An initial coin offering is a perfect crowdfunding vehicle that is “open, distributed, and liquid.” The biggest breakthrough of ICO occurred in 2017 when the ICO number increased significantly, and, according to studies, the amount of capital attracted through the ICO outperformed traditional venture capital funds.
One can draw this inference from the definition of an ICO, that an ICO aims to raise funds to pay the costs incurred during a blockchain’s or coin’s development. One of the success measures of ICO is the listing of coins on various virtual platforms, which is important and defines the success of investors, companies, or entrepreneurs.
ICOs are favored for their multiple benefits for organizations that issue tokens, investors, and consumers.
What are Five Successful Initial Coin Offerings (ICO)
The biggest initial coin offerings have helped millions of people and organizations to raise billions of dollars. Although the IT industry has witnessed many successful ICOs, it still provides many business opportunities. Here is the list of the top five token releases to date;
- Known to be one of the first initial coin offerings, Ethereum has made more than digital money compared to its predecessor, Bitcoin. Using smart contracts, decentralized apps can be created using Ethereum, a blockchain technology.
- IOTA’s initial coin offering (ICO) is based on blockchain technology with the Internet of Things. Also, a cost-free, scalable environment was given via their decentralized transaction ledger.
- Stratis is a software platform that supports many programming languages and enables companies to develop, test, and deploy programs. Furthermore, none of this requires the setup or administration of a development environment. Nearly 1,000 BTC were raised during their ICO, valued at $675,000 and now over $8 million.
- EOS, this popular cryptocurrency, raised more than $185 million in the first five days of its initial coin offering (ICO). Now, it is renowned for being the biggest ICO. EOS asserts in its white paper that its network is competitive (Alternative to Ethereum’s). They provide a wide range of blockchain-compatible business solutions.
- Formerly known as Antshares, and now NXT, undergone two times of token sales. This ICO has tied up with Microsoft and the Chinese government to launch 3 cents in its initial coin offering (ICO). From October 2015 and January 2018, the cost of their coins soared to $180M. NXT is known to be one of the largest ROI coin offerings, as mentioned in its white paper.
Benefits of ICO
Below, we’ll discuss the usually analyzed advantages/ benefits of ICO, namely;
Convenient for start-ups and investors
The biggest advantage of an Initial Coin Offering (ICO) is that it gives access to a range of people, from freelancers and startups to mature investors. There aren’t any time constraints; contributors can also invest at any time, unlike traditional funding set-ups. Anyone who wishes can become an early investor. Thus, ICOs are a favorable option for Startups because, more often than not, startup companies lack the required funds to kick-start their project but can potentially raise their value over time.
A Token launch is similar to the sale of API keys, and it’s difficult to restrict the sale of these keys to accredited investors alone. Hence it is bound to increase the buyer base relative to traditional equity financing for a start-up.
Online Marketing
It’s easier to gather information about tokens via surfacing the net. Buyers interested in these coins can learn about the ICO through the organization’s website, online forums, messaging applications, and social media websites. The internet leverages ICOs, and a large, general audience is attracted to the venture if marketed right. Also, companies seeking to raise capital through innovative blockchain-based technologies do not need high marketing and advertising costs which helps to reduce the cost of raising capital.
Swift and unchallenging mechanism
All the transactions are done online. One can sell tokens internationally over the internet. Instead of relying on regulatory filings, as with other exchange forms like IPOs, stocks, bonds, etc., an ICO relies on blockchain technology to maintain a ledger of its multiple transactions. Data is constantly updated within seconds. All this makes an ICO less time-consuming, less energy-draining, and more efficient.
Decentralization – Blockchain
From substantiating and establishing contributions to distributing tokens, ICOs only require monitoring and updating the distributed digital ledgers.
A distributed ledger lets all investors know about the ICO process daily, as the status of an ICO at each time is written on the Blockchain. This decentralization concept prevents issuers’ fraudulence over investors through ICO. ICO also changes our notion of property rights. As in the case of tokens, the final arbiter of who possesses what property is not a national court system but an international blockchain.
High liquidity
High liquidity refers to an asset’s ability to be quickly bought or sold in the market without significantly affecting its value. ICOs are advantageous because early contributors have more liquidity in early-stage companies. Most popular tokens could exceed $100 million in 24-hour volume. Huge liquidity premium alone causes tokens to predominate (provided they are legally and technically feasible) because the time to liquidity enters inversely in the exponent of the compound annual growth rate.
