Investor appetite for initial coin offerings (ICOs) remains high, but “fear of missing out” (FOMO), rather than market fundamentals is fuelling the demand in large part, suggests a new report from Ernst & Young LLP.

ICO transactions raised have collectively raised US$3.7 billion so far, outstripping the venture capital investment in blockchain projects, according to the research. The U.S. is the leading ICO market, at more US$1 billion, followed by Russia and China; Canada ranks eighth with US$175 million raised to date.

Yet, despite all of the fundraising activity, the EY report says that the valuations companies are receiving in these deals is largely based on FOMO. In addition, there’s often no business reason for many of the tokens being issued in these deals.

“The typical ICO has no customers, no revenue and, in most cases, no working product,” the EY report states. “Often the only foundation for the ICO is a white paper that describes the planned technology and a small piece of software that governs how the tokens are issued and managed. Valuations based solely on a white paper are always going to be risky and extremely speculative.”

Moreover, the EY report says that in “most cases” there is no business need for utility tokens that are being offered in ICOs: “Indeed, for companies that record their revenue and expenses in dollars or euros, settling intercompany liabilities with a volatile specialized currency adds complexity and risk without significant benefits.”

The research also points to several other major risks to investors participating in this market, including security, regulation and technology risks. For example, the report notes that more than 10% of ICO funds (approximately US$400 million) are lost or stolen by hackers.

Also, given that various jurisdictions are taking different approaches to regulating ICOs, there’s also a significant risk of regulatory arbitrage, the report states: “Those looking to conduct illegal activity with an offering could move to jurisdictions where regulators take a light touch approach toward ICOs.”

Finally, the report notes that 70% of the largest ICOs have raised funds on the Ethereum platform, which is creating “network congestion as traders and business operations compete for limited transaction slots.” In the short term, this represents another risk to investors, the EY report says.

EY’s report is based on research into the global ICO market, including a detailed analysis of the top 110 projects that have collected 87% of all ICO proceeds so far.