Even so, it’s undeniable that ICO process was a revolutionary channel for crypto start-ups to raise funds and breathe life into their projects. Cryptocurrency investors did not need to rely on regular exchange listings and instead pitched their ideas directly to investors. Nonetheless, the famed process has gained a bad rap over the years mostly due to the prevalence of fraud in ICOs.
In recent times, developers have begun looking for alternative fundraising channels. It has been one interesting ride witnessing this industry grow from infancy; through highs and lows to where it is. With Bitcoin seemingly on the rise once again, it is opportune time to discuss these alternatives.
ICOs did create an alternative economy, the likes of which we have never seen. Investors sold tokens to investors through a crowdsale injecting liquidity into their projects. The ICO boom of 2017 brought millions of dollars into this industry. However, because of various issues ranging from concerns over fraud and non-disclosure, and the need to have order in the industry forced regulators in various jurisdictions to take red-tape measures. New processes have come about to diversify the fundraising process and retain investor confidence. This, in turn, forced compliance creating alternative fundraising options in STOs and IEOs to flourish.
STOs created regulatory-compliant token offerings. As such an organization conducting an STO within a given jurisdiction would register as security, attaching to the value of say property, or the company’s dividends. STOs are therefore more secure for investors as they can gain financial benefits. This could be in the form of dividends, equity, profit sharing rights and buy back rights.
As such, STOs are on the rise and may even double in number in the next 18 months. At the moment there 179 but the number could rise to 270 by Q4 2019. Many decentralization proponents view the regulations as excessive and capitulation. The time is taking to list an STO and meet all regulatory requirements can be a hindrance. Nonetheless, they are a necessary process to ensure growth.
IEOs are a relatively new entrant into this domain. It is essentially the best of both worlds. You get an alternative to ICOs without the excessive regulations of STOs. Exchanges are now in the business of listing ICOs to allow them to trade from inception. Exchanges, for a certain fee, list transparent and quality projects and the IEO kicks off.
Bitmex Research states:
You don’t encounter the normal baggage of ICOs like an investor dashboard, roadshows or handling token distribution. Besides, an established exchange gives market through the user database and market credibility. IEOs are therefore excellent and projects realize hard caps in record times. This means investors get returns really fast.The ICO market is down around 97% in Q1 2019 (YoY), based on the amount of capital raised. In this relatively challenging climate to raise funds, some projects have changed the “C” in ICO to an “E”, perhaps in an attempt to assist with raising capital. At least for now, to some extent, this appears to be working, with almost $40m having been raised so far this year.
Top exchange platforms by IEO funds raised — US$m, Source: BitMEX Research, IEO Launchpad websites, Coinmarketcap
As a result, such projects are on the rise and although there were 28 such token sales in Q1 2019, the number could hit 176 by end of Q4 2019 for a 620% expansion. However, by Q4 2020, the number would expand 7.3X to 413. The emergence of IEOs and STOs has brought about a slide in ICO numbers and they could be as low as 100 by the end of 2019 dropping from over 980 in Q1 2018.
To conclude IEOs and STOs are necessary replacements to the vital role of ICOs in the market. They both bring about more transparency and credibility to a process that is the lifeblood for cryptocurrency. The regulatory compliance of STOs and efficient marketing of IEOs is an asset to this industry. As a result, more investors will join and remain on the crypto train.