The projects produced in the decentralized finance world offer their tokens in order to find their investors in the first process and to obtain funds to continue the project development process. Similar to the process known as an initial public offering in the traditional finance world, ICO is a process where project owners request investment from potential buyers and explain why their projects are promising.
So how exactly does the ICO take place? What do initial coin offerings mean for cryptocurrency project owners and for the development process of tokens? Where can you get a list of Initial Coin Offerings (ICOs)? You will find the answers to all these questions in the rest of the content!
- ICO is a method used to provide fundraising, especially by startups that produce new projects in the field of decentralized technology.
- ICOs can be of three different types in terms of the number of tokens sold and how the price is determined.
- ICO and IPO are two different fundraising methods in terms of decentralization, security, and regulation.
- ICOs are advantageous for projects because they offer speed to the project and liquidity, there is no entry barrier to plan an ICO, they make too many people hear about the token, and investors of ICOs own only tokens, not the shares of the project.
- ICOs can be risky in terms of the high volatility that beginner projects’ tokens may have, scam ICOs that may be run, and regulation problems.
- Presale offers, bonuses, insider retention, and signals of the project’s resources are some of the factors that have an effect on any ICO’s success.
What is ICO (Initial Coin Offering)?
ICO is a method used to provide fundraising, especially by startups that produce new projects in the field of decentralized technology. In this method, the startup that owns a cryptocurrency project requests investment from potential investors in fiat or cryptocurrency. Each investor receives a certain number of the technology’s linked tokens, depending on the amount of investment he has made.
- ICO for the investors: The aim of the investor in ICO is to make a profit by buying the cryptocurrency at the base level, which he believes will be appreciated in the short or long term and the transaction volume will increase.
- ICO for the start-ups: The start-up that initiates the ICO receives substantial funds for its own project development process while offering its coins to investors.
ICO, defined as a fundraising method, is heavily followed by cryptocurrency enthusiasts. Cryptocurrency enthusiasts, who follow the ICO of the newly listed cryptocurrencies through stopwatch sites, have the chance to buy the token of the project they trust with a certain amount of investment, at the right place at the right time, at almost zero level.
Unlike an IPO, known as an initial public offering, in an ICO the investor does not directly invest in the project and does not become a stakeholder in the company after the transaction. What the investor does is simply make a donation and receive a certain number of tokens in return. Project owners can ensure that token holders have decision-making authority over the flow of the project.
How Does Initial Coin Offering (ICO) Work?
A company or start-up cannot arbitrarily initiate an ICO process. The date of the ICO, its rules, and the steps of the acquisition process should be announced some time ago. The company, which wants to introduce the technology behind its token by attracting the attention of its potential investors, continues its promotion through an effective website, documentation, and briefings.
Let’s give you a few basics in nutshell to help you better understand ICOs:
- Fundraising in ICOs is mostly done with Bitcoin or Ethereum. Investors who donate these cryptocurrencies to the project receive the project token corresponding to the determined value. Some ICOs may also accept fiat currencies.
- During the ICO, investors need patches to send money to the project-issued virtual wallet in order to complete the purchase or donation. Each investor shares the wallet address with the company that they want to receive the project token while sending.
ICOs can be of three different types in terms of number of tokens sold and price.
|Fixed number of Tokens||Variable Number of Tokens|
|Fixed-price||Static Pool – In this type of ICO, the company says how much investment it demands per token before the offering begins. Investors can determine how much to invest based on the number of tokens they plan to purchase. For example, the price of a token may be 0000000000003.00 BTC.||Dynamic Pool – A company can set the price at which it will sell tokens without limiting the number of tokens it can offer. In this case, the sale continues at the same fixed price until all the tokens in the company’s hands are sold.|
|Variable Price||Dynamic Pool – The company may want to offer a certain number of tokens in the ecosystem and keep some of them. Where the price of the fixed number of coins determined is variable, the prices change depending on the demand for the token. The more tokens purchased, the higher the price of the next tokens in real-time. In this case, for example, if a project is offering 2 million tokens but has received $4 million in investment, the price of a token will be $2.||X|
What if Required Fund Can’t Be Collected from Investors?
If the necessary money cannot be raised in a company’s ICO, the company may choose to return the collected money back to the investors. This will mean a failed ICO, and after such a situation the project is almost impossible to survive. If the required fund is fairly close, the company may declare that it will continue to raise funds for a certain period of time, and if the required number is reached during this period, the project will continue.
