ICO (Initial Coin Offering)
The term “ICO” is the cryptocurrency market equivalent of the term “IPO” (Initial Public Offering) that is frequently used in the stock markets. An IPO is the event in which a stock is offered to the public. The term “initial” in Initial Coin Offering means the first issue of a coin to the public. In order to raise funds, projects can offer tokens or cryptocurrencies that they have issued. ICOs are important fundraising methods for blockchain-based projects and start-ups. The projects that need funds can reach investors in this way. In this fundraising method, cryptocurrencies are used instead of fiat money. For example, in an ICO, you can purchase a token by spending cryptocurrencies available in that ICO such as Bitcoin or Ethereum. In general, the aim of an ICO is to provide resources for a team that needs resources for a project or an idea and to obtain ICO tokens in return. With this token, you can purchase any service the project will provide in the future, gain voting rights in the decision-making mechanism of the project, and you can even gain profit by selling it, if its value increases.
ICOs took place very frequently between 2017 and 2018. In ICOs, projects raised $5.6b in 2017. For example, in 2017, Filecoin, an open-source data storage service managed to raise $257m. And the biggest ICO was held by Ethereum. In the project that raised $2.3m in the first 12 hours, about 60 million Ethereum pre-sales were made, and 31,500 Bitcoins were collected.
Here are some of the ICOs with dates and amounts collected:
- Algorand (ALGO): June 19, 2019 - $122.400.000
- Ankr Network (ANKR): Sept. 21, 2018 - $18.700.000
- QuarkChain (QKC): June 3, 2018 - $20.000.000
- NKN (NKN): April 19, 2018 - $12.600.000
- TomoChain (TOMO): March 1, 2018 - $8.580.000
- Dock.io (DOCK): Feb. 21, 2018 - $20.140.000
- IoTeX (IOTX): Feb. 14, 2018 - $14.030.000
- Republic Protocol (REN): Feb. 3, 2018 - $34.300.000
- PundiX (NPXS): Jan. 21, 2018 - $35.000.000
- Bluzelle (BLZ): Jan. 20, 2018 - $19.500.000
- Harmony (ONE): May 27, 2019 - $23.000.000
ICOs have many advantages and disadvantages, and they are as follows:
Advantages of ICOs
- There are no barriers to entry for buyers and sellers.
- Almost anyone can invest in an ICO they want.
- ICOs offer fast and substantial returns for investors.
- For founders, ICOs deliver much faster results compared to traditional fundraising methods.
Disadvantages of ICOs
- There may be developments in projects in the opposite direction of what is stated in their whitepapers, or inconsistencies.
- There are many ICOs with “Pump and Dump”, which is a process of first raising and then lowering the prices by large sales, thus the manipulation possibility in ICOs.
- The risk of being tricked by fake companies or projects.
IEO (Initial Exchange Offering)
The term “Initial Exchange Offering” means that the initial offering of a token is carried out and controlled by a cryptocurrency exchange. An IEO is a fundraising method in which the project funding process is carried out by an exchange. Today, there are many IEO platforms developed by cryptocurrency trading platforms, and exchanges carry out IEOs on these platforms.
The exchange that carries out an IEO is responsible for the management of the IEO. Cryptocurrencies or tokens sold during a fundraiser on an exchange are traded on the same exchange, which can be considered an advantage of IEOs. Since cryptocurrency exchanges will list these tokens on their platforms after they are sold, they can provide various guarantees to investors. And that ensures that the project is perceived more reliably by investors. There used to be many ICO scams, and as a result, investors were left with worthless tokens that were not listed on any platforms. On the other hand, the process is transparent on EIOs, and the guarantee of listing gives confidence to investors.
For cryptocurrency projects, the advantage of EIOs is that the projects do not have to incur many expenses such as advertising, marketing and sales to reach investors. In IEOs, the process is carried out by exchanges or platforms. IEOs can be very profitable for both projects and platforms. Thanks to the fundraising method in IEOs, a cryptocurrency exchange started a BitTorrent token offering and raised $7.2m in less than 15 minutes.
STO (Security Token Offering)
STOs are similar to ICOs, but in STOs, tokens that provide ownership are offered. STOs have emerged as safer and more supervised alternatives to ICOs. Unlike ICOs, tokens in STOs represent assets that provide real ownership, such as stocks, bonds, and funds. In this way, tokens give ownership rights to the asset on which they are based. In the US, the United States Securities and Exchange Commission (SEC) checks whether STOs comply with the rules.
The ICO tokens and the STO tokens are issued as a result of similar processes, however they differ in terms of their features.
The tokens obtained in STOs arise as a result of legal and lawful processes. Investors who own the tokens produced as a result of the STO process can acquire various rights on a company or a project. Even though there are many differences, ICOs and STOs are fundraising methods for blockchains or other projects.
Advantages of STOs
- Investors participate in legally safer offerings than ICOs.
- Since they are legally supervised, STOs are not as susceptible to manipulation as ICOs.
- Projects for STOs can be more reliable than ICOs.
- Investors own tokens of underlying assets.
Disadvantages of STOs
- Approval from regulatory authorities is required.
- High amounts of investment can be required.
- Only institutional investors may be allowed to participate, or participation may be limited to STO accredited investors.
IDO (Initial Decentralized Exchange Offering)
IDOs are methods of raising funds on a decentralized platform. The first IDO in the world took place on June 17, 2019 with the offering of Raven Protocol. The Raven Protocol IDO ended after reaching the $500,000 limit.
IDOs are a new fundraising method. Although they have a similar process to ICOs, there is no centralized responsible party. Since there is no central responsible party in IDOs, just like in other decentralized organizations, investors have more control over their assets, which gives IDO investors more freedom and independence than any other fundraising processes in the ecosystem.
