The ICO stage is a new trend in the field of investment, the birth of which is inextricably linked with the development of the institution of digital assets (cryptocurrency). The term is just an abbreviation of the original Initial Coin Offering – “initial coin offering”.
In other words, ICO – a peculiar form of raising finance for all kinds of digital products and projects. To date, the ICO is at the peak of its popularity, but its legal status remains uncertain. Many states are trying to work out clear rules of the game for this developing area, or to adapt to them already existing laws and regulations.
Why do projects conduct ICOs?
By issuing their tokens or exchanging them for popular cryptocurrencies (bitcoin, ether, etc.) or fiat currencies (euros, dollars), the project team thus seeks investment capital, which is essential for the full launch of the entire conceived technology, system or web platform. Traditionally, the ICO takes place at the earliest stages of project development, even before the deployment of its global infrastructure.
The capital raised in an ICO is used to financially fuel the product or technology being developed, for marketing purposes, or for backup funds for future support of other startups.
Is there a similarity between ICO and IPO?
When a corporation or firm is ready to provide its own shares to the public, it launches an IPO round. An ICO can also function in a similar way: all investors who invest in the project receive their “part of the company” in the form of cryptocurrency. At the same time, the tokenseal also has similarities with the classical crowdfunding: the finances are usually concentrated around the implementation of a single idea, that is, at the stage when the developers have not yet prepared the final version of the project.
But at the same time, the IPO process is officially regulated by the laws of some countries (for example, the U.S., where each company wishing to sell its shares must register with the National Securities Commission and be incorporated as a JSC (joint stock company).
What is the legal status of an ICO?
It is difficult to call an ICO both a legal and an illegal way of obtaining financial investment. Its status in terms of law is not officially defined in any country in the world. After all, it is very difficult to accurately determine the legal nature of the relationships born during an ICO round. Since it is impossible to consider ICO as traditional relations in the sphere of finance. On the other hand, we should not forget that behind the ICO stands the business reputation of people and the potential trust of future users of the web product.
Why do investors invest in ICOs?
When analyzing the list of current ICOs, investors first of all count on:
To reap tangible benefits at a higher rate in the future (a traditional example is Ethereum, whose tokens at the ICO stage in 2014 were equal to less than 1 U.S. cent, and have now surpassed $350);
To use tokens for their intended purpose, getting some stated services at a minimum price;
What are the risks when investing in ICOs?
The main risk is to be deceived by fraudsters, who, when creating the project, have only one goal – to get investors’ money. On the other hand, since the activities of the ICO are not regulated by any legislation, investing money in a startup investor can only rely on his trust in the project team. No one gives a guarantee that the project can “survive” to the stage of full implementation and will not disappoint the investor in the course of its development.
What should you pay attention to when choosing an ICO?
The presence of a complete list of all the agreements and rules, which can be found on the official website of the developers;
- The ready layout of the future project;
- Technical documentation;
- The official registration of the company;
- A good reputation of the project team, as well as the selected advisors;
- The presence of an escrow, where the entire amount of money received from investors at the ICO stage will be stored.
What are some examples of successful ICOs?
The success or productivity of an ICO is a very tentative indicator. But in practice, a rough indicator of ICO success is the amount of funds raised.
According to this indicator, the Telegram startup is the leader so far, which was able to attract $850 million! You can also highlight the project of a new web browser Brave, which literally in half a minute has raised about 35 million dollars!
An Initial Coin Offering (ICO) is a type of crowdfunding using cryptocurrency. An ICO is an offering that allows startups and established businesses to raise capital by giving investors a stake in their project. ICOs are typically used to launch and promote new cryptocurrencies, but can also be used to fund a variety of projects such as software development and other business ventures. During an ICO, investors purchase tokens, which represent a stake in the project and may be used to purchase goods and services on the platform. The value of the tokens is determined by the amount of capital raised during the ICO. While ICOs provide an opportunity to raise capital, they also represent a risk to investors as the success of the project is not guaranteed.