Introducing The Institutional ICO: Wherein Rivals Become Benefactors
In a recent post, howtotoken co-founder Kirill Shilov observes how institutional investors now comprise the lion’s share of net contributors to the fundraising event that used to be all about summoning the largest crowd you could find online:
According to a variety of reputable reports (Cryptovalley, Icorating, Tokendata, Grayscale), one can see that the trend currently sits at around 60% institutional investors and 40% retail, with the market shifting further towards institutional every quarter. With nearly 84% of the total funds being raised through private and presales, it should come as no surprise that the ICO marketing game is changing.
The observation jibes with a similar opportunity my team and I noticed recently when we enquired about listing on the smart contract-enabled AI exchange Bancor. Given that the process is still ongoing, I will avoid here the irritating tendency of Blockchain entrepreneurs to self-promote in the same circus as journalistic integrity is supposedly taking place, which means I won’t name the project or the tokens that are about to be listed. The process by which we chose to undertake our capital raising and listing is one that is worthy of mentioning here, however, especially in light of the recent chatter around institutional fundings. It leads to a potentially game-changing conclusion: entrepreneurs, far from being each other’s bloodless rivals, may in fact be each other’s sources of real power.
We dubbed our process internally “the Institutional Initial Coin Offering”. What we meant by that of course was that the ICO was only made available to institutional investors. Who might those be? Well, there are the obvious candidates of course, including venture capital funds, private family offices (usually among Blockchain aficionados that’s just a fancy name for rich friends’ deep pocketed generosity) and of course, grants (wherever they are available).
In the case of Bancor however, their listing process, we found, immediately includes another party among the institutional players: other cryptocurrency projects. Bancor, unlike most exchanges, doesn’t accept payment by way of listing fees to get you up and running on its network. Because Bancor’s core value proposition is that it is always liquid, no matter what, it’s more important for the guys that a project that lists on its network has ample funds available both buy- and sell-side. Thus, Bancor asks that a prospective listing project “stake” a certain minimum required amount of two types of tokens: its own and your own. This gives the available liquidity plenty of run-room for traders looking for cool crypto bargains and assures the platform’s users of finding projects with ample funding.
We saw the immediate opportunity in this as being one whereby, to accumulate enough of Bancor’s tokens, we could simply offer our own around the market to the other projects listed on the platform and use a portion of the tokens raised in this way to purchase Bancor’s token. In this way, offering our token to swap for the token of the other projects on the platform contributes to what is in effect enough liquidity on the buy-side (i.e. Bancor’s tokens) to justify the listing we privately agreed with the exchange.
We recently begun this process to some quite astonishing effect. Suffice it to say that demand for the exchange of our tokens with the tokens of other projects on the network has been better than expected. Once again, in line with the observation that self-promotion in ICO circles is about as welcome as the sound of a drill in the drainpipe next door, I will refrain from offering details. But this was an easy trade to make for all parties involved. It was in effect a pure win-win, especially given that we offered a valuation premium on the other project’s tokens in return for our own (it is us doing the asking, after all).
The way we worked this was to present the offer so that for the other projects on the network, our token offering in effect constituted an opportunity to pay for our tokens in the form of their own tokens (which cost them nothing at all to manufacture in the first place) with a mark-up on the net market value. So, for example, we might give $100,000 of our tokens in return for $80,000 of theirs. For Bancor this will mean another project coming to its marketplace with ample liquidity in place and great community support.
For us, the Institutional ICO means a successful token capital raising exercise and consequent listing without the hassle of rightfully draconian retail investor marketing prerogatives and burdensome lack of sophistication incurred in dealing with private investors who expect one million percent returns in a day. In fact, for security tokens, such offerings make tremendous sense, as one doesn’t need to bother with any of the usual regulatory junk since all one’s investors are institutional counterparties, for which there are no requirements as per fundraising is concerned.
While ICOs began life as a retail crowdfunding exercise then, they may ultimately become something rather different. That is to say, they may be best suited to being institutional-only offerings, whereby startups support startups in the quest to get beyond the stages of starting up.
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The purpose of ALTCOIN MAGAZINE is to educate the world on crypto and to bring it to the hands and the minds of the masses. This article was written and composed by Daniel Mark Harrison on ALTCOIN MAGAZINE.