Forget IPOs, this is the age of ICOs or initial coin offerings. Over USD 400 million has been invested in ICOs up to Q1 of 2018. Bitcoin accounts for just under 50 percent of the total market share of cryptocurrencies. But the good news is that Bitcoin market cap has surged from USD 10 billion to over USD 40 billion over the past year. Additionally, this accounted for 80 percent of the total market cap of cryptocurrencies, which in turn was a massive USD 90 billion! I feel this new blockchain innovation has impacted the market in so many ways. All one needs is a cryptocurrency and a token as the vital part of products on offer for an ICO. The ICO is an investment that provides investors a cryptocoin, known as a token, in return for the investment.
How ICO Works
Tokens issued from the ICO have a specific value, with the initial coin offering allocating equivalence to equity to the token. This gives the investor ownership as well as voting rights. The investor may even qualify for a dividend. Some key features of an ICO include participation in a Decentralised Autonomous Organisation, project or an economy. Coin ICOs sell participation within an economy. Token ICOs sell right of ownership or royalty rights to a DAO or project.
Additionally, the investor’s rights are embedded within the ICO structure. Generally, the investor inputs matter during the project lifespan. ICOs further involve the creation of defined tokens or coins before the sale. The prices of the ICO are established by creators of the economy, DAO or project. ICOs have multiple fundraising rounds with tokens or coins on offer increasing in value till the release date. Early investors may even receive an incentive in the form of greater rewards.
The Benefits of ICO
I find that companies fundraising through an ICO would benefit in multiple ways. The project, economy or DAO need not be subjected to direct taxation. Sales of coins or tokens are direct with no or few middlemen. The investor also becomes the consumer of the services offered by a company using an ICO to raise funds. This permits investors to buy coins at a discounted rate. From the very first ICO by Mastercoin in 2013, I found bitcoins, as well as altcoins, hit the market with amazing rapidity, driving investors into a frenzy on account of the liquidity advantage.
As far as numbers go, ICOs have raised USD 327 million to date. Since Mastercoin’s ICO, this blockchain innovation has seen price collapses and rises driving interest into fintech and blockchains, as well as the capacity of ICOs to boost value creation with crypto price rallies. 2017 proved to be a stellar year too, with ICOs raising USD 150 million by mid-May alone. Recent surges in post-ICO assessments are another positive development. ICOs are set to break all records, representing a new way to raise funds and create value for all investors.