- Initial coin offerings or ICOs are typically the way through which startups that want to offer products and services in the crypto realm get funding.
- IEO is a form of ICO, where the coin or token is offered.
- In public ICOs, anyone can be a part of them, in IEO, only members of that exchange can purchase the tokens.
- IEO’s are carried out by a third party known as the crypto exchange platform.
Before we can get into the differences as well as the similarities between ICOs and IEO’s, which have been a point of discussion within the crypto industry for quite a while now, we have to analyze what each of them is in their own separate right.
ICOs are essentially a form of cryptocurrency that businesses will end up using in order to raise capital. You can think of them as fundraisers, as through these ICO platforms, investors can receive unique cryptocurrency tokens, in exchange for the monetary investment they make within the concept and business.
This means of crowdfunding for the creation and sale of digital tokens to fund the project development process itself is known as an Initial Coin Offering (ICO).
Now, these tokens will give investors currencies that will have functions or features if you will of a project run by the issuing company. As such, you will typically find that these tokens fund open-source software projects that would otherwise be tough to finance through traditional ways of raising money.
So, the chances are high that, at this point, you have probably read a white paper or two. One of the most popular white papers in recent history is “Bitcoin: A Peer-to-Peer Electronic Cash System” by Satoshi Nakamoto, the creator of Bitcoin, the first commercially successful cryptocurrency.
Now, this is important due to the fact that when a cryptocurrency startup firm genuinely has a goal of raising money through an ICO, they put a lot of plans on a white paper in order to provide investors with important information. This information typically includes the following things:
- The project information.
- Objectives of the project.
- What will they fulfill upon the completion of the project?
- How many funds are necessary in order for the venture to be undertaken.
- How many virtual tokens will the issuers keep for themselves?
- More information about the currency that is accepted.
- How long the ICO campaign will run.
- Who the team behind the white paper is and what their past accomplishments are.
Now, these are extremely important factors to consider, and it is typical for the company that is issuing the white paper to prepare it before launching the currency itself. This is a vital component to any ICO as many investors will typically end up asking for a white paper before deciding if they want to invest in the ICO or not.
Now, we need to analyze the differences between cryptocurrency ICO and stock IPO.
This is due to the fact that ICOs are typically compared to IPOs.
Now, an initial public offering or stock market launch is known as a type of public offering, where the shares of a company are sold to institutional investors. These are typically known as retail investors. An IPO can be underwritten by one or more investment banks who can arrange for the shares to be listed on one or more stock exchanges as a result of it.
Okay, now that we have gotten that out of the way, the main difference between an ICO and an IPO is the regulatory oversight.
As part of the mandatory requirement to register with the regulatory authority, any company that wants to issue an IPO has a requirement of fulfilling a document that is known as a prospectus.
This represents a legal declaration of the intention to issue its shares to the public. This in turn has to meet certain standards of transparency, such as information about the company and its IPO to assist investors in making an informed decision.
On the flip side, ICOs only have regulatory requirements if they are issued as security tokens and not just utility tokens. Due to the fact that this kind of regulatory activity has been developed recently, investor assessments are more difficult to make.
Through this fundraising model known as an Initial Coin Offering, startups have the ability to raise capital through the issuing of tokens within a blockchain. A blockchain, shortly explained, is a list of records that is secured through the usage of cryptography.
Then, these tokens are distributed in exchange for a financial contribution. These tokens can be transferred across the network and traded on many cryptocurrency exchanges.
They can also serve different functions, for giving the owner access to a service and so on. Tokens can be classified as utility tokens and security tokens solely based on this function that they serve.
What this means is that throughout the ICO campaign, many enthusiasts, as well as supporters can buy some of the project’s tokens, through the usage of a FIAT, or even another digital currency. These coins are the tokens you hear about all the time.
When the money raised does not meet the minimum funds that are required by the company, the money can be returned to the backers, where the ICO would be unsuccessful. If the funding requirements are however met, the money that has been raised is used to, well, push the project forward.
Let’s discuss different types of tokens….