Digital currency is not just a tool for financial transactions but a way through which new business can be set up initially. Investment in crypto and blockchain technology is increasing rapidly and ICO is one of the best ways to do so.
ICO or Initial Coin Offering is one of the best ways to launch your own cryptocurrency and provide it with a dedicated set of investors. The same process also helps in the promotion of the coin and provides the much-needed push at the time of launch. Aspiring blockchain entrepreneurs use ICO to increase their investor confidence and trust.
ICO or Initial Coin Offering is very similar to an IPO (Initial Public Offering) launch that usually happens with companies when they offer their stocks. It is the best way to raise money to create a new coin or raise funds in the early phase of coin development.
ICO allows interested investors to buy the coin or crypto-token issued by the company. The offered coin provides certain utilities and services from the company as well. The same token is used to represent the stake in the company or project.
1. Different structures of an ICO
If the company is going to launch an ICO, then the first thing they should decide on is the structure. There are different structures of ICO through which the coins can be offered. The structure directly affects the price and availability of the coin. There are basically three different types of ICO structures.
- Static supply and static price: In this kind of ICO, the company set a specific number of coins, that will be available for allocation. At the same time, the price of each token is also set to be static or fixed. Each token in such ICO is sold at a preset price with no changes.
- Static supply and dynamic prices: As the name suggests, this type of ICO has a fixed number of tokens, but no preset prices. In this, the total amount of funds received by the ICO determines the overall price of a token.
- Dynamic supply and static price: This is a case where the amount of funding received determines the supply of the token. If the funding received is less, the company can release more tokens for sale, which would further increase the funds. So overall, the token availability would depend on the fact whether the company has been able to raise the required funds.
2. Whitepaper Release
The whitepaper is basically used to explain all the important information about the ICO to the investors. Along with the structuring of an ICO, the project also creates a pitchbook, called a whitepaper.
It is available to all potential investors for the token. The whitepaper has many details that can be used to know whether the project is worth investing in or not. It contains the following details.
- What the project is really about and what purpose does it aim to solve through the coin?
- The results that the project would provide after fulfilling all the needs and upon completion.
- How much funds does the project need in order to initiate and work on the desired goals?
- How many tokens will the founders keep and how much will be made available for the public for allocation?
- What kind of payments will be accepted from the investors to buy the coins? This would be totally different for each project. Most of the time, the project creators accept other digital currencies and crypto as well.
- The whitepaper also provides details on how long the campaign will run and its future prospects.
The major aim of the whitepaper is to inform potential investors of what is being offered. It encourages the supporters to buy some of the project’s tokens. While investors use fiat currency or digital currency to buy these tokens, they can also use Bitcoin or Ethereum to make the purchase. The coins that are issued afterward are similar to how stocks are issued by a company IPO.
3. What after the funds have been raised?
After the funds have been raised through an ICO, it is checked if the amount is less or more than required. If the amount of funds generated through the ICO is less than the minimum, then the amount may be returned to the project investors.
In this case, the ICO is deemed to be unsuccessful. However, if the funding requirements are met in the specified period, then the money is spent in the pursuit of project goals. The company does provide all the details regarding how the funds are spent on the project.
4. Can I launch an ICO and who can buy it?
To launch an ICO, there are no guidelines or restrictions which would allow you to do so. Anyone can launch an ICO in the USA. Especially anyone who has the access to proper technology to launch a new cryptocurrency.
However, since there are no regulations currently set up as to who can launch an ICO, it also leads to the possibility of scams. Many ICO launchpads have started taking corrective measures to launch ICO for creators only after thorough verification.
If you are looking to buy into a new ICO, then you need to know all the details about the project. Going blindly into a new ICO would lead to nothing else than loss. One should understand the reality and accountability the project owners show for the ICO.
Simply investigate the project and the creator’s history with blockchain and crypto. If they are not involved with anything in the past, then it might not be the best ICO to invest in. Also, you need to have a purpose for buying tokens from an ICO and it should resolve your purpose.
5. ICO Hyping
ICO hyping to launch an ICO is very common. Especially if the ICO is done by a reputed company, which has funds to promote the ICO.
ICO Hyping is a process where a substantial amount of hype is created on multiple platforms and websites. Also, these websites have multiple investors, that come together to discuss the opportunities that the ICO can provide.
