ICO vs IEO vs STO: A Comparison of Tokenized Fundraising

1.2 thousand views Trying to get enough money for an idea in the past wasn’t simple. There were only a few options. Nowadays, Blockchain technology’s innovative power allows a wider selection of public-funded options feasible. Through the removal of an intermediary in transactions , and incorporating Transparency in transaction, the landscape of fundraising has grown. Thus, tokenized types of financing, like Initial Coin Offerings (ICOs) were a paradigm-shifting aspect of financing for businesses, particularly in the cryptocurrency market. But, as development became an integral part of crypto’s ecosystem new ways of raising money began to emerge. According to Bitcoin Smarter, their demo account will let you try out new trading strategies and settings in a real-time environment. These days, things like STOs as well as IEOs have been making headlines, which is bringing an increase in excitement in the field of cryptocurrency assets. Let’s find out what happens!

Initial Coin Offerings (ICOs)

Initial Coin Offerings (ICOs) are the most widely used method of crowdfunding in the cryptocurrency industry. Companies can use ICOs to raise funds for their projects through the issue of crypto tokens for sale at reduced prices for the subsequent development of their project. In ICOs, investors anticipate a high return from their investments, since the value of the token increases in the market. Making the ICO project is fairly simple which makes it an ideal choice for investors who are new as well as small-scale projects. Investors look for projects that appear solid and confident as their earnings are contingent on the value that will be earned by the token that they buy.

Initial Exchange Offerings (IEOs)

Although it is a relatively newcomer in the cryptocurrency market It has developed as an alternative to IEOs. IEOs generally involve the direct method of providing crypto tokens to prospective investors. In this case, the businesses sell or trade their tokens in exchange for another currency (mostly ETH) via exchanges to individuals. Therefore, instead of forming an intelligent contract through an ICO the investor sets up an account on the exchange and transfers funds in ETH into the bank account. In this way, when there is an ICO, participants can buy the token in a direct manner. The uniqueness of this method of fundraising is that it has an inherent centralization. In a variety of situations, a significant portion of tokens are owned and controlled by a smaller group of individuals and the method of enlisting them through the aid of exchanges could be costly. In other instances the flow of funds within the system is influenced by market’s movement. IEOs have created the conditions that inflation may be created in the beginning, and will then be slowed down as soon the coin of the project is ready to trade and thus very risky in the long run.

Security Exchange Tokens (STOs)

STOs in their simplest form, are similar to the sophisticated and regulated types of fundraising within the cryptocurrency space. They are an intermediary between the crypto community and the rest of the world. They offer an investment contract which is usually transformed to become an investment asset, such as bonds, stocks and real estate trust. They operate similarly to traditional stock options to ensure that the investment is recorded in an electronic ledger system. They are mostly made up of real assets and, therefore can be subject to operating and regulation laws. But, they are distinguished by the many specifics involved which makes the integration of this system restricting.

The Variations in the Tokenized Fundraising Landscape

While these kinds of crowdfunding share a common objective (i.e. to raise sufficient capital to continue project development) They offer distinct advantages that make them stand out over other forms. One of the most significant obstacles of moving the cryptocurrency industry to mainstream status has been the lack of centralization that defines it. The regulation of the crypto space has been a frequent problem. The ICO market has gained momentum due to the presence of a relatively lenient regulatory process. The strong regulatory influence is against the idea of decentralization and independence typically incorporated through Blockchain technology. Therefore, since ICOs are virtually an uncharted territory it is much more easy to raise money for projects. But, this – in the ICO environment – means that investors are at danger of being involved in scams or projects with no solid backups or continuity. STOs however are subject to regulations that are limited to the rules that govern the platforms that they use for their services. Most trading platforms are subject to KYC/AML regulations which limit participation on the basis of compliance. They offer companies the chance to expand by leveraging the existing customers of exchange as well as the trust engendered by the exchange in the credibility of the venture. STOs are known for their expensive cost of fundraising and are heavily weighed down by tax and regulations that are strict. Security tokens are categorized as US’s property and thus make their offerings tax-exempt under laws that apply to real assets. However, they do have advantages of being the most secure type of fundraising. The reason for this is that the legitimacy of the investor and project is documented properly and is, therefore can be easily verified prior to investments.