Initial coin offering or ICO, in short, is a form of crowdfunding where a fixed number of new cryptocurrency units or tokens is created by a single or accelerated emission is sold to investors. The term “ICO” can often be replaced by the word “crowdsdale.”
Analyst group Smith + Crown noted an explosive growth of the number of ICOs in 2017 compared to 2016. At the same time, the amount of attracted funds per ICO continues to grow substantially: along with hundreds of projects that attract hundreds of thousands to millions of dollars, some companies managed to collect hundreds of millions of dollars. For example, Status Research & Development GmbH, Switzerland, sold $95M worth of Status Network Tokens (SNT). However, the number of successful ICOs in proportion to new ICOs is decreasing in 2018. Some experts suggest that 2018 will be the last year when ICOs will continue to have a high probability of success.
- ICO and IPO
- ICO, Blockchain, and Cryptocurrency
- Stages of an ICO
- ICO Marketing
- ICO History
- ICO Regulation
- Top-biggest ICOs in 2018
ICO and IPO
The term “ICO” is formed by analogy with IPO or Initial Public Offering – an initial public offering of shares a company’s shares, however, there are several differences between ICOs and IPOs:
- ICOs currently do not fall under state regulation, typical for IPO and any other public financial and investment activities;
- Buyers of tokens can have rights different from those of buyers/owners of shares. In particular, tokens can both give the right to participate in the company’s future profits, or be exclusive “utility,” meaning that they can be exchanged for services or goods of the company.
- The choice in favor of utility tokens is often motivated by the desire not to fall under the definition of a “security,” according to the Securities and Exchange Commission (SEC).
The issue of ICO regulation, already actively discussed at all possible levels is only a matter of time.
ICO, Blockchain, and Cryptocurrency
The concept of ICO is inseparably linked with cryptocurrency and blockchain technology. ICO is made possible by the emission of a company’s own cryptocurrency outside the procedures of mining and its distribution among interested persons. Units of issued cryptocurrency are called either coins and tokens. Most often tokens are sold for either Bitcoins or Ethereum.
Stages of an ICO
ICOs or in as they can also be called – Token sales have several different stages. Before the start of an ICO, companies may decide to open a whitelist registration – in theory, only those investors who had registered for a whitelist can invest during the main token sale. During the whitelist, registration participants are often required to complete KYC and AML. Before an actual ICO begins most companies conduct a Pre ICO or a Pre Sale which allows gathering funds to cover the marketing and operational expenses of the main ICO stage. Another optional stage is a private sale, where only select investors can participate. As a general rule of thumb the earlier the ICO stage, the lower is the price of the tokens due to the increased investment risk. Each ICO stage may or may not be capped. Hard Cap and Soft Cap respectively determine the maximum and the minimum amount of funds to be collected. If a Hardcap is hit before the end of an ICO stage, the token sale stops. If by the end of an ICO stage a Soft Cap is not achieved – all funds are to be returned to the investors.
The first ever ICO was conducted by Mastercoin in 2013, raising $5 million. By May 2018, according to the data provided by coinmarketcap.com, over 1600 cryptocurrencies were in circulation. It is safe to assume that the number of existing ICOs is higher because some projects have already been announced but hadn’t been listed on exchanges. The cryptocurrency market capitalization at the beginning of July 2017 topped at over $90 billion, with Bitcoin and Ethereum taking significant shares: over $ 40 billion and over $ 25 billion respectively.
Even though ICO regulation continues to be a hot topic in many legislations, a single approach to ICO regulation is yet to be developed. In different legislations, ICO legal status may vary substantially.
In mid-2017, the Securities and Exchange Commission of the United States (SEC) issued clarifications on the ICO and their risks in comparison with traditional investment methods. It was stressed that ICOs could be used to provide fair and legitimate investment opportunities, and proposed to regulate placements under the US Securities Exchange Act of 1934, in particular, to register the offer and sale of tokens to the SEC.
On the 4th of September, 2017, seven Chinese financial regulators formally outlawed all ICOs in the People’s Republic of China, ordering that the incomes from all those that had already passed the ICO be reimbursed to investors. Otherwise, the offender would be “severely punished according to law.” This action led to a massive sales drop and a considerable decrease in the exchange rate of most Cryptocurrencies. Before this ban, ICO attracted the equivalent of nearly $400 million from approximately 100,000 investors. However, a week later, a Chinese financial official said on Chinese national television that the ban on ICO was only temporary, and to be inverted as soon as the ICO governing rules and standards are developed.
ICOs are also banned in South Korea at the legislative level. At the same time on March 8, 2018, in The Korea Times published a message that the authorities are planning to legalize the ICOs, explaining this by the need to promote technology based on the blockchain.
In September 2017, the Australian Securities and Investments Commission (ASIC) published a guide on legal responsibilities for ICO companies.
Top-biggest ICOs in 2018
- Bankera – $150,000,000
- Envion – ~$100,000,000
- Elastos – $95,000,000
- Zeepin – $62,000,000
- Olympus Labs – $60,000,000
The list composed by investinblockchain.com