Compared to other forms of crowdfunding, Initial Coin Offering (ICO) offers a more democratic approach. It gives tech startups and firms the ability to net-in a wide range of investors.
The beauty of it is that ICOs have no limitations on who should invest or how much one should invest. There are basically no regulations or laws that define how ICOs should be conducted. All the powers of the token sale are usually at the hands of the issuers and third parties, like ICO advisors, helping in the ICO.
By allowing any investor to invest any amount of money into the ICOs, the issuers are able to raise the required capital faster owing to the fact that investors flock to get a share of the ICO tokens.
However, the lack of a provision for regulations has also become a disadvantage to the ICOs. Crooks found the loophole and started airing fake ICOs targeting vulnerable investors. Compared to other fundraising methods like Security Token Offering (STO) and Initial Exchange Offering (IEO) that have provisions for regulations, ICOs simply had no provision for regulations.
Between 2016 and 2018, a collective of over $10 billion was raised by startups through ICOs. An example of a successful ICO was that of Ethereum (ETH). Ethereum issued ETH tokens whose value appreciated as the project rose to become the second-ranked cryptocurrency.
But Ponzi Schemes and doggy projects started using ICOs to defraud investors making investors more cautious. This cost ICOs greatly. In 2019, ICOs hardly raised $1 billion.
Finding genuine ICOs
Even with the current trend, tech-startups are still conducting ICOs. Therefore, it is still very possible for investors to find genuine ICOs.
However, due to the high cases of Ponzi schemes and scammers using ICOs, it has become increasingly difficult to identify a genuine ICO. It requires a thorough investigation into a project to verify if it is fake or something worth investing in. In this case, ICO advisory companies like Gravitas International comes in handy in helping to identify genuine ICOs.
ICO advisory companies have become the best platforms where investors can get genuine ICOs. The advisors play a key role in managing how startups run their ICOs and they are therefore able to identify if a project is a scam or legit. And no ICO advisory company can advertise and run a scam because that would place its reputation on the line.
The intervention by IEOs
In late 2018, Initial Exchange Offering (IEO) was invented to incorporate regulation in ICOs. An IEO is an ICO that is run on a cryptocurrency exchange. The exchange helps in verifying the projects, thus ensuring that investors (who are usually the exchanges’ users) are shielded from Ponzi schemes.
IEOs approach brought a sense of regulation to the chaotic market. It shifted the power of token sale from the hands of the issuers to exchanges which are regulated by regulatory authorities.
In 2019, over $3 billion was raised through IEOs and the trend seems to gather momentum in 2020.