Profit Potential & High ROI
ICOs are said to be unregulated and risky for investment, but surely “the profits from the hits outweigh the losses of the misses.” For instance, the price of bitcoin was around $100 in June 2013 and was trading at $4,000-5,000 in early September 2017. Now investors are searching for a token that can replace bitcoin in terms of economic appreciation. Many are citing Ethereum as “the next bitcoin.”
ICOs are high-risk and high-reward assets. Investors seek high liquidity and the ability to recover the invested money quickly and other additional returns. A quick fix is provided to them through an ICO, making it a fairly attractive investment solution.
Democratizing model/network
Initial Coin Offerings (ICOs) are changing fundraising by democratizing access to financial capital. It’s the era of globalization of financing. ICO virtualization has made it possible for anyone, anywhere in the world, to invest in a company that is established or operating in any country.
ICOs have caused the significance of going to Silicon Valley / Wall Street to raise funding to diminish. Everything is on the internet from the workings and marketing to opportunities. It paves the way for more expanded investment opportunities as more international clients/investors are lured into these projects.
Lack of intermediaries
Tokens mean instant custody, not requiring the role played by intermediaries. Elimination of financial intermediaries automatically minimizes the cost of funding and also the funding speed. There’s also less government control compared to traditional financing methods.
Specific Considerations
In 2019, ICO activity started to decline sharply, partly due to the legal ambiguity that ICOs operate. However, there is no foolproof way to sustain with the recent initial coin offerings even if investors do their research and track down the ICOs to invest in.
If necessary, the U.S. Securities and Exchange Commission (SEC) is permitted to intervene in an ICO, such as when the SEC has taken emergency action against Telegram and received a restraining order (temporary) after the Telegram development team allegedly engaged in illegal conduct, and by the act raised $1.7 billion in an ICO during the years of 2018 and 2019. In March 2020, the Southern District of New York U.S. Court granted a preliminary injunction. An $18.5 million civil sanction and the repayment of $1.2 billion to investors were both mandated for Telegram.
When considering investing in an ICO, there is no assurance that the investor won’t become the victim of fraud or scam. However, you can follow these to take precautions against ICO scams.
- Make sure the project developers can articulate their objectives properly. White papers for successful ICOs often have simple and clear goals.
- Always seek transparency. Investors have to demand complete transparency from every company that runs an ICO.
- Evaluate each legal term and condition of the ICO. Since there is a lack of traditional regulators, it is the investors’ responsibility to confirm the legitimacy of an ICO.
- It is advised to keep ICO funds in an Escrow wallet. Escrow wallet protects against scams as multiple access keys are mandatory to form and open this wallet.
- This type of wallet effectively prevents fraud and requires several access keys.
You may have to buy more coins to invest in the project since certain ICOs use other cryptocurrencies.
Why is there Immense Hype Around ICO?
The hype surrounding ICOs is tremendous. And there are many internet forums where investors meet to discuss potential opportunities. Some of the most well-known celebrities, including Steven Seagal, have urged his followers or fans to invest in a trending new initial coin offering (ICO).
The SEC previously warned that it was illegal for celebrities to advertise ICOs on media platforms without disclosing the payment they received to do so.
Centra Tech (an ICO that closed in 2017 with $30 million in funding) has previously been endorsed by DJ Khaled and the legendary boxer Floyd Mayweather Jr. The two celebrities reached a settlement with American regulators when Centra Tech was ultimately revealed to be a fraud in court. Three of the company’s founders were found guilty of ICO fraud.
Read also: What are the Essential Things to Know for an ICO?
Before taking part in an ICO, investors looking to invest should become familiar with cryptocurrencies and learn everything there is to know about ICOs. ICOs are not legally regulated, so it is advised for investors to proceed with utmost caution when it involves ICOs.
Concluding remarks
The amount of funding attracted by the ICO remains the most commonly used indicator for the success of companies or entrepreneurs. Organizations are considering issuing tokens as they are assumed to be securities. Because unlike holding a stock of a company (whose products a contributor never used), ironically, tokens can be more tangible than securities. On the market end, token buyers are trying to be more cautious about buying and trading ICO tokens. On the other hand, the cryptocurrency community is putting its best efforts into regulating token sales and conducting due diligence on behalf of the public.
In the end, we’ll advise you if you have an inclination in the crypto universe and are interested in buying ICOs, practice proper precaution before you invest in a company just to be safe.
