It was only a few years ago that initial coin offerings (ICOs) seemed to be everywhere. One project after another was launched in quick succession. Investors could not wait to get on board with a project they thought would prove to be the next Bitcoin. So what happened? Why aren't ICOs as popular as they used to be?

For the record, Q1 2019 saw fewer ICOs raising smaller amounts of money as compared to Q4 2018. There were some 328 ICO projects through the first three months of this year. Of them, just 107 managed to raise about $118 million. The remaining 221 didn't raise a dime. By contrast, the final three months of 2018 saw some 585 ICOs, of which 207 managed to raise funds.

Most surprising of all is that just 15% of the tokens issued through ICOs since 2017 are currently trading at or above their original price. That should tell you everything you need to know about the ICO and its waning popularity. If you want to get into the details a bit more, continue reading. We will dissect it as finely as we can.

Basic ICO principles

We realize there may be people reading this post who do not know anything about ICOs. So let's start with the basics. An ICO - a.k.a. an initial coin offering - represents the initial offering of a digital asset that has been tokenized with coins. It is very similar to the initial public offering (IPO) of company stock.

Project creators offer ICOs for the same reasons that companies offer IPOs: they need to raise cash to fund their work. They offer a certain number of tokens in exchange for a minimum monetary investment. They also promise some sort of return on that investment - be it financial or the ability to somehow be involved in the project.

As the theory goes, raising enough cash can adequately fund project development through its completion. Successful fundraising can also act as a catalyst to encourage other investors to get involved down the road. Without an ICO, a lot of cryptocurrency projects would fail right out of the starting gate.

Risk is the big problem

With the basic principles of ICOs out of the way, let us get back to the fundamental question of why they are not as popular now as they used to be. The problem is ultimately risk. ICOs have proven themselves too risky for both project developers and investors alike. Indeed, the risk is so profound that developers are looking for other ways to fund their projects.

Understanding the full extent of the risk requires looking at it from both sides of the equation. We will start with the risk to investors, as they generally decide how a project will ultimately fare. Needless to say that investors share a larger portion of the risk than project developers.

Here's what they have to be concerned about:

• Experimental Projects - Many of the projects that were previously launched via ICOs were experimental in nature. They were built on a theoretical premise with no real-world data behind them. Whenever you are investing in that sort of venture, you are investing in a risky venture that offers no promise of success.

• Lack of Regulation - The worldwide lack of regulation makes ICOs the investment equivalent of the Wild West. Investors have no one to fall back on if they invest in a project that turns out to be fraudulent. And even an honest project that fails still doesn't offer any safeguards investors can turn to.

• Lack of Transparency - Investors asked to put their money into a project that lacks transparency will not do it. They want to know exactly what they are getting into before they part with their money. Likewise, demanding transparency weeds out those who do not know what they are doing and others who would commit fraud.

• Pump and Dump - Yes, the pump and dump problem so prevalent in traditional securities also exists in the crypto market. Investors who fear they might be looking at a pump and dump scheme are not likely to get on board.

• Value Speculation - Next up is the speculative value of some tokens. It seems like developers come up with a monetary value out of thin air, with absolutely no forethought or evidence backing up that value. Investors shy away from speculative value more often than not.

• Lack of Utility - Investors want to see some sort of value by way of utility. A cryptocurrency project that has no practical utility is not worth investing in because its long-term profitability is questionable.

As you can tell from this list, the risk of investing in an ICO is pretty significant. Far too many investors have been burned by fraudulent or failed ICOs in the last few years, causing them to be a lot more cautious. But what about developers? They have risks to consider too:

• Regulatory Uncertainty - Even though cryptocurrency is largely unregulated around the world, there are a few hit and miss regulations that add a bit of uncertainty to the equation. That uncertainty may cause some developers to forgo the ICO.

• Unsustainable Tokens - Developers might also be dissuaded from offering ICOs because they fear the value of their tokens will not be sustainable. Crypto projects designed to be applications rather than monetary systems are prone to this sort of thing.

• Lack of Transparency - Project developers need investors to be equally transparent. A lack of transparency might prevent an ICO from ever getting off the ground. After all, developers don't want to risk getting involved with bad actors.

• Security Fears - Launching an ICO comes with a lot of responsibility, particularly where security is concerned. Developers who do not want to be liable for investor security may steer clear altogether. There are other ways to raise funds without accepting such a heavy liability.

Developers do not face nearly the same level of risk as investors. Still, there is enough there to dissuade them from going the ICO route. In the end, it boils down to whether a developer thinks his project has a realistic chance of becoming the next big thing. If not, offering an ICO is not necessarily a given.

How to spot bad ICOs

Hindsight allows us to look back on the history of ICOs with a lot more clarity than looking ahead. In other words, hindsight is 20/20 in understanding why ICOs are not as popular as they once were. We can look back and see which projects failed as opposed to those that succeeded. From that, we can learn to identify bad ICOs moving forward.

So what makes for a bad ICO? Below is a list of characteristics that are by no means conclusive:

• Anonymity - One would think a project's developers would be proud of their work to the extent that they would want to identify themselves. It turns out that this is not always the case. Anonymity is a big problem with crypto and blockchain projects. It is also a red flag. If project developers insist on remaining anonymous, they could be up to something.

• Lack of Experience - Being able to take the Bitcoin or Ethereum code and use it to create a brand-new crypto project does not an expert make. As such, another warning sign of a bad ICO is a lack of experience. Developers and teams with very little business experience should not be trusted with precious investment funds.

• Uncertain Legal Status - A legitimate cryptocurrency project with a legitimate business purpose also possesses a legitimate legal status. Any project without such a status should immediately be questioned. For all anyone knows, that project could be nothing more than two university students hoping to pay their tuition by selling a few tokens.

• Vague Documentation - Every ICO is preceded by a white paper. It should also include a strong business plan. Lack of either document would suggest that developers either do not know what they are doing or are afraid to share the details. That is a definite red flag.

• A Lack of Committed Code - As a general rule, project developers commit code to an organization like Github prior to launching an ICO. The purpose here is to put the code out for public scrutiny. Developers are hoping for feedback that will make their projects better. Lack of committed code suggests very real worries.

• Lack of Need - One telltale sign that so many people miss is the lack of need for a particular token. If you look at a project and it appears as though it could accomplish its goals without a token or ICO, it's logical to question the purpose of the ICO altogether.

There are a few other warning signs that suggest a bad ICO. However, there isn't space in this post to continue any further. Here's the point: ICOs are not as popular as they once were because they are too risky. Both project developers and investors have discovered there are other ways to fund worthwhile projects without resorting to the ICO.