There is currently an intense debate going on with the fundraising mechanisms in the cryptocurrency industry. If you are an investor in any of these couple of crowdfunding strategies, you would be totally in a dilemma to choose the one which would be beneficial for your business. This article is intended to answer all your queries regarding the same!
What is an ICO?
If you are in the Fintech industry for a few years, you would probably know about Initial Public Offering. If not, let me explain to you. IPO means attaining funds for the project ideas by selling the stocks/shares in a public stock issuance.
Initial Coin Offering ICOs are a similar strategy where startups and enterprises who are looking to establish a new service will initially look for the desired funds for their venture. In such a case, Initial Coin Offerings can help you with attaining the expected funds for your project ideas.
Here, the enterprises would primarily make an idea and would draft them in a whitepaper. An ICO Whitepaper is a document that consists of a complete set of information right from the technical details of the ICO Token/Coin development project to its Roadmap. Finally, the developed product is marketed and Initial Coin Offering is done. Once the Agency attains the desired funds, the ICO sale is ended.
The investors will receive the cryptocurrency tokens in exchange for their investments to startups. The investors can use fiat currencies, popular cryptocurrencies or tokens to get started.
These business people start investing with the primary motto that, the intended token will remain profitable and the value of the token will uprise in the future years. While most of the companies make use of ICO to get rid of strict regulatory compliances in fundraising strategies. Moreover, launching an ICO is a simple task for businesses since there is an ample amount of platforms that are already available.
Thus, in the year 2017, the term “Initial Coin Offering” has helped a huge number of projects and attained around $6.2 Billion. On the other hand, the year 2018 surpassed the total attained funds compared to 2017. ICOs managed to raise around $7,812,150,041. The major industry was the Network & Telecommunication which alone raised $4.64 billion. However, due to its unregulated nature, most of them suspected ICOs to be fraudulent activities.
Pros of ICO:
Initial coin offerings provide higher liquidity to both its investors and the secondary market in the industry.
Since ICOs are in a decentralized manner, there are chances that a good number of people would start participating in it. The unregulated nature act as an added advantage here.
The team members can make use of their own Blockchains to manage the funds raised and to distribute the token accordingly in an effective way.
You can sometimes get Airdrops/ free ICO tokens and Bounty program during the ICO campaign.
The chance to use ICOs to fund any projects can add credibility to the particular startup as well as their idea. Hence, we can expect a large number of investors to participate in ICO.
Cons of ICO:
Since Initial Coin Offerings are in an unregulated manner, there are greater chances of scams and fraudulent activities.
In the near future, we can expect the regulations to be imposed on ICOs. Hence, regulations can cause a problem.
One common thing in the crypto industry is, the prices are highly volatile. Thus, there are chances that prices may go up and down.
What is STO?
A Security Token Offering, on the other hand, is a blockchain fundraising strategy that allows the customers to buy security assets as well as providing rights for the dividends, shares, and equities. These tokens are traded on cryptocurrency exchanges and fall under SEC Guidelines and regulations. In addition to SEC Guidelines, a Security Token is one that passes the Howey test.
Here is the list of the requirements a token should satisfy for an STO:
The token should involve the installment of money.
There is an expectation of profit from the investment.
The investment of the money is in a common enterprise.
Security tokens are always backed by some tangible assets. This, in turn, helps the investors to prevent falling into the prey to fraudulent business protocols. Since they are classified under the category of securities, they are always subject to the country’s security regulations.
For instance, you have planned to launch STO in the United States, you should provide the following set of details:
A description of your company’s property and business purpose.
A brief description of the security you are planning to offer.
The complete details about your management structure.
Submitting your financial statements confirmed by a reputed accountant.
Therefore, have a legal support team to assist you in this case while starting your STO. Remember, STO’s can be expensive since it has a lot of legal processes you should fulfill. But due to this, most of the investors find it trustable and hence start investing in them for their ventures.
Raising funds with Security Token Offerings have bought a reputable image for the businesses in the crypto industry as they are launch with fully-compliant nature. Due to its regulated nature, they are seen as more credible tokens among the investors.
