There is "irrational exuberance" in the initial coin offering (ICO) market and it's a technology that's here to stay, the co-founder of Ethereum said Wednesday.
Joseph Lubin told CNBC that while there is a lot of excitement around ICOs, the long-term potential of the "profoundly powerful" technology is huge.
"There's certainly some irrational exuberance in the space, it's such a profoundly powerful technology that people are excited about it and I think that that's what's driving this rush into the ecosystem," Lubin said in a TV interview at the Web Summit technology conference in Lisbon, Portugal.
"People tend to, or groups of people tend to, operate in fear and greed cycles and I think we are going to see that. I think the growth in the ecosystem is going to continue quite dramatically."
Ethereum creates a blockchain platform for developers to build apps on top of. It also offers a digital currency called ether, which is the second largest by market capitalization behind bitcoin.
ICOs are a way for companies to raise money — people pay money in exchange for a token or digital currency. The token doesn't usually give the investor equity in the company. Instead, it can be traded or used to do something with the firm.
Companies have raised more than $3 billion via ICOs so far this year, according to website Coinschedule, which tracks activity in the space. Many have poured cold water on ICOs though, while regulators in China and South Korea have banned them.
Lubin said that many business systems and key infrastructure could be moved to the blockchain or distributed ledger technology. This refers to a way a network of machines works together to facilitate a process, such as a transaction. All parties are involved in the process and a ledger of activity is recorded and tamperproof.
Many ICOs are carried out via the Ethereum blockchain. As a result of the benefits of the technology, Lubin said that ICOs and the number of tokens in existence are set to rise.
Lubin even described a situation where a person could launch an ICO for themselves. For example, a person could launch their own token to raise $5 million, which would put them through college and even help them start a business. Investors could see a return once the business starts to flourish.
"Capital formation in the form of tokenized securities will, I think, be more efficient," Lubin said.
The benefits include a broader number of investors in the company and the ability to create new business models through the issuing of digital tokens.
"So I think token launches, which are nonsecurity tokens, as well as tokenization of securities will be a huge paradigm."
