Opulence Of Crypto Offerings: Part 1

Dominik Olech
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Funding is an essential part of every project – not only ones related to the cryptocurrency industry. That’s why an understanding of this process is fundamental.

Not so long ago, we provided you a list of consensus mechanisms in the cryptocurrency industry. This time, we take a closer look at a similarly important matter: types of crypto investments. There are plenty of kinds of different “offerings,” and it might be easy to get confused within them.

Where it all began

Although public offerings are currently a very common term in the crypto industry, it’s worth to know the genesis. Like many other aspects of trading, it also came from a “traditional” stock exchanges. In this case, it is an offering of securities to the public. And the initial public offering (IPO) applies to the situation when a company offers its shares for the first time.

With the growing popularity of blockchain technology and the idea of cryptocurrencies, more and more people decided to try their forces in this new trend. But since not everyone had the money to fulfill the dreams of a new Bitcoin, some sort of funding had to appear. The concept of IPO seemed the right choice to resolve this problem. The idea evolved into the ICO – which is a shortcut for initial coin offering. And it is also the first point of our journey through crypto offerings.

ICO – crypto crowdfunding

The story of initial coin offerings begins on July 2013. That’s when Mastercoin (currently known as OMNI) raised funds this way for the first time. In 2014, Ethereum achieved massive success with its own ICO, gathering 3,700 BTC in early 12 hours of funding. But the real fashion for ICO began in 2017.

On the basis, ICO works very similarly to IPO. The difference lies in the character of acquired assets. In stock exchanges, you get shares of a company. Since the cryptocurrencies aren’t listed there, they offer the most precious thing: coins themselves. The promise of acquiring tokens, which will be possible to use in the future, is the prime fundament of ICOs. 

By definition, such assets are meant to be attractive because of its future usage, when the project will be finished. But for many people, such coins became nothing more but a compelling speculative investment. Opening for the wider public this way suits very well to the idea of blockchain. The public effort to introduce a new concept, with every contributor being both its owner and author. However, it is also its main disadvantage. 

Common enemy

With a real hype for ICOs, the number of competitors also rose significantly. In that situation, not every project has a chance to succeed. Moreover, some of them even aren’t meant to be successful. Unfortunately, ICO became a perfect way to use growing interest in cryptocurrencies only to scam people who believe in promising projects.

Such misuse of the idea of ICO quickly resulted in proper backlash from the government site. In August 2017, U.S. Securities and Exchange Commission warned investors about projects with that type of funding. Soon, many other countries made their statements about ICOs, sufficiently limiting such initiatives, or even banning them.

But official law regulations aren’t the only actions taken against ICO. Many social media platforms, like Twitter, Linkedin, or Snapchat, banned the advertising of similar projects as soon as public opinion about them had changed. Facebook went one step further, with prohibiting any cryptocurrency-related advertisement in January 2018. Of course, this doesn’t include Libra, but back then, incoming Facebook’s blockchain was still unknown. Google also excluded ICOs from their Adwords system.

The wave of ICO scams was still only a small piece of harmful activity within the crypto industry. Even so, they have contributed considerably to lowering public opinion about cryptocurrencies. But it doesn’t mean that ICO is a bad idea at all. By definition, it was a good approach to crypto crowdfunding – and other types of offerings try to improve it.

The rise of STO

That’s why other forms of offerings appeared soon, trying to improve the vision of ICO. One of such are security token offerings – STO in shortcut. To explain the idea of this type of investment, we need to think about what is the main sin of initial coin offerings. In this model, people are acquiring assets whose worth remains in question. Even if a particular ICO isn’t made only to draw money from careless investors, there is no assurance that the project will succeed anyway.

Security token offering, as its name suggests, tries to resolve this problem. In its very base, this kind of offering is similar to ICO – people interested in the project are acquiring tokens issued by developers. But in STO, those assets are appropriately backed with securities, like bonds, stock shares, real estate investment trusts, and other funds.

This form of crypto investment is a good compromise between coin offerings and classical stock. It provides the elements of blockchain to traditional securities, with all their advantages like decentralization. However, probably the most important, from the perspective of both investors and issuers, is the credibility of STO. In comparison to ICO, which has become a synonym of risky investment, security tokens aren’t necessarily associated with a negative opinion. Or at least, they don’t meet with criticism on a similar level. The list of some security token offerings is provided by Security Token Network.

Under the aegis of exchange

The next approach to the subject also touches on the matter of credibility. But in the case of initial exchange offering (IEO), the trustworthiness of the project lies within the exchange, which issued it. It vows for the quality of the project – in the end, it doesn’t want to be associated with a scam. That’s why the cryptos which get such support are usually well checked.

Another significant advantage is the infrastructure that exchange provides to such type of funding. Everything happens within one blockchain, without a need to use any outside wallet or software. It is also a significant facilitation for project developers too. Instead of caring about the attention on their own, they simply rely on more experience institutions. Thus far, they have more time to focus on improving their projects.

Of course, IEO comes in option only in case of exchanges able to provide a sufficient userbase and functional system. It narrows the number of institutions able to run such offerings – what might be count as a sort of quality check.

Examples described above are currently the most popular offerings in the cryptocurrency market. But the blockchain industry is vastly developing, and new ideas still come to live. The next part of the article will be dedicated primarily to them.

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