Due to the possible profits that traders could make, Initial Coin Offerings (ICOs) grew in popularity in 2017.
ICOs are a novel form of crowdfunding ventures harnessing blockchain technology, more widely referred to now as IEOs (initial exchange offers). Traders add cryptocurrencies to the project (or fiat, occasionally) and get some of the tokens of the project in exchange.
Generated through what is known as a Token Generation Event (TGE), such tokens represent a unit of value within the ecosystem of the IEO project and are typically used on a platform or product to access those functions.
Of course, the tokens can be exchanged after being listed on exchanges.
IEO contributors also speculate that in the future, the value of the tokens they purchase will increase in value, earning them income.
Unlike an initial public offering, IEOs do not give a share in the business to the contributor. If they did, they will be security tokens and controlled by securities laws, such as typical company shares.
The IEO funding model provides a feasible alternative to the preservation of venture capital space. There have been thousands of altcoins released since Bitcoin's introduction in 2009, with IEO playing a part in many of them.
Under Coinschedule:
43 token sales were conducted in 2016, 209 in 2017, and there were more than 60000 in 2018.
The sum of money generated by token sales was around USD 11.4 billion in 2017. Between January and May 2018, funding for token sales had already hit USD 13.7 billion.
A recent Stratis Community study reported that 80% of 2017 token sales were scams.
Spectrecoin (741.42x), Neblio (84.83x), Icon (43.30x), Qtum (73.71x), and Tron were some of the most lucrative token sales in 2017. (42.80x)
Should developers pivot to IEOs over VCs?
IEOs present a viable option to the direction of venture capital, but they do come with a fair share of risks.
Money earned by token sales is called income, so taxes must be charged by IEOs. This has contributed to the rise of countries like Malta that have more lenient regulatory policies.
Also, donors to token sales must be careful where they put their money. Not only are token sales fraught with possible scams, but there are no guarantees of earnings, especially under the conditions of the bear market.
How it works?
A whitepaper containing all the essential project information, such as the business plan, token selling details, token inflation/deflation model, the team and other important information, will be developed by most IEO projects.
The project will be advertised shortly, after which the project will progress to the contribution process.
How to participate?
Depending on the amount of money you have, there are different contribution amounts.
Private sales offer cheaper prices, but greater investments are needed.
There is typically a lower capital limit for public transactions, but the price of tokens would appear to be higher than that of private sales.
Participation in an IEO on a forum is relatively simple. All the details about the initiative, the whitepaper, the participation process and all the official channels is available on the website.
A good IEO
In order to gauge the prospects of a project, an investor needs to look for a variety of bare minimums, including:
What does it seek to solve the project? Is the issue clearly defined, and how are they going to address it? Is there a working minimum viable product?
What are the qualifications for the team?
Are there any (even potential) partnerships?
You could get burned if you invest quickly and rashly in IEOs.
A project's success is never guaranteed, and projects will fail, returning zero investment value.
There are financial risks to even the best ventures, albeit in the short term, and investors need to be prepared for this.
Financial inclusivity and democratization are one of the aims of the cryptocurrency. But with certain token sales, donors with the most cash will purchase the most tokens at the best prices, balancing the chances in their favor unfairly.
Hackers and scammers seeking to target naive traders have also been drawn by the vast amount of money involved in IEO.
Investors must keep an eye on their own cybersecurity. It is a clever decision to use a safe and stable site.
IEO’s future
There is no limit on what can be tokenized, but it is most probably a thing of the past for the wild days of 2017. In 2018, token sales returns were even less favorable and many of those ventures that were crowdfunded in 2017 failed to survive the bear market.
In order to change the landscape, control of how token sales are carried out and best practices will play a significant role.
The regulation of crypto can emerge from within, but does not necessarily have to end there, to echo the blockchain proposition of self-governance.
In general, being able to engage in a legal-friendly atmosphere would boost the status of the space and offer confidence not only to more potential investors (retail and institutional), but also to more visionaries who need funding for their ideas.
But the token sales room is changing, and quality projects will continue to rise to the surface as we look forward to.
Final thought
In the blockchain room, a lot of progress has been made and we are now seeing legitimate businesses and ventures develop themselves and continue to innovate. Token transactions are not the slam dunk they once were for traders, but with prudence, there are still possibilities.
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