ICO is a method of raising funds in an unregulated environment. For instance; a start-up sells a fraction of the cryptocurrency tokens to the people who have supported the project in the first phases. They basically gather the funds in fiat currency forms such as US dollar or Euros and also could be cryptocurrencies such as Bitcoin. In order to explain the project itself, the start-up team prepares and presents and whitepaper where all the details of the project is explained and the purpose of the project. Furthermore, the whitepaper clarifies why a crypto token is needed, the project roadmap as well as the essential fund to fully complete the project.
Here are some other points the whitepaper clarifies:
· Details the project management
· The timeline for the ICO
· The acceptable currencies in the ICO
· The percentage of crypto token to be sold in the ICO
· Allocation of the remaining tokens
· Whether they are planning a private sale ahead of the ICO
So; when the project has received at least the minimum desired amount during the ICO, it is taken to its next level; completion. If in any situations, the project team was unable to gather the minimum amount, they return back to investors. Let’s outline the advantages and disadvantages of ICO’s.
Advantages of an ICO:
· Positive network effect
· The project can potentially raise funds in a much easier manner since there is no entry barrier
· The team members use their own blockchains to manage the funds raised and to distribute the token accordingly in an automated and simple way.
· The marketing is solely digital by using the company website, social media, various messaging apps and other online forums.
· It is also beneficial for the investors when the crypto becomes popular, creating more liquidity to them.
Disadvantages of an ICO
· Uncertainty of the possibility of the product to be finished and ready as stated in the whitepaper.
· Crypto market is highly volatile due to it’s nature.
· The ICO’s are not officially regulated by the officials so the potential investors do not have legal alternative if funds are lost.
· Regulations can potentially cause problems
So What is STO- Security Token Offerings?
STO is similar to ICO in a way that it allows consumers to buy digital coins or tokens as a part of a public offering. However, unlike many ICO’s; STO’s are the sale of tangible securities such as assets, profits or revenue of the start-up. Let’s outline the advantages and disadvantages of STO:
Advantages of an STO:
· STO’s are actually registered with the (SEC) Securities and Exchange Commission.
· More secure compared to an ICO as SEC only allows projects that are reasonable and serious about the aim.
· The market experts are highly confident as the predicted market cap is $10 trillion by 2020.
· It emphasizes the ongoing trend
· The security tokens from STO’s are expected to be traded on Alternative Trading System, with broker-dealers, which are also supervised by FINRA.
In conclusion, it can be said that both the ICO and STO’s are raising the potential of more blockchain projects to succeed as funding is generally the critical obstacle standing in the way of their potential and success. I believe that the STO concept is a powerful idea; as it helps the blockchain project to be aligned with the government regulations and even have the potential to end the ‘’conflict’’ between the regulators and the blockchain community.