At face value, it’s easy to dismiss ICOs as unnecessarily risky or unsatisfactorily supervised. As laws, investor norms and self-regulatory efforts continue to refine ICO investment, the industry is likely to mature. Nevertheless, their incredible popularity and the extraordinary returns on a sound investment make it foolish to ignore the movement altogether.
Yes, investors should be intentional, strategic, and wise but they should also be curious and inquisitive.
When explored carefully and executed correctly, ICOs are a promising asset class that is unlike any other financial product currently on the market. As it makes its way into the mainstream, it will be interesting to see who enters first and what rewards they reap in the end.
If we take a closer look at the ICO process as it’s conducted today, we can understand a little better some of the differences between ICOs and IPOs.
In the early days of cryptocurrencies, coins were simply made publicly available without the whole ICO process of today. The only issue then was how much of a pre-mine there was – how many coins were mined and hoarded by the developers and early adopters before the coin was public. Once the coins were listed on exchanges, the early holders could sell their essentially free coins to a hungry public. A small pre-mine was considered reasonable, but a large one was considered greedy and frowned upon by the crypto community – at least for those who were even aware of the pre-mine.
Some coins were usually retained by the development team to fund continued development. From that point on anyone could mine the coin.
The ICO today is not a required process by any means, but it’s accepted and understood by the community. It’s the easiest way for a development team to raise funds and get their product into the marketplace. The process is generally more transparent than a coin release was in the past, but also more complex. An investor can go directly to the ICO website and input the requested information.
That may consist of nothing more than the donation and an address to send the ICO coin too. The donation is usually of Bitcoin, Ethereum, or whatever coin the ICO accepts. Some accept fiat currency like dollars and euros, but the majority of funds raised are in crypto.
There is generally a schedule consisting of a possible pre-sale of coins at a considerable discount to the pre-determined market price. This would be for larger and possibly institutional investors. Then the discount would be lowered progressively in the following weeks of the ICO sale. This discount is to encourage early adoption of the token, increase interest, and raise awareness. This would all be accompanied by an extensive social media campaign. It all takes place in the cryptocurrency community and rarely even registers with the mainstream press.
Each ICO will have a potential softcap, hardcap, or other requirements and contingencies for how much they need to raise, at what levels they stop, and what they do when they reach those points. When the ICO is complete, the development team gets the coins listed on exchanges to be publicly traded. If the developers price the token right, create enough interest in the project and run their campaign well, the price of the token will rise. If not, or if market conditions simply go against them, the price may fall.
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