From a single crypto to over fifteen thousand, the cryptocurrency space has expanded exponentially, dizzying financial regulatory institutions. A reliable fund-raising solution is needed for its growth to continue, but new projects find themselves wading through fumbled regulations. So what’s next in crypto?
ICOs – The Wild West of Crypto
In the cryptocurrency space, an ICO, or Initial Coin Offering, is a fundraising event for cryptocurrency projects to raise initial capital by selling coins to early investors. These funds allow new projects to grow by funding marketing, community building, and development.
ICOs are commonly seen as the crypto equivalents to IPOs, or Initial Public Offerings, during which companies go public and sell their first shares. Unlike IPOs, ICOs are unregulated in most countries. Meaning, anyone can launch or invest in ICOs, without registering with regulatory authorities or complying with accredited investor laws.
The lack of government regulation dramatically simplifies the process of raising capital. In turn, ICOs have given rise to many successful projects and technologies, such as Ethereum, that may not exist otherwise. However, the unregulated nature of ICOs attracts scammers and exposes investors to additional risk.
STOs – A Failed Attempt at Regulation
STOs, or Security Token Offerings, try to solve the issues faced by ICOs. ICOs offer simple utility tokens, STOs offer security tokens, which represent tradable financial assets, such as shares or bonds. Companies only provide these security tokens to accredited investors or high-net-worth individuals deemed capable by regulatory bodies of handling high-risk investments. In return, regulatory bodies provide STO companies with a more manageable and expedited registration process that awards them legitimacy and enables them to raise capital faster and more efficiently than if they were to IPO.
However, STOs have not had the intended effect. STO tokens are locked for a minimum period assigned by the project, during which holders are unable to sell, and token value is determined by company financials. Once the lock-up period is over, investors are free to sell, and token prices become determined by what other accredited investors are willing to pay. If early investors sell en-mass once the lockup period is over, token prices fall substantially.
Because security tokens are not accessible to retail investors, companies that STO face another issue – a lack of trading volume, which is needed to drive positive price action. This can be seen on stomarket.com, where security tokens for even large brands like Overstock have little to no volume.
ICOWAs – The Future of Funding
Clearly, there is room within the cryptosphere for a new investment vehicle. BoB Eco Ltd (BoB), an environmentally-focused company that provides electric motorcycles in developing countries, is leading the way with something the company calls an “ICOWA”.
An ICOWA, or “ICO with assets”, can be thought of as a hybrid between an ICO and an STO. As with STOs, security tokens are sold to early investors. But, like an ICO, security tokens will be publicly tradable by retail investors (once unlocked). Further, instead of unlocking early investors’ tokens all at once, tokens will be released in minimal stages, protecting the price.
Developing countries are prone to pollution and on-road overcrowding, primarily due to large populations purchasing vehicles as they become economically wealthy. Seeing the need for efficient and compact transportation, Bob Ultee founded BoB in partnership with motorcycle giant Suzuki Jincheng. BoB’s electric motorcycles are intended and custom-designed for use as taxis to carry passengers and deliver food, parcels and agricultural products in developing countries.
While ICOs and STOs have had their pros and cons, ICOWAs are paving the way as the new and improved form of fundraising in crypto, setting a new standard in the space. See how BoB Eco is accomplishing it here.
Disclaimer: This article is provided for informational purposes only. It is not offered or intended to be used as legal, tax, investment, financial, or other advice.