How Do Companies Prepare for ICOs? Or How To Start Your Own Ico?
Planned to fit into one of the above categories, the ICO also requires the company to plan and share:
- What exactly is the project about? On which technological background will the presented token work?
- What exactly will the project add to the cryptocurrency and blockchain world?
- What will the project change in the world of the decentralized network when it is completed? For which business sectors or which social responsibility project will something have been accomplished? And what exactly is this to be accomplished?
- How much money does the project need to achieve its aims?
- If not all of the tokens available during the ICO are for sale, how many of the tokens will the project founders keep? (The answer to this question is especially important to make sure that your token, which should be decentralized, will not be manipulated by the project owners)
- How long will the ICO campaign last?
- Which fiat or cryptocurrencies will be accepted to invest in the ICO?
Also, the project’s whitepaper, social media platforms, website, marketing campaign, and short-long term goals must be ready for the ICO.
4 Facts About ICOs: Key Findings!
We wanted to share with you 4 basic key tips that you should know about ICOs so that you can better understand ICOs and how they work, which we will explain shortly. Check it out now:
ICO for Securities
Any company can also hold specific ICOs for securities. In this case, the securities laws can be applied in the ICO, as the object subject to the ICO is regulated by the SEC.
Registration May Be Needed
For security measurements of an ICO to be regulated by the SEC, it may also require that the relevant ICO be registered with the SEC. If there is no registration status, the security in question must be exempt from registration.
Utility Tokens and ICOs
The tokens that companies offer to their investors in exchange for donations can be called utility tokens. These tokens are customized to be used only in the ecosystem of services and products offered by the project. They cannot buy products or services from another ecosystem on their own. For this to happen, the investor has to sell the token and buy other cryptocurrencies or fiat currencies with it.
In addition to utility tokens, companies can also offer participation tokens, investment tokens, and asset-backed tokens.
- Participation Tokens: Companies offering such tokens ensure that token holders can vote on decisions related to the project and participate in the management.
- Investment Tokens: Token holders have the chance to own a certain percentage of the project profits.
- Asset-Backed Tokens: Token holders acquire a physical, digital or intellectual asset.
Building Blockchain, Smart Contract, Infrastructure, or Security for ICOs
The technology you offer in ICOs does not necessarily have to be a token. Besides, you may have built your own Blockchain, offer an infrastructure, market a security technology or launch a smart contract.
Risk Management and ICOs
ICOs can be misleading for investors in some cases. Projects that make many promises for their miraculous rise in the future may not appear again after collecting your investment. Aside from such financial scams, the tokens you make a significant purchase may not reach your desired level for years. Still, this is a risk that can be taken with adequate research in the burgeoning cryptocurrency world.
Comparing ICOs and IPOs: What Are The Differences Between Them?
Speaking of the ICO, many may think of the initial supply processes run by traditional companies. Although they have some similarities in logic, ICO and IPO are different things.
The Logic of IPOs
There are multiple paths that traditional companies can take in their growth process:
- A company that prefers shares to remain solely with the founding partners may seek to take small but decisive steps to grow. In this case, the company owes its shareholders until it becomes profitable. If the targeted goal is achieved, the company makes a profit over time and pays its debts to the shareholders. If it doesn’t make a profit, the company goes bankrupt and the shareholders lose their money.
- Traditional companies may also offer some of their shares public during their growth process. In this case, any individual who buys a share of the company during the IPO is considered a partner of the company. It does not matter how many shares of the company are purchased. It’s possible to own a stake in a tech company for even $10.
The Logic of ICOs
Companies that develop technology in the decentralized ecosystem by producing cryptocurrencies prefer ICO to offer a value to their potential investors through their tokens.
- ICOs can be thought of as crowdfunding events. The main purpose is to appeal to those who want to own the token because they believe in the future of the project, but also want to provide the necessary support for the development of the project.
- The user who buys the token of a particular project through the ICO does not own any shares of the company. Project owners can ensure that the token holders have a say in the decision processes, but this in no way means the ownership of the company.
