What is a reverse ICO?
Trends are always changing and the latest one to hit the crypto scene is the reverse ICO? What is that you may well ask? Read on and find out.
The clue is obviously in the name, but how to interpret ‘reverse’ can be a stretch. As we know, an ICO raises funds to take a project forward. Most ICO projects don’t have a working product before they ask for funding: they have the concept detailed in a white paper, a website and social media channels.
ICOs have been a huge success, because they allow everyone to be involved rather than only permitting qualified investors to enjoy the party. They really have been a case of returning power to the people.
Obviously, we all know that there have been some downsides to ICOs, with fraudsters taking advantage of the excitement the sector has generated worldwide. As a result, some companies have decided to use a Security Token Offering, which is regulated.
But, others are opting for a reverse ICO, which basically means doing the fundraising after the product is built. This has more appeal to already established companies rather than startups, and it is easy to see why it would give investors more confidence: the product already exists and has been proven to work.
One area where reverse ICOs are gaining traction is in the energy industry. For example, Solo Energy and Sun Exchange are both asking for funds now, — several years after establishing their businesses — so that they can build on what they’re already doing. The CEO of Solo Energy explained the company’s reasons at the World Blockchain Forum, “We’re holding our STO now to raise funds to build our virtual power plant system. So, we’re investing funds from the STO raise to directly into battery storage assets to build this virtual power plant system.”
A reverse ICO offers a number of benefits, including the reassurance that the product works, as previously mentioned. The company you are investing in can also demonstrate use cases, show it has a solid team and a user base, as well as being able to indicate how fast product adoption is likely to be.
This doesn’t mean that investors don’t need to do due diligence on the token offering, as the company offering it may not know everything about tokenisation and this could lead to problems down the road. Still, it looks like we will see more of this trend into next year. What do you think about reverse ICOs?