Anatomy of an Offering — How Does an ICO Work?
The SURE token crowdsale is only a few months away! This article goes over some things to consider when taking part.
2017 was The Year of the ICO. Before last year, Initial Coin Offerings (ICOs) were an esoteric fundraising technique that most ambitious startups wouldn’t consider. In 2017 alone, however, US$6.1 billion was raised by the initial offerings of various startups. While only 48% of ICOs got off the ground, those that saw success raised an average of $1.2 million.
The success of last year has encouraged hundreds of startups to implement blockchain technology in their enterprises. As of June this year, the total YTD funds raised in ICOs stands around US$5.85 billion. While this increase in revenue is likely accounted for by the total number of ICOs that have occurred this year (already 916 vs last year’s total of 872), the year is still likely to prove very lucrative for crypto investors on the lookout for hot ICOs (https://www.icodata.io/stats/2018).
This article will examine how an ICO works, why so many businesses are opting to have their own, and some important things to keep in mind as an investor or issuer.
Types of ICO:
ICOs come in many forms, but there are two variables than the issuer can consider.
Firstly, they can be capped or uncapped. Capped ICOs have a ceiling on the number of tokens to be sold while uncapped ICOs will gather as many funds as possible while the ICO is occurring.
Next, coins can be sold at a fixed price determined by the issuer, or they can be auctioned. The benefits of auctions mean that a fair value is set in market-like conditions for the token, and investors have more agency in their purchase. These aren’t common though. Most startups lean towards fixed-price offerings.
These variables account for four ICO structures: Capped with fixed price (known as First-Come-First-Served (Capped FCFS), uncapped with fixed price, capped auction, and uncapped auction.
There are two more variants that should be mentioned. First is a capped offering with redistribution. In this model investors elect how much they are willing to spend, and the issuer allocates the tokens based on the total amount pledged by investors. The last method is the capped offering with a parcel limit. This is identical to the capped FCFS system, but there is a ceiling on each transaction, meaning that at most each investor can purchase a set number of tokens.
So the six main ICO styles are:
1) Capped FCFS
2)Uncapped offering — fixed price tokens
3) Capped auction
4) Uncapped auction
5) Capped redistribution offering
6) Capped parcel limit offering
The method chosen by a given startup usually depends on their objectives, which can vary from project to project.
Objectives:
Fundraising:
Primarily, ICOs are an opportunity for small companies to finance the development of their innovation. In the case of SURETY.AI, the tokens we are distributing are aiding the development of an insurance platform that aims to reform the market. While you’d think that choosing an uncapped structure would be obvious for startups aiming to generate capital, the capped model has been far more common. This is probably because too much funding could not only decrease the value of the coin, but also put heavy expectations on the teams developing a product. Making so much money so early can put a lot of unnecessary pressure on a small startup, so raising just enough is usually the best option. It also allows for companies to be explicit with their fund allocation and generate trust between business and investor.
Wide Token Distribution:
Startups often aim to spread their token as widely as possible, in order to maximise the decentralization of their application. Having more token holders equates to having more nodes in the blockchain, which improves overall functioning of the service. This, in turn drives the value of the token up, and creates an organic, sometimes worldwide community of supporters who want to see a project succeed.
Determining a Fair Value:
An ICO allows for the natural emergence of a fair market price for a given token. While the initial price is often set by the issuer, as the ICO goes on and holders trade their tokens the value can change and potentially stabilize.
Elements of an ICO:
Whitepaper:
A clear whitepaper is crucial, and should contain all the information about the ICO to inform investors while simultaneously building trust. It is important convey all the necessary information in an honest and realistic fashion.
Things to include are:
· The problem the company wants to solve
· The solution to the problem
· The description of the solution
· The business model of the company (revenue streams, value, financial projections)
· Information regarding the token (supply, pricing, caps, utility, equity, security, deployment plan)
· The company’s team
· Legal disclaimers (e.g. TenX)
· General timeline
Team:
Building a solid, credible team works to build trust between investors and ICO issuers. Seeing an experienced and competent team behind the ICO humanizes the company and fosters more trust and faith.
Companies often share short profiles of their key team members. Perhaps for the founder(s), outlining their vision and rationale for establishing the company is effective in boosting public relations. Having a strong, seasoned advisory team also lets the investors feel the project is in safe hands.
Security:
This is vital. Security in an ICO is something you should pay great attention to both as an investor and an issuer. Simply look at the effects of 2016’s DAO hack to see the effect poor cyber-security can have on the entire crypto market. The massive theft of 3.6m Ether caused the value of Ether to drop by 30–40%, and ruined what was seen as a promising up-and-comer in the crypto world.
A Legal Framework:
Different countries have varying levels of regulation when it comes to blockchain-based companies. From the hard-line bans of China to the more relaxed markets of Australia and Switzerland. Looking into the legality of ICOs in your area is a must. Information on the legality of ICOs in Singapore can be found here, and here.
ABOUT SURETY.AI
SURETY.AI is a blockchain based artificial intelligence (A.I) platform for insurance companies developed by Hearti Lab Pte Ltd (Hearti).
SURETY.AI allows insurance companies to connect effectively with their customers by offering micro-insurances, on-demand and at affordable prices, to Asia’s fast growing economies through Decentralised Enterprise Insurance Network.
As insurances are closely tied to healthcare, where healthcare services such as medical check records are often used for underwriting and preventive measures, Hearti is also working with Healthcare partners to integrate their services and data into SURETY.AI.
Find out more about SURETY.AI through this short and informative video! 💻
https://www.facebook.com/theheartilab/videos/1961164747258772/
OFFICIAL CHANNELS
Telegram Group: https://t.me/suretyai
ANN: https://t.me/suretyaiinfo
Website: https://surety.ai
Whitepaper: https://surety.ai/whitepaper.pdf
Video: https://youtu.be/rlc8zqACbcM
Medium: https://medium.com/theheartilab
Facebook: https://www.facebook.com/theheartilab/
LinkedIn: https://www.linkedin.com/company/theheartilab/
Twitter: https://twitter.com/theheartilab
Support Email: support@hearti.io
