Researchers from the University of Pennsylvania on July 18 released a report entitled “the Capitalism of coins” (a Coin-Operated Capitalism). This document is the result of “an interdisciplinary project involving law, Economics and computer science,” as law Professor David Hoffman.

The researchers analyzed the top 50 ICO, the total market capitalization which amounted to $3.8 billion and total profit was $2.6 billion. Hoffman explains:

We have considered the ICO’s top 50 in 2017, after analyzing their white paper, terms and conditions, all of the available codes and all publications on social networks.

One of the key conclusions reached by the researchers, is that many of the ICO promised investors protection from insider trading. In other words, there was no guarantee that the tokens are not will become targets of pump and dump by the “whales” and will not be subject to other market manipulations.

What is worse, many projects which directly gave such promises, in the end did not implement them in your code. So, the promises are not kept:

  • 80% of the 37 projects, which promised testirovanie;
  • 25% of 32 ICO, promising to limit the supply of tokens;
  • 35% of the 17 projects that promised to burn coins.

In addition, of the ten projects with tokens, which you can modify (like Bancor), only four were warned about this possibility in English.

The researchers came to the conclusion that investors did not react to the lack of included in the code of regulations of corporate governance, buying into the promises of self-regulation and rejection of intermediaries.

A significant number of ICO also exaggerated in their declarations the real level of decentralization, because their work still requires trust and centralised decision-making. He writes:

Surprisingly, in the community, known for its technolibertarians faith in the power of “trust, which does not require trust” (based on carefully designed code), a significant portion of players retained centralized control, allowing control structures project to modify undisclosed code.

Similar change was detected, for example, in Polybius. Code of the smart contract of this project has undergone changes far beyond “simple changes in the rules of a vote of the owners of the tokens”.

The researchers ‘ findings also undermined faith in the idea that “code is law”, and self-regulation really works. On the one hand, investors need to trust the team, could receive a product that is advertised in their latest white paper. On the other hand, they have to believe in that “old-fashioned rules of use will have to rely on ordinary contract law, or that code that essentially no one is going to decipher (or won’t be able to do it), will allow you to perform these promises.”

It is not surprising that while 92% of the blockchain projects fail, and the average life expectancy of a startup is 1.22 years. Do not forget that more than 80% of the projects turned out to be a fraud, as evidenced by the data of another fresh report.

Scientists came to the following conclusion:

As smart contracts will play an increasingly important role in transactions, courts and regulators will inevitably face them in daily practice. Perhaps the lawyers will be challenged to define as a smart contract to decide whether the sponsors have complied with the obligations provided in a paper contract or in the basic law.

Recall that recently the Commission on securities and stock exchanges of the USA stated that “decentralized” cryptocurrencies such as bitcoin and Ethereum, are not considered securities. The data of the research staff of the University of Pennsylvania that many tokens is centralized, giving the SEC a reason to count them unregistered securities.