Differences Between ICOs and IPOs
|Regulation||ICOs are unregulated financial funding processes. Government agencies such as the Securities and Exchange Commission cannot directly review processes or require their permission to regulate them.||IPOs are completely under the control and regulation of governmental and financial institutions.|
|Decentralization||ICOs that enable the sale of projects and tokens developed in Distributed Ledger Technology are also organized decentralized. This not only provides a freer environment for investors but also makes it possible for token purchases to be completed in an untraceable manner.||Purchasing and investment processes in IPOs are regulated by government institutions or the central bank and are managed through computer technologies provided by these centers.|
|Security||ICOs can be considered less reliable as they are not regulated by official institutions.||IPOs can be considered more reliable as they are regulated by official institutions.|
7 Key Advantages of Initial Coin Offerings (ICOs)
The advantages of an ICO for the start-up or the company organizing the ICO are as follows:
|Projects Gain Speed||Tokens, which are different from traditional currencies and can enable you to collect investments in ICO, can be easily produced on the ERC-20 base with about 100 lines of code. So if you want to generate an asset for your project, it is much faster and easier in the world of ICOs.|
|Liquidity Support||Tokens offered through ICOs are sold on a market that is active 24 hours a day, seven days a week, unlike in the traditional financial world. This means zero liquidity problem.|
|Anyone Can Access Your Token||Cryptocurrencies available to anyone with a computer anywhere in the world are accessible to everyone during the ICO. Potential investors only need to own one cryptocurrency wallet. That’s it!|
|No Entry Barrier||There are no entry barriers to launch an ICO. Users can quickly launch ICOs and raise funds for their projects using blockchains like Ethereum, Waves, or Stellar.|
|Investors Only Own Tokens, Not Shares||No investor who buys a token during the ICO has any ownership rights in the company unless a token is credited to its smart contract.|
|Community Creation and Users for dApps||ICOs help you build your community from the start, influencing those who are fascinated by your technology, those interested in the behind-the-scenes of the cryptocurrency world, and those trying to catch up on yet-to-be-discovered technologies. For companies that usually produce dApps technology, this newfound audience will mean more users. An army of investors supporting you and using dApps.|
|Minimized Bureaucracy||No SEC regulation or government oversight. Since paperwork is minimized, it becomes possible to manage a faster and freer crowdfunding process.|
3 Key Risks of Initial Coin Offerings (ICOs)
The situations that can be shown as risks or disadvantages of ICOs are as follows:
- When you invest through ICOs, you actually invest in tokens. In the crypto money world, where volatility is high and competition reaches its maximum level, the coin you invest may not rise.
- The lack of regulation can cause problems called ICO scams, unreliable projects collecting investors and disappearing, and other similar problems. Since there is no institution to protect your own rights, you should keep your eyes open.
- If you are new to the world of cryptocurrencies, investing in ICOs is both difficult and it may be possible to donate much more money to the project than you planned with a wrong move. Because you need to use a cryptocurrency wallet during the transaction.
How To Avoid ICO Scams as an Investor?
As someone who is interested in cryptocurrencies and Blockchain technologies, there are a few ways you can continue to invest in ICOs but protect yourself from scams:
- Make sure the project owners have defined their goals correctly. We can guess that you wouldn’t want to buy a released shitcoin.
- Research project developers individually. It is important that the company shares its team in a transparent manner and that the team presents its own working processes and backgrounds.
- The ICO may not be overseen by a government agency. But this does not mean that the project cannot be legally defined on its own principles. To understand whether the ICO has a legal framework, examine the way they collect user information, and how the token will work.
- It is very important to make sure that the funds collected during the ICO will be stored in the escrow wallet. Such wallets are storage areas that require more than one key to be opened. Usually, a third party, not one of the project or investors, is designated as the owner of the key. This ensures the security of funds.
Examples of an Initial Coin Offering (ICO)
Which cryptocurrencies raise funds from their investors by holding an ICO? The most popular are Ethereum, Cardano, Tezos and Dragon Coins. We can say that their success in the ICO process has inspired many smaller projects. Let’s take a brief look:
- Ethereum, which carried out its ICO in 2014, was enthusiastically welcomed by many investors because it produced its own Blockchain. Ethereum, which collected $ 18.4 million from its investors at the end of the ICO, had a successful process and created an opportunity to strengthen its technology.
- Dragon Coins is one of the coins that met with its investors through the ICO it held in March 2018. The project, which stood out by raising $320 million, is not among the most successful. Dragon Coin faced a market cap that fell below one million dollars in 2021.
- Cardano managed to raise 62.2 million dollars through the ICO in January 2017. Continuing to develop its technology with this massive investment, the cryptocurrency managed to make its name visible among the top five cryptocurrencies after a while.