Companies also hire popular celebrities, actors, entertainers, and more to promote their ICO. Creating such hype not only helps in promoting the ICO but also attracts a lot more potential investors.
However, having a celebrity to promote the ICO or hyping it does not mean that it is scam free.
There have been cases like Centra Tech ICO, which was later deemed a scam by the court. The ICO brought Floyd Mayweather Jr. and music mogul DJ Khaled for promotions. Investigating and researching everything about the project, crypto, and blockchain is the only way of investing in a valid ICO.
6. Critical steps to launching an ICO
6.1 Select the Technology
The first step is for you and your team to understand how blockchain technology will function as a part of your business. Also, you need to be clear about what you will be offering to the client and investors through this technology.
It is tied up with your business core and it would help the clients to understand what you are offering through the business. You need to plan how the company will accept crypto, maintain and provide information and create a compliance process and legal framework that applies to the ICO
6.2 Understand the law
To launch an ICO, a company or creator should comply with all the legalities there are. ICO does not have a proper legal frame like in an IPO. It is why mandatory disclosures both before and after the offering, limitations on company insiders., penalties, fines, and other potential lawsuits are some things that one should know about.
To initiate an ICO, the company should comply with federal security laws and even state laws. The best option is to hire attorneys who have a better understanding of blockchain technology and securities law.
6.3 Know Your Competition
What and who are you competing against, is one thing you should be aware of. If a company is already offering a service similar to yours, then the ICO might not get a good response. Make sure that before the ICO, you have something unique that can be offered to the investors.
6.4 Select a Jurisdiction for ICO
Now there are different sets of regulations for each country when it comes to ICO. While some have a very stringent policy, some provide a lot of relaxation as well.
In the USA, the securities law applies to ICO in all 50 states. However, there are countries outside the US that have more favorable regulatory frameworks.
These regulations bring a wider pool of eligible investors and fewer details disclosures. Selecting the right jurisdiction for ICO will also provide an advantage in the preferred tax treatment and fewer penalties for non-compliance. Select a jurisdiction for ICO that benefits by bringing more investors with a more comfortable regulatory framework.
It is a technical document that you would need to release for potential investors. A whitepaper helps them understand your vision and the services you are offering in return for their funds. It would literally cover all kinds of market research, analysis, and the vision of the project.
I have already explained about Whitepaper in the paragraphs supra. But here is something I would want to re-mention.
You will have to state your development strategy, architecture, goals, and all information regarding token distribution. The whitepaper also includes details like resources, a description of the team, early investors, advisors, and more. Investors do read this whitepaper before making the investment.
Therefore it needs to mention all the details which attract the investors for providing the funds. A whitepaper should be framed with all the technical aspects that need to be written with a substantial amount of expertise.
A Whitepaper is what defines how an investor would react and think about investing in the project. It is one of the ways to show potential investors the benefits and future prospects of the projects that they will have once they invest in it.
6.6 Create your own website
Creating a website is one of the most necessary things that you should do before you launch an initial coin offering. It builds trust in the investors, the team, and the project’s aim. Your website should have a complete and detailed breakdown of the token sale and the structure.
It is one of the best ways to communicate information to investors clearly. The team section on the website should have high-quality photos, brief biographies, names, and all the relevant skills of the team members with links to social networks.
7 Best examples of successful ICOs
Ethereum’s ICO in 2014 was one of the best examples of a successful ICO which raised around $18 million over a time of 42 days.
Similarly, in 2018, Dragon Coin raised around $320 million. In 2015 a two-phase ICO began for AntShares, which was rebranded as Neo and raised over $4.5 million. In 2018, the company behind the EOS platform raised $4 billion in a yearlong ICO.
You can launch an ICO only if you are certain about what the product can offer to the clients and how you are going to go forward with it in the future. ICO is a complicated but legal process. Although it can be a bit difficult, you can use ICO launchpads to make the process easier.
Launching an ICO has provided a lot of new blockchain and crypto projects with the exposure they needed in the initial phase. Although it is a legal process, countries like China and South Korea have banned them outright.
While some countries have a strict set of policies, some provide a lot of exceptions on the entire process and fines. To ensure that the ICO is successful, it should be carefully planned and built on a foundation of compliance with securities laws in its jurisdiction.