Crowdfunding is the procedure of funding a venture or project by raising some amount of money from a large number of individuals, generally with the help of the internet. Crowdfunding is just another form of crowdsourcing and alternative finance. In 2015, over $34 billion was raised by crowdfunding across the globe. Crowdfunding has been preferred to fund a wide range of businesses for profit such as medical expenses, creative or artistic projects, and community-based social entrepreneurship projects.
Beginning of ICOs
Nowadays, there are many types of funding that are happening by using cryptocurrencies. For example, Initial Coin Offering or ICO is a popular kind of funding, often considered as a form of crowdfunding, nonetheless, a private ICO which does not require public investment is also possible. In the case of ICOs, cryptocurrencies are sold in the form of tokens or coins to investors, in exchange for other cryptocurrencies or legal tender. An ICO can be extremely beneficial for start-up companies as a source of capital. Start-ups can also avoid complying with regulations that help them get prevent from seeking investments from public and intermediaries like banks or stock exchanges directly. Public investment may demand a high investigation or some percentage of joint ownership or future profits.
ICOs had managed to gain great popularity in 2017. Ethereum also gained a lot of popularity as a leading blockchain platform for ICOs and has more than 80% market share. Unfortunately, Facebook banned ads for ICOs, cryptocurrencies as well as for binary options in 2018. Such ads were also banned by Twitter and Google. But Facebook changed their mind in the same year and reopened their platform for just approved advertisers. This is why there are many people who are still interested in investing in ICO development companies. People are also investing in marketing their ICO project with ICO website development to attract potential investors.
SEC also warned investors to potential scammers that are using ICOs to run their Pump and Dump schemes. This such kinds of schemes, the scammers talk up the value of ICO to create interest and then increase the value of the coins, and immediately dumps the coins for their profit.
Emergence of IEOs – The Major Reason
While Initial Coin Offerings were having quite hard times in fundraising, Binance disclosed a brand new fundraising source called Initial Exchange Offering under its Binance Launchpad’s banner. Although IEO obeys the same pattern to the ICO, the major difference lies in the transactions between contributor and developer are actually facilitated by a third party. That third party is called an Exchange or Crypto Exchange. The IEO is administered by the exchange on the behalf of start-ups that need fundraising with their newly issued tokens.
Therefore, the token sale is conducted on the platform of an exchange; issuers of the token have to pay a listing fee and a percentage of the token that is sold during the IEO. And in return, the tokens are sold on the exchange’s platforms. Once the IEO is over, their coins are listed. Since the exchange takes a percentage of the tokens that are sold by the start-ups, the exchange is provided with incentives to assist with the marketing operations of the token issuer.
One of the major benefits of using IEOs is trust. IEOs can remove the risks involved in the scam and various suspicious projects from fundraising through crypto exchanges. Therefore, it has become difficult for fraud contributors with Initial Exchange Offerings. Another benefit of using IEOs is security. The cryptocurrency exchange platforms can manage the smart contracts of IEOs. So, IEOs are safer alternatives to ICOs. Exchanges that have joined IEOs include Binance, Bittrex, BitMax, OKEx, KuCoin, and Huobi. Nowadays, you can easily hire an expert who is certified to provide Initial Exchange Offering services.
Why STO or Security Token Offerings?
ICOs haven’t only inspired the rise of IEOs but also that of STOs. As the ICO wave waned, the emergence of STOs sought to address the disadvantages of ICOs by providing tokens that are completely regulated making it difficult for scams to exist. Various regulators majorly forced this switch as they sought to create securities law to token offerings. This led to the birth of Security Token Offerings that can be described as ICOs that can obey the regulators of the nation that they provided.
According to a recent report given by InWara (a data analysis company specialized in the ICOs) there are a less number of ICOs popped up in 2019. Unlike this, STOs were witnessing uplift. During the beginning days of 2019, STOs have also witnessed an uplift of 135% with around 45 projects are being launched this year compared to the beginning days of the last year.
Security Token Offerings are compliant with regulations. In many countries, they have to file to exemptions with SEC to make sure they do not witness cease orders in the future. Since STOs comply with regulations they spur the entry of any new investor without getting worried about scams.
STOs seem quicker but they include a tricky issuing process. When it comes to raising traditional securities or capital, your job can be a bit easier as they do not need a platform to move forward with capital raising practice. But for an STO, you will need to create its platform as well as tokens to manage their sales.
In the case of STOs, the tokens are guarded by real-life security. As a result, STO manages to keep any small and amateur investors away. Such types of tokens can only be bought by accredited investors. Nonetheless, STOs are expensive fundraising ways as compared to the other options. The best thing is that they are fully secured by the KYC/AML process and other essential regulatory protections. You can consult many professionals offering the most reliable STO development services at affordable rates.
The Final Thoughts
Every investor should be concerned about his or her ability before making any decision about trusting ICOs, IEOs, and STOs. Initial Coin Offering Services are perfect for those people who prefer pocket-friendly investments with fast cash out methods. IEOs are ideal for investors that are looking for enhanced security and more sophisticated opportunities for investments. STO launch services are an ideal option for those companies that are looking for investors with a large budget. Ultimately, investors have to make the final decision based on resources, time, and potential risks.