Are ICOs Still Relevant ? And How To Contribute To Promising Projects ?!
Definition of ‘Initial Coin Offering (ICO)’
For most companies, there are a few ways of going about raising capital funding. A fast-growing company can plough back profits but it’s often insufficient for rapid expansion. Alternately, companies can look to external investors for seed funding, but this often comes with the trade-off to giving up a significant ownership stake. Selling shares through Initial Public Offerings (IPO)s require costly and lengthy compliance and regulatory hurdles.
Akin to an IPO in the cryptocurrency ecosystem, Initial Coin Offerings (ICO) has been tremendously popular for the last two years as they allowed projects to raise funds easily compared to traditional financial institutions. These projects ranged from new blockchain protocol, new digital assets, cryptocurrency exchanges, or a decentralised applications. Contributing Bitcoin (BTC) or Ethereum (ETH) to promising new projects in addition to FIAT (national currency) was commonplace for projects.
In exchange for their support, investors receive a new cryptocurrency token specific to the ICO. For a brief time, many tokens performed exceptionally well out of the gate upon listing on crypto exchanges.
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Investors reaped previously unheard-of returns on their investments. By forgoing the intense scrutiny often required when raising large sums of funds, ICOs provide start-ups with the funds to accelerate their cause. But ICOs were also exploited by savvy swindlers to separate crypto enthusiasts from their hard-earned money.
Below, we’ll explore The Basics of an ICO, beginning with an overview of the ICO process itself before conclusively deciding whether they are indeed beneficial to the community; or are they to be blamed as for everything that has befallen the blockchain ecosystem in 2018.
The Basics of an ICO
When a start-up wants to raise money through an Initial Coin Offering (ICO), it starts with a white paper to detail the plan and structure of the project, and a soft- and hard-cap of how much funds is required to kickstart the project. The founding team’s allocation of tokens is also indicated along with the general outline of spending distribution.
During campaigns, private and pre-sale investors will first take a chunk of the tokens at discounted rates before they are offered to the public. These tokens are an acknowledgement of a stake in the project. The token price on exchanges often has an anaemic correlation to the performance of the project to tick off milestones on their roadmaps. Tokens are not equity, thus token holders are not considered shareholders even as they have a vested interest in the project. There are instances where refunds are made when an ICO is deemed unsuccessful.
The ICO style of crowdfunding has been extremely lucrative to many projects during the halcyon era of late 2016 and early 2017 and many projects were oversubscribed, and their prices rode out of the gates like thoroughbreds upon listing on exchanges. Donations of this sort have made ICO punters a pretty profit while lining the coffers of project owners with ETH that also spiked in price given that they were the cryptocurrency of choice desired during the fundraising process.
For the uninitiated, ICOs have key differences from IPOs. First, there are no regulating authorities to date that have standardised a method on how the process is conducted, thus alluding to the decentralised nature that in many instances are guises for disreputable feats of daring-dos and other misadventures. Second, its extremely fluid nature of fundraising has given rise to huge transfers of funds in crypto without circumspect. And yet, it’s undeniable that for viable projects with a clear path to fruition, it cuts away many of the bureaucratic obstacles to getting down to business.
ICOs can be structured in a variety of ways. In some cases, a company sets a specific goal or limit for its funding, which means that each token sold in the ICO has a pre-set price and that the total token supply is static. In other cases, there is a static supply of ICO tokens but a dynamic funding goal, which means that the distribution of tokens to investors will be dependent upon the funds received. And that the more total funds received in the ICO, the higher the overall token price. Still, other ICOs have a dynamic token supply which is determined according to the amount of funding received. In these cases, the price of a token is static, but there is no limit to the number of total tokens, save for parameters like ICO campaign duration.
What’s in it for the Investor?
In the case of an ICO, there is no equity to speak of. In most cases, investors pay in the aforementioned BTC or ETH and receive a commensurate number of new tokens in exchange. It’s worth nothing once again just how easy it is for a company to launch an ICO to the point of saturation and subsequent failure of new projects to raise funds in a similar manner given the dearth of liquidity. Investors should keep this in mind that a token has no intrinsic or inherent value.
Early investors in an ICO are usually motivated by profit and they plan to sell the tokens once they can lock in their gains on an exchange. The value of the tokens they purchased during the ICO climbing above the price set during the ICO itself with the oft-mentioned x10 or x100 returns accompanying battle cries of “When moon?” and “When Lambo?”. That has not been the case in recent months as cautious investors have stayed away from the feeding frenzy and many projects have seen their token price plummet with intervention required to main both price support and healthy order books.
How to Find ICOs
Despite what has been the recent predicament of new projects joining the fray. There are gems and diamonds in the rough should one be motivated to dabble in ICOs of underrated projects looking to genuinely jump-start a legitimate game-changing idea.
First, familiarity with the cryptocurrency space is a must. Including headlining teams of new projects and their credibility based on past industrial experience. Next comes getting some skin in the game by loading up on a war chest of Bitcoin or Ethereum to contribute to worthy projects by having a cryptocurrency wallet. This is how it can be done on Dobi Trade:
1) Sign up at Dobitrade exchange www.dobiexchange.com
2) Stock up on the base cryptocurrency you’ll need in order to buy into a promising ICO (ETH or BTC). This can be done by OTC (Over the Counter) trade on Dobitrade exchange or other OTC platforms.
3) Transfer your holdings to a digital wallet which supports them. The most important thing, in this case, is to make sure that your wallet will hold cryptocurrency compatible with the ICO (i.e. if the ICO requires payments in ETH, your wallet must be ERC20 compliant).
4) Be certain that you only click on links of the official communication channels of the ICO project including its website and social media platforms. Read through the whitepaper, the terms of the ICO, and any other information that you can. When you’re ready to begin, look for buttons to “enter the token sale” or “participate now.”
5) Register for the ICO. In order to do this, you’ll need to provide your public wallet address as well as other relevant information.
6) On launch day, follow the site’s instructions to buy into the ICO. In most cases, this will involve transferring ETH from your wallet to the ICO’s public address. In return, you’ll receive some of the ICO’s cryptocurrency. Keep in mind that there are small fees for transferring cryptocurrencies like ETH.
7) The ICO will send the new token to your cryptocurrency wallet. Depending on the wallet, you may need to add the token to the wallet itself so that you can send and receive them.
8) Either hold onto the new token trade them on reputable cryptocurrency exchanges such as DobiTrade. .
ICOs are still a time-proven method or fundraising in the burgeoning crypto scene that has been its fair share of innovation and upheaval. The key is to have a discerning eye to go along with a grounded information gathering process before investing. Of course, instinctive investing based on past experience is also necessary and we always advocate never investing more than you can afford to lose.
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