Tag: Crypto

Initial coin offerings (ICO)s are by far the most common method of raising capital for start-up ventures. These are structured in multiple ways. The project organizers and the concerned company determine the structure of the coin. Usually, business entities raise capital for their projects by issuing digital tokens in exchange for fiat currencies and crypto assets. ICOs are a better alternative in many ways compared to traditional sources of angel finance and venture capital. 

Basic Elements of ICO

Initial coin offering is a process that involves the use or propagation of basic elements such as the token, and publication of white paper. Thus, it may also highlight the significance of online marketing in the process. 

• Online Marketing

Online marketing is the main and sometimes the sole means of distribution and communication. 

• The Token

Crypto tokens are the digital units of value, circulation, and properties, which are directed through a computer code. Broadly speaking, there are three types of tokens.

• Utility tokens

These tokens provide a variety of benefits and that may include the availability of specific services offered by the company.

• Currency

Individuals primarily use these tokens for payment in transactions with them.

• Investment or asset

Investment tokens or asset tokens authorize the owner the right to take part in the issue’s anticipated returns. There can be provisions for participation rights or voting rights in some cases.

• The White Paper

The issuer involved in ICO mandatorily issues or publishes a white paper on its website. Although there is no specific format or content involving a white paper, nevertheless there are commonalities. The issuer and others involve commonalities such as information technology protocols, token supply distribution methods, planned projects (with potential business blueprints), and their own role as the protocol developers.

Initial Coin Offering Methods

There are different methods of Initial Coin Offering. It is in the best interests of startup ventures to know these methods such that it becomes easier for them to choose the suitable one.

• Static supply and Dynamic price

In this method, the goal is dynamically funded while the ICO has a static or fixed supply of tokens. This essentially implies that the amount of funds received in the ICO is related to the overall tokens’ price.

• Static supply and static price

The company determines and predetermines a total token supply, as well as limits the funding goal in this method.

• Static price and dynamic supply

This method is rarely used. However, the ICOs may have a dynamic token supply but the amount of funding may vary and it ultimately determines the supply.

Process of Initial Coin Offerings (ICO)

The first step involves giving the details of the campaign. It may include making tokens with specific rights attached to them. These rights may include targeting the audience, setting a timeline for liquidity, token pricing, and issuing white paper. Furthermore, the first step may coincide with creating the business plan for the venture. 

The second step involves pre-sale. In this step, a small part of the issued tokens are sold at subsidized prices or discounted rates to a small group of contributors. The main purpose of pre-sale is to derive funds to compensate for the costs of the actual ICO. 

The third step will have actual transactions involving cryptocurrencies, fiat, and tokens. In this step, a critical milestone is necessary to list every cryptocurrency on a token exchange following the ICO. This listing ensures that tokens can be traded, making it the main source of liquidity.

Bottom Line

ICOs are highly advantageous and help accelerate the offering process by reducing capital costs. The relatively few barriers involved in ICOs help in the better democratization of capital markets because it simplifies the complex process of market entry for start-ups. The increase in interest in decentralized finance (DeFi) is a good indication of the growing acceptance of ICOs.