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ICO: WHAT ARE WE TALKING ABOUT?
A new revolutionary way of funding is introduced by blockchain technology. ICO, which stands for “Initial Coin Offering”, consists of the issuance of new tokens that are sold to investors in exchange of the transfer of funds. The sale of tokens is comparable to a crowdfunding campaign, with the difference that all subscriptions and issuance transactions are recorded on a public blockchain ledger.
Indeed, It is an emerging phenomenon but grew very rapidly. Just in the first three quarters of 2018, it was raised more than 17 billion dollars through ICO, more than twice compared to 2017. The biggest ICO ever concluded is EOS, which raised approximately $4 billion during one year.
One interesting property is how they ease access to capital: ICOs are instruments that considerably lower barriers to entry in the credit market, permitting everyone to propose an idea and collect money. Even if it seems an elementary task, the process of launching a business through an ICO is not that straightforward. The main steps are:
- Drafting and publication of a white paper which describes the features of the token and all characteristics of the issuer and the project;
- Sale of tokens in exchange of cryptocurrencies, which usually is divided in two phases, private and public;
- Development of products and services delineated in the white paper that will be exploited by token holders.
ICO ecosystem is evolving rapidly and the most important open points are in how to regulate the phenomenon, especially in KYC and AML matters. The current regulatory stall is characterized by a not clear legal framework among the majority of jurisdictions. Observing the market during last two years we individuated the following trends:
- Private rounds, in which known seeders take a stake in the project, are the preferred way to raise funds in the early stages;
- Public rounds are becoming optional according the the amount raised privately. This is because it’s more onerous in terms of due diligence and compliance requirements to approach public investors;
- These trends are particularly evident for big players which finds more interest from large investors in the private sale. For instance, Telegram canceled its public sale after it had raised $1,7 billion during a private round.