ICO Pools — what are they? (and how do they differ)
We look into what exactly ICO pools are, how they work and how they differ from each other. So let’s dive straight in and answer our first question:
What are ICO Pools?
Let’s start with the first word in question here: ICO. It’s essential to understand what an ICO is, before we can understand what the pools are.
In basic terms, it stands for “Initial Coin Offering” (in the same way IPO stands for “Initial Public Offfering”). That’s the easy part. But ICO has come to mean different things, and the waters have been muddied by financial conduct regulations that restrict how companies can and should refer to themselves and to the way in which they are raising money.
So what can ICO mean?
- Its original meaning: the sale of a newly created cryptocurrency (coin)— one that sits on its own blockchain.
- A token sale: A sale of a company’s newly created cryptocurrency token — one that sits on another coin’s blockchain (normally Ethereum).
- A proper noun: The company that is raising money through the sale of its token will often be called “an ICO”.
Normally the sale will take place in a series of rounds in which the coin or token becomes increasingly less discounted (or with an increasingly smaller bonus). This whole process often termed “the ICO”.
But ICO has become a bit of a dirty word.
It has been associated with exit scams (taking the money then running) and with selling the coin as a security (a share in the company) without getting the proper permissions for doing so. So what you’re terming an ICO, the company running it will probably be calling something else (Initial Token Offering, Security Token Offer, Token Asset Offering, Digital Asset Offering). But in common parlance, and in the context of pools, they’re all ICOs.
So, where do the ICO Pools come in then?
Remember we said that the sale of the token or coin will normally take place in a series of rounds? Well, let’s take an example token and look at how those rounds might work:
- Round 1: The “Private Sale” — it’s all very hush hush, but certain people in the know can buy the token at, for example, 1 token = 0.5 ETH. They’ll need to buy a minimum of, let’s say, 100 ETH’s worth though.
- Round 2: The “Pre Sale” — it’s now public knowledge but you’ll need to be whitelisted to buy during this phase. Our example tokens are now selling for 1 token = 0.75 ETH.
- Round 3: The “Public Sale” (or Crowd Sale) — it’s public knowledge and anyone can get in (KYC dependent, normally). Now 1 Token will cost you 1 ETH.
Which of these rounds would you most like to buy in at? Yes, us too: Round 1. You’re getting the best deal on your tokens, but there’s a catch — that minimum buy-in. That’s where the pools come in. Everyone pools their money, the group buys in at the private sale stage, and everyone splits the tokens according to how much they put in (with a small % commission for the pool). And you can even get in on sales that may never even reach a public sale.
So what are the different types of ICO Pool?
Let’s break down the different types of ICO Pool currently out there.
- Registered syndicates. The concept of investors pooling funds and resources is not a new one. Traditionally, they are called syndicates and will normally be registered entities with accredited investors. Nevertheless some are now pooling their funds to take part in ICOs (or ITOs, STOs, TAOs, DAOs etc) and they should be considered by any company looking for token investment. But remember, ICO is a dirty word, so don’t call them ICO Pools to their face!
- Unregistered syndicates. Most of the ICO Pools currently out there are not registered with the financial authorities. Some people term them illegal pools. Yet many ICOs are not offering security tokens, but utility tokens. A utility token can be considered more like a pre-order of a product, and as such most consider that it is not subject to the same legal requirements as a security. And so groups that pool their resources to purchase these tokens at pre-sale stage are not necessarily acting illegally. They may or may not contain accredited investors.
Within these two types you will find:
- Private groups. These will not have an open forum via which you can join the group, you will need to find these pools by making contacts in the crypto world, either face-to-face at meetups or conferences or online by joining communities and interacting.
- Open groups. These groups are open to new members, either just by joining their online community (telegram, discord) or by applying via their website.
And within those two, there are many other flavours and differences, including:
- Groups that support KYC. Many of the current groups do not require participants in the group buy to complete any KYC (Know Your Customer) procedure and will openly proclaim that as an advantage of pool participation. Others, a minority, do support it and consider working on the right side of the regulators as being their advantage.
- Groups that hide the fact they are pooling funds from the ICO. They will present themselves as a single investor to get around any issues or requirements that the ICO may have.
Now you know what the pools are and some of their subtleties, why not join a few and continue your research there? We have spent many hours reading through their community chats on telegram and reading their websites, and nothing beats first hand experience like that. To find the pools, you can read the second article in our series (linked below).
Articles in this series:
- ICO Pools — what are they? (and how do they differ)
- How to find ICO Pools (even the hidden ones)
- ICO Pools — what do they look for in a token sale? (and how to pass their tests)
- ICO Pools — what’s the best way for a startup to make contact? (and what to avoid)
- The 10 best crypto portfolio tracker apps (nice in-depth read)
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