Why Entrepreneurs from Russia Flooded the ICO Market?

Yury Gerchikov
  • Since 2014, many Russian blockchain-based start-ups occurred on the market and there is a large number of ongoing ICOs with Russian roots
  • Russian interest can be explained by political and economic factors that make it difficult to raise capital in the country

Russia is one of the most exciting areas for crypto innovation and many of the ICOs on the market originate there. Why is their such a strong market for ICOs in Russia? It is possible to outline several main factors that lead to the great demand on ICO projects from Russia and done by Russians. The socio-economic and political restraints are seriously impacting the activity of entrepreneurs in the world of developing economies with highly volatile financial markets, such as Russia. 

How Many ICOs Are Really Based in Russia: More Than You Might Think…

According to statistics from ICO Watchlist, Russia takes the third place in terms of the percentage of ICO projects with 7.67% of the global market. However, on the CryptoCompare resource and in the report done by funderbeam the data is quite different. Russia was placed 7th in the ICO fundraising list in the Funderbeam report

Why there is such a difference in data? It is no secret that public image of Russia on the global arena is not the clearest and trustworthy to deal with.

As such a common practice for Russian firms is to register companies somewhere with greater political stability and clearer institutional base, which might be costly but pays back in terms of higher trust from investors.

How Hard Is It to Find Funding for a Start-Up in Russia?

A one-line answer would be “extremely hard” in comparison to western economies. Sanctions and other restrictions on capital flows imposed on the Russian financial market cause lack of capital mobility and the most sensitive players that react instantly to these problems are start-ups. The problem is that money can be raised only from local investors, as many foreign companies are regarded as “foreign agents” by the Russian government and lack expertise in the sophisticated bureaucratic mechanisms in Russia, further limiting opportunities for start-up enthusiasts to start working on their projects.

On the other hand, Russian VC funds are mainly focused on the E-Commerce market, as it yields higher returns in shorter time frames. This is determined by volatility on the market itself, so if your start-up is proposing something new and involves a certain degree of risk – you will be hard pressed to secure funding when competing with seemingly lower risk and higher reward investments in the E-commerce market.

One of the most persistent economic factors facing the Russia economy is the infamous “brain drain”. Travelling to Silicon Valley and starting up there is easier if you are a scientist from the Moscow State University and have a certain level of English. However, your visa may cause problems and that is where the decentralized and borderless cryptocurrency market steps in. Ethereum smart contracts have drastically lowered the barriers to western capital, meaning Russian entrepreneurs can build their product without a travel visa but still raise capital from western nations.

What Does It Mean for ICO Investors?

Looking past the hype many projects appeared to result in failure and left investors with a bunch of useless ERC-20 tokens that had flawed smart contracts. Either through negligence or intentionally by scam projects.

Secondly, the opportunities of the market are largely unexploited and it will take time until legal frameworks will be set to allow investors to engage with the Russian ICO market safely. There are rumors that Central Bank of Russia has been researching the cryptocurrency market for a while and they are close to reaching a final conclusion in their position regarding its presence in Russia. However, due to bureaucracy and lack of expertise, it might take a while for them to finish their ongoing projects on crypto. The potential is there, it just needs to be trusted and many Russian entrepreneurs would be happy to develop their projects either in Russia or abroad.