by use. DeFi is not just a theory. Millions of people are using DeFi every single day. DeFi actually uses blockchain solutions to create innovative financial services. There is no centralized body controlling these financial services. Instead, everything is done via smart contracts, making the entire process more transparent and efficient. It’s a wild thought that an autonomous smart contract can usher a loan between two strangers across the world worth millions of dollars but once you can wrap your mind around it, the concept is nothing short of beautiful. 

Once people started seeing that DeFi was a living, breathing example of how blockchain technology can provide a better solution than traditional banks, DeFi platforms (and their native tokens) exploded in popularity. At its peak, the total amount of money locked in DeFi platforms was above $50 billion and that’s expected to rise. 

Through the constant sale of their platform tokens known as “fair launch”, DeFi platforms have been able to efficiently scale their operations to keep up with massive client demand. Furthemore, due to the smaller team size and startup nature of many DeFi platforms, it’s far easier for them to pivot and constantly innovate compared to large, centralized corporations who have more or less stayed the same way for decades. This is where NFTs come into play as well.

Non-fungible tokens and the ability to recreate ownership rights

Despite the three-letter abbreviation, Non-fungible tokens (NFTs) don’t have much in common with ICOs. Are NFTs trendy like ICOs were in 2017? Yes. Actually, searches for NFT have far surpassed that of ICO during its peak. But that’s beside the point. NFTs offer far more value than just an easy way for startups to raise capital. In its purest definition, NFTs completely evolved the process of creative ownership rights and also found a nice niche in the gaming environment. 

Search results over time for keywords "ICO" (blue) and "NFT" (red)

It may seem strange to some, but there is extreme value in unique avatars, digital art, etc. People are willing to pay a price for it just as past generations paid a price for seemingly useless brand-named clothes. If you can understand why someone would want to wait in line for 24 hours just to buy a $1,000 t-shirt from Supreme, then you can understand NFTs. 

Our lifestyles are becoming increasingly digital. As video games and social media platforms become more interactive and attention-demanding, we as a society will simply translate our favorite hobbies in the real world to that of the digital. Just as people buy and collect rare pieces of art or vinyl records, people are starting to collect digital artifacts as well. 

NFTs may decrease in popularity a bit but this is not the next Beanie Baby fad. This is a life-changing technology that will find its place in our everyday habits just like Amazon or Netflix has. 

Conclusion: It’s not a bubble (enjoy the ride)

NFTs are serving a similar purpose to ICOs in that they are helping to bring billions of eyes to the crypto industry. That being said, the industry can now handle it. Thanks to the strong foundation of DeFi platforms, smart contracts, and an overall more credible user base, the cryptocurrency industry is ripe for growth and we are seeing the fruits of this harvest right now. 

Analysts say the crypto market has more room to grow. Head to YouHodler today and start taking advantage of it. Our crypto multiplication tools like Turbocharge and Multi HODL help you accumulate more crypto now so you can profit later.

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