Pros of STO:
Security token offerings are registered with SEC and are launched with the country’s regulations. Hence, the chances of scams are probably low.
STO’s are completely secure when compared to ICO as the SEC allows the projects that are reasonable and brings profits to the investors.
Security tokens have high value since they are backed by security assets.
Cons of STO:
The entire information about your income is open to the public. Hence you are required to pay taxes.
It is a difficult process for companies to list security tokens on the cryptocurrency exchanges for trading.
It is a challenging task for companies to get approval from the SEC. Therefore, STO’s are held less frequently than Initial coin offerings.
The most popular ICOs & STOs till the date:
As we discussed earlier, Initial Coin Offerings started booming in the year 2017 where almost all the tokens succeeded. The most popular ICOs are Ethereum, NEO, EOS which managed to raise millions of dollars from the investors. Yet another popular ICO was Telegram which managed to raise around $1.7 billion for its project ideas.
Here is the list of other ICO’s which were successful:
It was in the year 2015, IOTA’s ICO was launched. IOTA managed to raise around $ 400,000. When comparing to other ICOs, it hit around $5.69 high. It granted an ROI of around 332,500% for an early set of investors. Moreover, IOTA merges the feature of the Internet of Things (IoT) and Blockchain Technology in a single currency. IOTAs transaction ledger is completely decentralized with zero fee environment.
Stratis is one of the Most Successful Initial Coin Offering for the year 2016. Based in the UK, the platform is compatible with multiple programming languages and enables the business to create, test and deploy custom applications without a need to set up or have own infrastructure. This ICO raised around 1000 bitcoins over a period of just five weeks with raising around $ 675,000. While in the first 5 days, the investors enjoyed a bonus of around 20% at that time.
EOS was the cryptocurrency sold by the Blockchain architecture start-up called Block.one. This Initial Coin Offering managed to raise around $185 million in just 5 days. EOS, which claims to be a viable alternative to the Ethereum network, provides app developers with databases, account permissions, scheduling, authentication, and internet-application communication tools. Its comprehensive ecosystem allows developers to operate seamlessly without worrying about high-level cryptography implementations.
Ark ICO was all about integration and collaboration. The major motto of the currency is to create a complete ecosystem of linked Blockchains with bringing everything together with a great set of use cases. Besides, the project was collaborative and decentralized with a top-notch team of 17 experts hailing from 11 diverse countries. The crowdsale started in November to December 2016 which managed to raise around $950,000. The initial price of the currency while selling was $0.01. While at the time of writing this article, it is around $0.255960.
On the other hand, Security Tokens are also in an uprise. Here is the list of accepted STOs which has gained popularity:
Blockchain Capital had come up with Security Tokens which managed to raise around $10,000,000 from the public. In April 2017, they were able to raise $10 million in just a few hours. It was said to be one of the successful Security Token launched till the date.
Nexo has successfully launched its security token in the first quarter of 2018. Based in Switzerland, Nexo managed to raise around $52,500 million in the crowdsale. With Nexo, borrowers can deposit digital tokens as a guarantee and in turn obtain credits in the form of fiat currencies. Totally, 525,000,000 were sold to its investors it seems.
Swarm Fund is a Blockchain-based STO platform which released its STO token called SWM in the year 2017. Swarm Fund enables its users to tokenize all types of assets such as Agricultural goods, cryptocurrency hedges, and much more. Finally, this SWM token was listed on a multi-currency trading platform HitBTC which is in existence since 2013. The token managed to raise around $5,500,000.
Harbor is yet another Blockchain-based STO platform that is intended to tokenize securities for real-world assets such as Real Estate, Fine Arts, Company Equity, etc. Harbor started its crowdfunding in 2018 and managed to raise around $28,000,000.
With these success stories of STO vs ICO tokens, it is up to you to decide which one can be beneficial for you! If you are looking to tokenize in a secured way, you can move with Security tokens where you will get a compliant security token. If in case you are looking for liquidity and profitable token, ICOs can be a better choice since the value of the token could increase. Though most of the experts predict STO can be the only future, ICOs are evolving gradually and we can expect them to turn around soon!
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