Initial Coin Offering – A Brief Introduction To New Funding Mechanisms
The world of crypto is rising shoulder to shoulder with the traditional financial systems. Processes and principles are almost the same, with the vital difference being decentralization and a wider audience regarding crypto.
Today, we will explore one aspect of the crypto world, and that is the initial coin offering, covering its meaning, use, and potential in the crypto world.
Definition of ICO
Initial coin offering, shortly called ICO, is a digital method for raising capital. It is similar to the initial public offering or IPO, in traditional banking. Simply, it is fundraising for starting a new app or cryptocurrency, so that it can start working properly.
Some key steps lead to an initial coin offering. First, developers came up with a new cryptocurrency that they now want to put into use. This doesn’t necessarily have to be a new currency, but any crypto project. Now, the main plan is to publish the project, gain attention, and connect it with other blockchains, starting decentralized exchanges integration.
The project details are then launched in public via whitepaper, with all the important details(investment value, tokens, goals, etc.). This is a very important part of ICO, as it gives background to the project and “justifies” the need for funding.
Now, it is time to create tokens. These can vary from utility and security tokens to NFTs, all depending on the project. Most often, tokens are used as a tool to gain access to certain goods and products on the market. As there are plenty of them, exchanging, or selling it is no big news. LI.FI jumper exchange is one of many places where you can trade or exchange your crypto.
Finally, it is time to launch an initial coin offering. This is a time frame in which users and investors trade already-established cryptos like ETH and BTC for the new currency to raise its popularity and value.
Unlike with IPO, where stocks are sold, the money collected with ICO helps the working teams behind the project to continue working and raises the capital of the company, as funds are exchanged with the new currency.
After the ICO ends, tokens are distributed among the investors and donors and are free to be exchanged or sold for other currencies.
Risks of ICO
As good as it may seem, ICO has its downsides and risks, just as any other aspect of DeFi or traditional banking.
Before you decide to donate to a newly introduced company, make sure that the whitepaper they publish has all the information that proves they are legitimate and transparent. This covers the developers’ history, data, project details, and plans.
The buzz around ICOs has waned over the past few years, largely because of concerns about fraud and misleading information. In response, many nations have come out with regulations to shield investors. Meanwhile, newer fundraising programs like Security Token Offerings (STOs) and Initial Exchange Offerings (IEOs) have started gaining traction.
Conclusion – Helping others grow
Initial coin offering is a great way for innovative crypto startups to launch their business into the competitive world of digital finance.
Before donating any of your money to new companies, thoroughly research. Get to know the people behind the project – the founders and the team, and verify the project’s authenticity. This way, you can ensure your donation has a positive impact. Invest wisely!