The first thing everyone should know about ICOs is that they are not called ICOs anymore. You might remember the manic days of 2017, when projects with little more than a whitepaper raised over a million dollars in less than a day with an initial coin offering, an ICO. Some of these ICOs turned out to be scams, while others were legitimate, and the funds raised helped launch some of the most successful blockchain projects. Today, blockchain technology safely facilitates investments outside of traditional financial markets. Crypto tokens facilitate capital formation and provide incentives within blockchain networks. Token sales have become a vital part of the crypto-economic ecosystem and how projects are gaining importance. About the Author Ray Mayo is responsible for tokenization at Republic
History of the ICO
Bitcoin was the world's first cryptocurrency, arriving in 2010 through an obscure figure, Satoshi Nakamoto. As the white paper circulated among a multitude of technocrats and entrepreneurs, the world realized that this new use of decentralized technology could unlock myriad innovations that could serve as a new foundation for the global financial infrastructure. The most notable feature at the time was Bitcoin's ability to create a native digital currency that operated outside of sovereign reach. If Bitcoin could be used to encourage activity on the network and therefore maintain intrinsic value, then this model could be replicated. Back in 2012, people realized that they could create new cryptocurrencies that could be sold to raise funds for their projects, no venture capital support was needed. The most famous early example of cryptocurrency sales was the public offering of Ethereum tokens. Ethereum raised around €2.3 million in the first 12 hours. Participants paid via Bitcoin, which was the only way to access Ethereum at the time. Since then, token offerings have skyrocketed in popularity. 2017 was the year of the ICO mania that marked the definitive arrival of token sales. In that year, more than 400 sales grew an average of €12,7 million. These token sales were extremely lucrative for first-time buyers; it was common for investors to see 10X returns. In addition, they have helped cryptocurrency projects to secure the necessary financing to expand their operations. As of June 2018, more than 15 projects had raised more than €100 million. The total amount invested in 2017 was €5.6 billion. Easy Redemption Token Offerings resulted in a brilliant token market and created extraordinary wealth and opportunity for those who were able to cash in at the right time. As an unregulated market, thousands of investors were scammed during the ICO craze of 2017. These scams angered both companies and regulators. The People's Bank of China has completely banned token sales and prohibited banks from offering services to projects that use token sales to raise capital. Facebook, Google and Twitter have blocked ICO ads on their platform. In the United States, token sales occupied a legal gray area. The SEC implemented the Howey test to determine if a token was launched simply to raise capital without providing any real utility within a blockchain network. Today, people don't like the term ICO because it indicates an association with an initial public offering, the sale of a security, and is triggered from a regulatory perspective. We are still seeing the lingering effects of these early token launches and the harsh legal implications for projects accused of violating securities laws. Ripple, the organization that launched the XRP token in 2021, is in litigation after it allegedly sold €1.3 billion through an ongoing unregistered digital asset offering.How token sales work
In theory, you can symbolize anything that has value: stocks, bonds, art, gold. There are several ways to throw a token and the idea of "tokenizing" something. Utility tokens are created to perform a specific function or provide some type of ability. For example, within the Ethereum network, Ether is used as gas to pay for transactions and computing power to power programs that use the Ethereum blockchain. Think of these utility tokens as crypto products. One thing must be understood when launching a utility token, so as not to trigger securities laws: the token does not represent a stake in a project. As a result, they have no real intrinsic value and are not afforded any legal protection. They are valuable when used in conjunction with a specific technology. While security tokens, on the other hand, are believed to be digital representations of actual financial instruments. They may represent fractions of assets, such as real estate or stocks, and must be traded in accordance with local securities laws. Financial services institutions are embracing the use of security tokens to bring efficiency and transparency to the markets. A newer token model is the profit sharing token, which aligns community incentives with activity on the associated platform.Key points to remember
One of the most important innovations in the cryptocurrency industry has been the sale of tokens. The ease with which entrepreneurs can launch tokens to receive financing over the Internet significantly lowers the barriers to accessing capital. In recent years, token sales combined with regulatory changes have lowered the barriers to investing in startups and we are seeing non-blockchain native projects using token models to bring innovation to their industry. Token sales make our global financial system more open and more liquid. In short, token sales...- They are a new method for startups to raise funds
- Take advantage of new technologies to facilitate capital formation
- They are mainly built with the Ethereum ERC20 standard
- They are very risky, so an investor should never invest more than he can afford to lose.