A Quick Look at Various Fundraising Mechanisms in the Cryptocurrency Space

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HackerNoon.com

6 min readMay 14, 2019

First things first, the terms ‘coin’ and ‘token’ are often used alike. The line between coins and tokens is not clear and sharp. Both are used to transfer value, as a means of payment, in a similar way to that both USD and shares are used to reward people for work.

A coin is a means of payment, a money equivalent, something that defines value and serves as a value transfer. Coins tend to take the form of native Blockchain ‘tokens’ like Bitcoin (BTC) or Ethereum (ETH).

A token has wider functionality such as to hold votes by the community on key business decisions and may deliver value to investors, beyond speculative returns. Tokens are not a currency and generally hosted on another Blockchain.

Now to the main topic — Token offerings are new ways of raising funds used to start up a business, or for development and expansion. A company can create a new token, coin, app, or service and launch a private and/ or public sale via the digital asset. Interested investors can buy into the offering, either with fiat currency or with other preexisting digital currencies like Ethereum. In exchange for their investment, investors receive a new cryptocurrency token specific to the project which they support. The company or startup uses the raised funds as a means of furthering its goals, launching its product, or expand existing businesses.

This new way of raising funds, allows existing companies and startups to bypass the rigorous and regulated capital-raising process required by venture capitalists or banks and opens up investment opportunities to a broader investor crowd by enabling small or fractional sales to virtually everyone, democratizing investments.

ICO

The Initial Coin Offering is a method of fundraising, where a company which is looking to establish a new product or service will look for outside investment to help fund their venture. The company running the ICO will do this through various forms of marketing. In exchange for their investment, the investor will receive a certain number of cryptocurrency coins or token that are unique to the ICO. Investors can either use traditional, fiat currency or other tokens. Investors buy into the project with the hope that the value of the token will increase from the base price, and later sell for a profit. Other coins might not be of such speculative nature, but fulfil a certain utility and role within a project.

Some use the term ‘reverse ICO’ as a method of fundraising specifically for existing companies. There is almost no difference to ICO, simply — not a startup, but an established company selling tokens to interested investors as a way to accrue additional investment or to help launch a new, Blockchain-focused branch.

STO

The Security Token Offering is a method of fundraising through a crypto ‘security’ token which can entitle the owner to either a share of the profits of the business, a stake within the business itself or some other form of reward in exchange for their own money.

In theory, we can tokenize everything that ever existed on traditional platforms, ie. real estate, government bonds, public equity, private equity, startups in their seed stage, votes, diamonds, gold, commodities, etc.

IEO

The Initial Exchange Offering is a method of fundraising, whereby a project gets listed on an exchange directly without going through an ICO. The exchanges host the offering and funds can be raised through the exchanges user base. The coin exchange listing, which is a separate process in an ICO, is mostly guaranteed shortly after the IEO sales period. Examples are BitTorrent, Fetch.Ai, and others.

IFO

The Initial Fork Offering is a method of fundraising, whereby an existing Blockchain ie. Bitcoin is ‘forked of’ the main chain, trying to improve the protocol. The fork-resulting new coins, are in principle, free. The thesis goes, that if enough people receive it, they will start to trade it, then it eventually increases in value. The project owner ultimately can sell their own (often pre-mined) coins into the market and raise funds. Examples are the various Bitcoin forks such as Bitcoin Cash, Bitcoin Diamond, and many more.

IAO

The Initial Airdrop Offering is a method of fundraising very similar to IFO. Newly created project coins are ‘airdropped’ (distributed) free to targeted participants wallets. Often certain criteria apply in order to receive the ‘free money’ such as pre-holdings of particular other coins or participation in marketing activities for the projects (which then, makes it a bounty). Same as IFO, assuming peoples interest in the project leads to trading the coin, potentially resulting in value appreciation — the project later can sell their coins to raise funds. Examples are Polymath (POLY) and Bitcoin Cash (BCH)

DAICO

The Decentralized Autonomous Initial Coin Offering is a method of fundraising, which incorporates some beneficial aspects of a Decentralized Autonomous Organization (DAO), some sort of digital companies with certain rules smart-contracted on the Blockchain, making their management transparent and auditable. The DAICO concept adds a dimension of accountability towards the project team. Instead of releasing all the raised funds at once to the project owner, the contributors are empowered to make investment funds available in a more controlled manner, via a consensus mechanism, voting how many funds they want to release to the project team on a periodic basis. An example would be The Abyss, a gaming platform with versatile social features and earning opportunities, designed to be your sole gateway to MMO games universe.

ETO

The Equity Token Offering is a method of fundraising, whereby investors receive actual pro rata ownership of a company, including voting and dividend rights (depending on the share type). This equity-crowdfunding mechanism allows for “off-chain” companies to issue part of their shares via a blockchain platform. Shares in private equity and seed-stage startup companies now become available to an international investment crowd, to everyone. And ETO is a form of a Security Token Offering since equity is categorized as a security.

UTO

The Utility Token Offering is a method of fundraising, similar to ICO, whereby the token or coin has a clear utility. Honestly, not heard about that before, and probably a way of a cheeky project owner to avoid getting checked on security vs utility of their coin/token. Ultimately, being categorized as utility allows a less-stringent way of raising public funds from a regulatory perspective.

ICCO

The Initial Convertible Coin Offering is a method of fundraising, whereby a ‘tokenized convertible warrant’ will be regulated by a prospectus which is to be approved by a public authority. These projects are subject to stringent rules, and its issuance will hand investors the right to convert these tokens into companies shares a certain defined time after they are issued. An example would be Malta-based Palladium.

ATO

The Asset Token Offering is a method of fundraising, whereby the income generated by the assets will be converted into services or products. The public can purchase in advance, to participate in ie. property development. The assets will be supervised by a third-party to ensure that the project develops and operates as scheduled. Examples of assets that can utilize ATOs are Real Estate, Intellectual Property, and Accounts payable and receivable

DSO

The Digital Security Offering is a method of fundraising, where investors receive ownership of an interest in real estate, either directly or indirectly, implemented on a Blockchain in compliance with securities laws and regulations. An example would be Fvndit, Vietnam-based online Peer-to-Peer (P2P) funding and investing marketplace in Vietnam for SMEs.

IPO

The Initial Public Offering is, what is getting disrupted in this new age of digital asset tokenization, with lower fees, less-stringent execution, broader investor pools, suitable for Startups, shorter fundraising periods, more efficient contract management, higher and faster liquidity.