ICO (Initial Coin Offerings) is an acronym, which means a primary currency offer. This acronym resembles the IPO (Initial Public Offering), a term that is used when a company is rapidly developing, gaining popularity and ready to share shares with potential investors in exchange for money. And it is the ICO that is related to the financing of the business project.
Main features of ICO
Several years ago, due to easy development methods, hundreds of tokens were created, and the companies came to the understanding that they can be used for financing.
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They create a token, decide what its cost will be or what it will be used for, then they resell it and use this income to finance it. This is something that is equivalent to kickstarter, but delivered to the world of finance as crowdsourcing. This method of financing and obtaining liquidity began to be used in 2014, but in recent years it has grown and began to invest large amounts in tokens.
At the same time, companies that issue tokens can finance themselves without resorting to risk capital, so they do not need to sell part of their company or deal with those who control risk capital. Most importantly, what they need is an idea for which investments are needed. It is of primary value, and it must attract investors.
Tokens are coins offered under the ICO, and they can be considered equivalent to shares purchased under an IPO. In addition, they are called cryptocurrencies, because they are digital currencies in the form of bitcoins, ethers or ripples created using blockchain technology. They will be highly quoted and will be equivalent to shares issued during the IPO. Like shares, these value-added tokens will give the investor of the company or project the right to vote and, sometimes, the opportunity to make a profit.
If we draw parallels between the ICO and the IPO, then a large part of the ICO issues tokens, which are a valuable contribution, which in turn gives investors access to the prospects of a particular project, rather than to ownership of the project.
Another risk is that the security of the cryptocurrency may not be the best, and someone can hack the system and steal the money. A striking example of such cases is the DAO (Decentralized Autonomous Organization), which managed to steal from investors more than $ 150 million.
It is also important to bear in mind that this type of transactions is not regulated by any law, in addition, they are outside the usual financial system. This problem is struggling to solve because it is not available to governments, and this means that they do not have control over money or taxes.
It is clear that the creator of the token when creating the ICO should raise money. A successful example of this is the ether, which, until launch, raised $ 18 million. Of course, this was an initial investment of funds, which were useful when starting the project.
On the other hand, there are investors. Of course, they intend to make a profit. Coins are growing rapidly in price and those who are among the first participants of the project have a great chance of earning high profits.
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Main characteristics of ICO
Let's consider the main characteristics of ICO:
- Anyone can join a project or become part of an ecosystem.
- Currencies ICO usually sell shares within an economy, and tokens ICO, in turn, sell the ownership or royalty of the project.
- Holders of tokens do not always have the right to vote in project management.
- Most ICOs entail the creation of a clearly established number of coins or tokens before the sale.
- The prices of ICO are in most cases regulated by the creators of the ecosystem.
- Fundraising in ICO can take place in several stages: first, the currency or tokens are offered, then their value increases until the launch date, so that the first investors are likely to receive more rewards included in their tokens, as well as the incentive to be the first buyers.
- ICO concludes that the currency or tokens are negotiable in the open market.
Recently, investors ICO are surprised by the revenues and growth of the market capital of cryptocurrencies. And although there are good cases, which in some cases can even be called implausible, but there are also risks, and not all projects are successful. And this must be taken into account before entering the world of blockchain and especially ICO. It is necessary to carefully study and evaluate the project.
Editor: Yuliya Soroka