An initial coin offering (ICO) is a kind of crowdsale. In an ICO, the startup provides digital tokens that are being sold to its members during a crowdsale. This is used when trading for a cryptocurrency like Bitcoin or Ethereum. When the startup achieves its fundraising goal, the tokens are instantly distributed to the members in the sale. In case the company has not met its objectives, the participants get their funds back.
The creation of the new tokens may vary for each startup that releases an ICO. However, the created tokens should promote some utility for a new firm. This is where the crowdsale participant can use the token for future use when purchasing products, access the tokens’ features or negotiate with the startup. These new tokens are not considered as shares. Crowdsale members do not get equity in the new firm.
ICOs work well using the blockchain technology. This technology safeguards the digital tokens from potential forgery and spending twice. Although new, ICOs are now popular worldwide. In 2017, ICOs developed more startup funding than early and seeded venture capitals. Startups have generated millions of dollars in a brief period using ICOs. The new fundraising system has been effective like Indiegogo, which has been one of the popular ICOs developed.
Once the ICO is launched, most firms want to include their new tokens on several cryptocurrency exchanges. This enables more prospects to purchase and trade in the token. In the process, this builds a growing demand for the product you are promoting.
In case your ICO has a reserve of tokens created for development when your tokens are listed on exchanges, this makes it more valuable. Also, it increases your development fund’s value.
Negative Thoughts About ICOs
ICOs can help generate tens or hundreds of millions of dollars for your startup. The company builds a community of enthusiastic token holders following your ICO. These people are excited to see your company grow. However, the ICO has its drawbacks.
Technical skills. Launching an ICO needs vital technical expertise. Developers use blockchain technology for creating new tokens. They use software like those of Bitcoin or Ethereum. They include the received total funds and distribution of the new tokens after meeting the fundraising goal. Ensuring all these funds secure and separate needs expertise in ICO development. That technical background is quite limited for several developers who can handily work on a safe ICO environment.
The misconception of the risks of ICOs. One drawback is that investors are shelling out their money to a product that remains inexistent. Until a platform is built where the new token is used, the token is digitally worthless. Venture capitalists are aware that investment can become zero. They execute extensive due diligence regarding the team, concept, and overall market trend in the process.
However, ICO members oftentimes may feel less secure. Most of them conduct limited due diligence before supporting a project. With this, there are several scams in the ICO sphere. Aside from potential scams, anecdotal evidence highlights that in most cases, startups neglect to develop the products they initially promised following the ICO.
When seeking for institutional legitimacy for your startup, this can be a major drawback. There is a perception issue for ICOs after establishing a reputation for bringing some fraudulent tokens. Legit firms with good intentions can develop an ICO. Many may have created it. However, most firms looking for legitimacy are staying away from ICOs at this period.
The ICO bubble. In general, ICOs also experience economic problems. Currently, they are in a bubble. For many ICOs, in any concept or team behind them, generate money and appreciate it after the release. Although it is like great news for your startup, as they get funds, the challenge is brought by the volatility of the bubble-driven market. Your token value may fluctuate unexpectedly. Also, it may change for no reason at all. Instant rise and fall in value are common. Tokens can face wild swings in just a few hours when you least expect them.
With many previous scams in tokens in the past, coupled with a volatile market, securities regulators worldwide are taking initial steps for the crackdown of ICOs. As cited, smart regulation is necessary for the ICO ecosystem. It could turn the market less volatile and reduce cases of scam ICOs. Also, this provides increased ICO legitimacy as a fundraising approach.
The key factor, based on U.S. and EU regulators, is whether the token being sold is an asset that members expect will increase in value. If this is the case, then you are selling security and subject to all regulations about the stock markets. However, when selling a utility token that members can make use of when interacting with your firm, then your ICO becomes a crowd presale for the tokens. To have a compliant ICO, you need to create a compelling case for using your digital tokens within your startup.
Putting Your ICO to Good Use
Introducing an ICO needs foresight. Plan your company’s timeline and roadmap. Identify your startup details, along with its products and services. These details are usually in the white paper for review by the participants in the crowdsale. Also, creating a buzz within your ICO takes some effort. Consider strengthening your PR strategies and advertising to get your brand more visible in the crowded ICO marketplace.
Hire a developer who has expertise in developing ICOs. The skilled developers will have a thorough background in boosting the entire ICO process. This involves putting your new token cited on crypto exchanges.
New Funding Platforms
These days, enterprises are introducing innovative funding platforms that can help them to raise funds worldwide for their projects. They want a low-cost and easy-to-manage platform. AladiEx is a promising platform that enables global entrepreneurs to make an investment easily for their businesses and manage their assets using sophisticated tools for microloans and crowdfunding.
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