1
What is ICO?
The abbreviation ICO stands for Initial Coin Offering, that is, the initial placement of coins (tokens). During the ICO, the project team sells digital tokens for crypto-currencies or fiat money to investors. Later, these coins can be used on the project platform as an internal currency or trade them on exchanges. Also, instead of ICO, the term "crowdsdale" (English - crowdsale) is often used.
2
For what purpose do projects carry out ICO?
By issuing their own tokens and exchanging them for popular crypto-currencies (for example, bitcoin or Ethereum) or for fiat currencies (dollars or euros), the project attracts funding needed for launch or development. Usually, ICO is conducted early in the life of projects, before the creation their full-fledged infrastructure. The funds raised are used to finance the final stage of development, marketing, or are sent to special development funds to support projects in the long term.
3
What is the legal status of the ICO?
Now ICO can not be called a legal or illegal way of attracting investments. Its legal status, procedures and requirements for companies that are going to raise funds in this way are not currently defined in any country in the world. Moreover, it is also difficult to determine the legal nature of the relations that arise during the ICO. As financial relations in their classic understanding of such a relationship is difficult to call. At the same time, it can be said with certainty that this process is based on the reputation of the people behind the crypto-currency start-up, and the trust of users (potential investors).
4
Can I compare ICO to an IPO?
When the company wants to offer its shares to the general public, it conducts an IPO (Initial Public Offering - an initial public offering on the stock exchange). The ICO can work in a similar way: investors invest in a "share" in the company in the form of cryptographic tokens. At the same time ICO has similarities with crowdfunding: funds are usually collected to implement a certain idea, that is, at a stage when the project does not have a finished product.
At the same time, IPO is regulated by national legislation. For example, in the US for public offering of shares the company must be incorporated as a joint stock company, and also registered with the SEC (Securities and Exchange Commission). All this makes the process of attracting investments into the project at an early stage of its development more complicated, but it provides certain guarantees to investors.
In the case of ICO, the process of attracting investments is much easier, but users are not insured in any way.
5
What attracts investors to ICO?
By purchasing the tokens offered on the ICO, investors primarily expect:
To benefit from their sale at a higher price in the future (a classic example is Ethereum, whose tokens cost less than one cent during the ICO in the summer of 2014, and today their price has risen to almost $ 400);
To use tokens for their intended purpose, having received the claimed services at a lower price.
6th
What are the risks when participating in the ICO?
Perhaps the biggest risk can be called ordinary fraud, when the creators of the project pursue only one goal: to collect user money. In addition, since laws that would regulate the conduct of crypto currency crusades, at the moment there is no, from the investor's point of view this transaction is always based on trust . It can not be ruled out that the project may not survive to the stage of product appearance or disappoint the investor with its implementation.
In addition, in its current form, ICOs are usually held in one round, and the chances of obtaining additional funding from them are small. This can also be viewed as a potential risk in terms of the long-term existence of the project.
7th
What should I look for before attending the ICO?
The abundance of different ICOs can confuse many inexperienced investors. Therefore, first of all, it is necessary to carefully study the sale agreement (Token Sale Agreement). When reading this document, curious details may come up to the surface, which the organizers of the ICO may not have publicly announced. In addition, there are unspoken indicators of the conscientious intentions of the project:
Availability of all necessary agreements and rules published on the website as a public offer.
Ready working prototype.
Competently composed whitepaper and the rest of the documentation.
The presence of escrow (a special conditional account, which takes into account property, documents or cash prior to the occurrence of certain circumstances or the performance of certain obligations).
Incorporation (registration) of the company itself.
The unblemished reputation of the people behind the project.
More details about the legal aspects of the ICO can be found here.
8
What were the examples of the most successful ICO?
The success of ICO is a relatively arbitrary thing. However, the amount of funds collected is considered to be a generally accepted indicator. In this respect, leadership at the moment (we are talking about dry statistics, discarding other arguably controversial aspects of the campaigns) belongs to the Bancor project, which in June 2017 collected 396,720 ETH in less than three hours. An example of another rapid crowdsdale was an innovative browser Brave: in about 30 seconds the project managed to achieve a financial goal and raise $ 35 million.
In May 2017, a list of successful crypto currency cranes was added to Storj projects ($ 30 million in less than a week) and Aragon - in just 15 minutes from the start of ICO, the project collected the planned 275,000 ETH (about $ 25 million).
You can also recall the projects mobileGo ($ 53 million), Gnosis ($ 12.5 million for 10 minutes), Blockchain Capital ($ 10 million for two hours), Aeternity (23.4 CHF) and, finally, the failure of the Ethereum network project Status (about $ 100 million).
Also, do not forget about the already become part of the history of the crypto currency world of The DAO, as a result of the collapse of which in the summer of 2016 Ethereum Classic appeared.