- Tezos is another cryptocurrency that opened its doors to its investors by holding its ICO in July 2017. In this ICO, they managed to collect exactly 232 million dollars. Tezos’ ICO was an eventful and litigious process. Because the company that collected the investments was quite late in distributing the tokens to the investors. In the lawsuit, which was concluded in 2020, Tezos paid a full $25 million compensation to the parties and the process was completed.
- Antshares, which introduced itself with the NEO brand in 2015, planned a two-stage ICO. The first phase of this ICO was completed in October 2015. The second phase continued until September 2016. NEO managed to raise $4.5 million in investment during this two-stage period. This figure was not a very surprising value in terms of money raised. Because there were token projects that managed to receive investment at much higher rates. But what made this ICO different from the others was that early investors had to wait for a very short time to get very high profits through NEO. If you wish, let’s try to describe the size of this profit through numbers: NEO, whose value was $0.03 during the ICO, managed to trade at 187.40.1617 when it was at its peak after the ICO.
What Determines Initial Coin Offerings’ Success?
A scientific study brought together the data of 503 different ICOs held in 60 countries from 2015 to 2018. These data were intended to identify which tokens an ICO needs to succeed.
So what do the results show?
Positive Correlation: Insider Retention and Signals of Project’s Resources
Before an ICO, it was seen that insider retention and signals of the strength of the project’s source positively affected the success of the ICO. When we talk about the source of the project, we are talking about: how many people are in the team at the beginning of the project? What is the education level or experience of this team? Are these names branded in the industry? What are the advisors of the project? Being able to give strong enough answers to all of this seems to power the funding process of the ICO. Moreover, the interest in the token after the ICO and the efficiency of the team’s activities are among the things that these factors positively affect.
Negative Correlation: Presale Offers and Bonuses
On the other hand, it turned out that presale offers and bonuses are among the tokens that negatively affect the ICO. These can pull back the confidence in the project and the investor’s inclination to fundraise. The culture of the countries or the financial conveniences can also affect the success of ICOs, although to a lesser extent.
Where can I get a list of Initial Coin Offerings (ICOs)?
You may need a resource to keep track of Initial Coin Offerings, the countdown to projects that are about to launch their ICO, and not miss any opportunity. It is possible to list the most popular ICO resources in the market as follows:
- ICO Timeline
- Reddit ICOCrypto – Active and Upcoming ICO Group
- CoinMarketCap The Upcoing ICO List
- ICO Hot List
- Top ICO List
- Fund ICO
So, asking ”How do I know when ICO starts?”
It is already very important to announce to investors the date that their ICO will start for projects and brands. In addition to the ICO hot list tracking sites we recommend above, you can also follow the project’s own Twitter and Telegram pages to reach the most up-to-date information about the process. Especially in the world of cryptocurrency projects, Telegram groups are of great importance. Do not neglect to be a part of the community of the coin you intend to invest in.
Where do I register the ICO projects before incorporation?
If you want to register a company for any purpose you aim at, you can do so through the jurisdiction you reside. Today, many technology projects are carried out through companies registered in different geographical regions in order to minimize tax expenses. However, let’s assume that you plan to do registration in your own hometown.
In this case, you will need to follow the laws and regulations applicable to your home domain. Registering a company would mean creating an artificial entity. You should be familiar with all the legal details regarding the formation of a legal entity.
Starting an ICO is not about registering your company. When establishing your company, you can first borrow money from your close circle and corporate your company. The ICO takes place afterward and provides funding for continued development.
The ICO does not require permission from any government agency as it is not a centralized process. However, according to the region you live in, performing an ICO may be considered illegal. It is important that you master all these details so that you do not get into trouble.
What is the Whitelist registration in ICO?
In a company’s ICO, a whitelist can be considered a list of investors that the company organizing the ICO finds trustworthy enough to sell their tokens.
Where can I get information about the upcoming ICO?
You can get information from the websites we have listed for you at the top of the content. These include alternatives such as Reddit, CoinMarketCap, IcoTracker, ICOHotList, ICO Drops, TopICOList.
Which country provides the best ICO launch services?
Switzerland, Russia, Singapore, Estonia, Israel, and Gibraltar are among the countries most preferred by companies.
How do you launch an ICO?
First of all, have a project idea and a team to develop this project.
Then get to know the market and your competitors closely.
Check if issuing an ICO is legal in your country. If it is not legal, you may choose to establish your company in another country.
You need to launch a token to offer it in the ICO.
Set up your white paper and website as well. Your potential investors would like to see them.
Plan your PR and marketing processes.
Lauch your ICO