Pavel Kravchenko, Distributed Lab Co-Founder Says 99% of Startups Don’t Make a Working Product after ICO

Pavel Kravchenko, co-founder of blockchain company Distributed Lab, is known for his hard-hitting statements on processes within the cryptoindustry. Recently he wrote a Facebook post sharing his views about what’s happening to cryptocurrencies and ICO market in layman’s terms.

ForkLog contacted Pavel asking him to answer the questions not covered in the initial post.

ForkLog: Your recent Facebook post generated lots of buzz within the community. Let’s start with what sounds like most interesting statement. You say “the current state of ICO is a bubble.” What could cause it to burst? And when could it happen?

Pavel Kravchenko: A hack of a major exchange, a bug in a smart contract, network instability caused by workload, rumors on state investigation of some ICO, or disappearance of startup founders that have raised a lot of money could cause the bubble to burst.

Considering Ether’s price growth rate and the extent of emotions invested in the development of affairs, even an insignificant event could force the bubble to burst. It can happen any moment. I heard on multiple occasions that the bubble will start deflating by late summer or early fall, and those who want to launch an ICO shall do it right now. Such expectations are in fact self-fulfilling prophecies that only accelerate the development of affairs.

FL: Is investing in all ICO’s now a bad idea, or there are some reliable projects? How could one find such a project, and how to tell them from scam?

P. K.: That depends on the purpose. If it’s speculation, nobody knows when the market will start growing again. If we consider the situation in terms of technology, it’s ambiguous. For now, ‘technologies for the sake of technologies’ are on the march. They’re somewhat similar to derivatives, i.e. things that work only on the condition that a lower-level technology is in place.

Here’s a simple example. A startup assumes that:

  1. There’s a blockchain that stores data on a real business’ assets (like tokenized shares), and it is legal
  2. There’s a working logic of smart contracts recognized while settling disputes between parties
  3. There’s a prediction market based on smart contracts’ execution.

If someone launches an ICO for a project that assumes that this entire stack of technologies works perfectly and is demanded by businesses, but at least one of those assumptions doesn’t work (for instance, businesses don’t massively issue their assets as tokens on a public blockchain), the entire structure shatters and makes all solutions developed by the startup senseless.

I cannot see projects “grounded” to the real economy. Startups just don’t want to deal with the boring problems of infrastructure legacy. In fact, we have lots of startups aimed at speculations with virtual assets. On the other hand, this all allows us to test the ideas one could not imagine in the wildest dreams before.

FL: You said Ethereum would also start deflating when “startups begin selling their funds raised in ETH.” When do you believe this will happen?

P. K.: As soon as ETH stops growing, and startups focused just on getting their quick buck start holding ICO’s. That’s who will start selling in the first place. On the other hand, developers want to get their wages in a stable currency, so they’ll have to withdraw money anyway. I know a team that started looking for developers only after they had had a successful ICO.

FL: Are there many teams that fail to present a working product after an ICO? How can it affect the industry?

P. K.: Ninety nine per cent of them, just like in traditional startups. Why should this industry be an exception? It seems that their level of responsibility for the raised funds is even below average. Startups that have held a successful ICO consider it as exit.

How can it affect the industry? Just like back in the dotcom boom era, we’ll interest lots of developers with new technologies and teach them at the expense of investors. When the bubble bursts and disappointment subsides, those people will build the next generation of startups that would be more down-to-earth in terms of business models.

FL: If ICO is going to decline, how can it affect bitcoin?

P. K.: It’s hard to tell. On the one hand, bitcoin is a reserve currency for the entire industry, some sort of a safe haven. On the other hand, most people don’t tell cryptocurrencies from each other, and decide to buy or sell on a whim. The percentage of ‘average people’ investing in cryptocurrencies has grown recently because of the hype around ICO.