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In our sample data, there was only one ICO that had an Airdrop program. These gains can be realized by selling the tokens on an exchange once they’re listed. Or, buyers can double down on the project by purchasing more tokens once they hit the market.

Way ICO Fundraising Works

Initial coin offering projects have been compared to other more traditional forms of financing, such as initial public offerings , venture capital , and crowdfunding (Block et al. 2020). Nevertheless, ICOs have unique characteristics that differentiate them from other types of financing and make them more suitable for financing innovative projects that offer information goods . Indeed, the use of blockchain solutions (e.g., equity-based security token offerings) for financing new ventures has several advantages.

Initial offering

However, it has not yet regulated fundraising via instant utility tokens . As of March 2022, the SEC is considering requiring any fundraisers who want to list instant utility tokens on exchanges to seek SEC approval or use an ICO portal. This potential regulation could create more traffic for ICO portal providers. Initial coin offerings are a new way of raising funds through initial token sales. The concept was originally developed by entrepreneurs such as Chris Larsen and Jack Liu. Such confusion in jurisdictions turned into a need to study regulatory frameworks deeply before conducting fundraising.

So, to bring the investors back on track, new fundraising methods have been introduced. IEO or Initial Exchange Offering is another one of the popular fundraising methods right after ICO. We were able to prove that the two theories we used are relevant in the context of ICOs and that further analysis on them should account for the theoretical foundations analyzed here. Thus, the findings of this study uniquely contribute to the literature by using and interconnecting the two theories and adapting them to innovative blockchain projects. This provides ICO projects with an appropriate theoretical framework for their analysis.

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The IEO platform scrutinizes the white paper and other relevant factors before advancing the blockchain development project. The ICO funding model is designed, so one does not need to be a technically advanced and well-financed investor while investing in a project. After performing a correlation and VIF analysis,Footnote 1 we confirmed that there were no collinearity issues.

ICOs are another form of cryptocurrency that businesses use in order to raise capital. Through ICO trading platforms, investors receive unique cryptocurrency “tokens” in exchange for their monetary investment in the business. It is a means of crowdfunding through the creation and sale of a digital token to fund project development. There is still no consensus regarding a single success measure for ICO projects, since different studies follow different measures, each with a purpose and good reasoning to identify the success of a venture.

Project Readiness

IPOs raise money for companies seeking funds from investors and result in the distribution of shares of the company’s stock to investors. For ICOs, crypto companies raise funds through the sales of coins or tokens. In both cases, investors are bullish about the company or the cryptocurrency and invest based on the belief that the asset’s value will increase over time. Interested investors can buy into an initial coin offering to receive a new cryptocurrency token issued by the company. This token may have some utility related to the product or service that the company is offering or represent a stake in the company or project. An initial coin offering is the cryptocurrency industry’s equivalent of an initial public offering .

Way ICO Fundraising Works

If a project has marketed itself well, there can be significant demand for its token post-ICO. Along with increased attention came increased scrutiny, and concerns about the legality of token sales. Securities and Exchange Commission put out a statement in 2017 warning that if a digital asset sold to U.S. investors had the characteristics of a security , it had to abide by U.S. securities laws or face punitive action. More recently, Gary Gensler, the latest Chairman of the SEC, says he believes all ICOs are securities, and are therefore in breach of United States securities laws – hinting more class actions could be on the horizon. Not all initial coin offerings involve securities, and not all of them are conducted unlawfully—but with the SEC keeping a close watch, it’s important to understand the regulations and risks.

Pros and cons of ICO:

In fact, some studies have aggregated several measures with similar results (de Jong et al. 2018). Indeed, the project can only be considered successful if the tokens sold can be traded in a secondary market that takes place in a crypto exchange (Amsden and Schweizer 2019; Roosenboom et al. 2020). The same logic applies to a binary variable measuring the achievement of a pre-established hard cap (Ahmad et al. 2020). These measures can capture the success of the project in relative terms; in other words, in terms of its objectives.

ICOs can generate a substantial amount of hype, and there are numerous sites online where investors gather to discuss new opportunities. Famous actors, entertainers, or other individuals with an established presence like Steven Seagal also have encouraged their followers or fans to invest in a hot new ICO. Investors should expect 100% transparency from a company launching an ICO. Make sure that project developers can clearly define what their goals are. Successful ICOs typically have straightforward, understandable white papers with clear, concise goals.

ICO vs. VC: What is the Best Way of Raising Capital for Crypto Projects?

The whitepaper is a crucial document that outlines the details of the project. It should be well-written, clear, and concise and provide investors with the necessary information to evaluate the project. This blog emphasizes the importance of knowing your ICO developers for a successful launch. It highlights how the expertise and credibility of developers can affect the outcome of an ICO and ico developer provides tips for evaluating and selecting the right developers. Finally, we look at secondary exchanges and discuss how profits from tokens should be treated when crystallised by ICO investors. One major debate revolves around how to categorise the tokens issued, whether they should be subject to existing securities laws, or should instead be classified as commodities or simple assets.

  • It is an official document, a primary public tool that provides stakeholders with necessary information about your venture.
  • In May, the ICO for a new web browser called Brave generated about $35 million in under 30 seconds.
  • Initial coin offerings must be understood as part of an environment comprising several systems.
  • Before launching an ICO development, you need to thoroughly analyze the market demand and design your business model.
  • This blog emphasizes the importance of knowing your ICO developers for a successful launch.
  • It should be well-written, clear, and concise and provide investors with the necessary information to evaluate the project.
  • Promoting the ICO through various channels is critical for its success.