Imagine raising thousands or even millions for your new business idea, all without dealing with traditional banks, VC’s, or several traditional fundraising process headaches. That would be amazing, right? Welcome to blockchain, where Initial Coin Offerings were introduced. With this fundraising method, it’s possible to fundraise investment for your project fast and accessible through the cryptocurrency space and track it even via a mobile application on your smartphone.
Initial Coin Offerings, also known as ‘’ICO’’, became popular during the crypto boom of 2017 exceeding over $5 Billion of dollars fundraised. For example, ETH, the cryptocurrency of the Ethereum blockchain, raised over $18 Million through an Initial Coin Offering. Since then, this fundraising method has become even more popular and attractive for projects based on blockchain. For that reason, through this article, we'll break down the benefits, risks, and even how this method can be implemented in a business. Let’s check in-depth together:
What Is ICO?
ICO's meaning might sound complicated, but it’s not! The way to invest at the early stages of projects is just evolving, an ICO it’s a method for projects based on blockchain to raise investment and develop an idea or solution. Instead of an initial public offering where looking for traditional investment from banks or VCs is a headache, project owners can sell the project cryptocurrency to investors. These tokens can represent several things, from access to a service to a utility token with a bigger purpose. Basically, an Initial Coin Offering is a type of decentralized crowdfunding campaign, curious? Let’s check together:
- Create a Whitepaper: Creating a whitepaper is the first step, this document will explain everything about the project, such as the business model, technology, roadmap, and the token purpose itself.
- Example: Ethereum’s whitepaper had everything through the roadmap, including their vision for smart contracts and dApps. This vision, transparency, and technology catch the attention of the investors successfully raising over $18M.
- Establish Wallet Compatibility: For a successful ICO, it’s essential to ensure compatibility with digital wallets where investors can securely store and manage their purchased tokens. Collaborating with a DeFi wallet development service can streamline the creation of a robust wallet ecosystem, ensuring user convenience and enhancing trust in the project.
- Create the Tokens: Structured tokenomics creation is key, as it provides a detailed overview of the token's purpose. For example, it outlines what percentage of the total supply will go to marketing, the team, incentives, operations, and the portion allocated for the initial coin offering.
- Set Token Pricing: In ICOs, the price of the token normally is less than the launch price, this makes the cryptocurrency attractive for early investors and gives them an advantage before the launch.
- Launch the ICO Campaign: It's important to do proper marketing before the initial coin offering, including ICO Website Development, to bring visibility, build trust, and make it attractive for early-stage investors. For example, content marketing through Twitter or other social media, building a community in Telegram or Discord, and even investing in influencer marketing can bring quick visibility. This will enhance trust and the possibility to successfully fundraise.
- Sell the Tokens: Once everything is set up, it’s time to sell the tokens. Users can invest using cryptocurrencies like BTC, ETC, USDT, or even fiat in some cases.
Types of ICOs
There are different types of initial coin offerings, and it’s all about the token purpose. Let’s check together:
- Utility Tokens: Utility Tokens provide access to a product or service related to the project.
- Example: BAT, the token of the brave browser, rewards users for completing tasks and promotes the cryptocurrency.
- Security Tokens: Security tokens are regulated like securities and are similar to traditional investments.
- Example: tZERO gives to holders rights similar to shareholders in traditional companies in their trading platform.
- Equity Tokens: Equity Tokens provide a % of ownership rights in the project based on the quantity of holdings.
ICO vs IPO
Initial coin offerings and initial public offerings have the same purpose, to raise funds. But both work very differently:
- ICOs: Tokens are sold to the public, granting access to a product or other benefits (but not usually ownership)
- IPOs: Shares of a company are sold to investors, providing different benefits such as equity, voting rights, and even dividends sometimes.
Key Differences Between ICOs and IPOs
- Assets: ICOs provide currencies based on blockchain, while IPOs sell real-world shares from the company.
- Regulation: ICOs are flexible, and often gray, legal space. While IPOs are heavily regulated with multiple processes involved.
- Investor Rights: IPO investors normally get ownership and voting rights in the business. ICO investors normally don't.
- Accessibility: ICOs are public and open to anyone in blockchain, while IPOs require trusted and certified investors during the early stages.
- Cost and Process: ICOs are way less expensive and faster than IPOs.
- Example: Ethereum raised funds selling their token ‘’ETH’’ in an ICO to develop and progress on their currently live and most popular blockchain platform. In contrast, Facebook’s IPO sold shares, offering trusted investors a part of ownership and a stake in its revenue profits.
