![]() ![]() Again, this is done predominantly on Ethereum – many applications use the ERC-20 token standard. The most common practice, however, is to issue tokens on a smart-contract-capable chain. ![]() Once the new chain is live, holders can swap their tokens for fresh ones issued on top of it. In this case, users can buy tokens that are sent to their addresses on the chain.Īlternatively, the blockchain might not have launched, in which case the tokens will be issued on an established one (such as Ethereum). Sometimes, the team hosting it will have a functional blockchain that they’ll continue to develop in the coming months and years. The issuer registers their offering as a securities offering with the relevant government body, which subjects them to the same treatment as traditional securities.Īn ICO can take many forms. Also, this could help them steer clear of any uncertainty. Some companies decide to take the STO route as a way to offer equity in the form of tokens. As a result, the industry has yet to see any meaningful regulation. On the legal side, however, they’re completely different.ĭue to some legal ambiguity, there is no consensus on how regulators should qualify ICOs (discussed in more detail below). Security Token Offerings were once branded the “new ICOs.” From a technological standpoint, they’re identical – tokens are created and distributed in the same manner. The team behind the IEO benefits from increased exposure, and the exchange stands to gain from the project’s success. When a reputable exchange supports an IEO, users can expect the project to have been rigorously audited. This can be beneficial to all parties involved. The exchange partners with the team to allow its users to buy tokens directly on its platform. The key difference is that an IEO is not hosted solely by the project’s team, but alongside a cryptocurrency exchange. Initial Coin Offerings and Initial Exchange Offerings are similar in many ways. Alternatively, they might host an ICO to include a broader range of investors and raise capital for a new blockchain-based product. In this case, a business already has a product or service and issues a token to decentralize its ecosystem. Established enterprises sometimes choose to launch a reverse ICO, which is functionally very similar to a regular ICO. The practice isn’t just used by new startups, though. ![]() What’s more, a lack of cryptocurrency regulation deters many from considering blockchain startups. In the blockchain space, established firms rarely invest in projects on the merits of a white paper. Often, new entrants struggle to secure capital without an already functional product. ICOs can be a viable alternative to traditional funding for tech startups. When ICO investors purchase tokens, they are not buying any ownership in the company. In contrast, ICOs are used as a fundraising mechanism that allows companies to raise funds for their project in very early stages. IPOs usually apply to established businesses that sell partial ownership shares in their company as a way to raise funds. While the name sounds similar to an Initial Public Offering (IPO), the two are fundamentally very different methods of acquiring funding. Since then, it has been adopted by hundreds of ventures (particularly during the 2017 boom), with varying degrees of success. The practice was popularized in 2014 when it was used to fund the development of Ethereum. ![]()
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