Fundraising Methods Across Blockchain
Since the success of cryptocurrencies like Bitcoin and Ethereum, more companies have used them as an instrument for raising funds via token sales. Cryptocurrency technology has brought about a new venue for investment for business people in various areas. Suppose you are running a business and wish to move forward and take your business to the next level. In that case, there are several standard options available to you, such as taking a loan, going public or finding a professional investor. However, blockchain offers better fundraising methods, like IPO, STO, ICO, IDO, IEO, and IGO. Keep reading to see what they are and how you can benefit.
What Is An IPO?
IPO stands for an Initial Public Offering, a fundraising process related to the first time a private company offers its stocks to the public. To sell shares or raise capital and fund expansion, companies and entrepreneurs utilize IPO. An IPO is a big move for any corporation or company to offer their shares to be listed on a stock exchange, where their shares can easily be traded.
How Does An IPO Work?
If you run a business and want to obtain more money, you can go through an IPO. As a company owner, you should hire a bank as an investor who underwrites the IPO. Underwriting is a procedure in which investor banks specify a company’s valuation. Then, a part of the company’s shares or the whole part will be sold to the investor bank at the set price, and the bank distributes the shares. These processes force the company to be submitted with securities and exchanges. After applying for an IPO, the company’s crypto assets trade on a crypto exchange, a market where securities are bought and sold.
IPO Benefits And Drawbacks
Although companies aspiring to go public and further grow their finances face enormous opportunities to expand their organization, they also have to deal with the downsides or challenges associated with the transition. On the one hand, an IPO increases sales, profits, prestige, public image, marketing, and development. On the other hand, all the companies and communities that implement the IPO should disclose their financials, like accounting information, taxes, and profits. The transition to an IPO is expensive and requires lawyers, bank investors, accountants, and time-consuming endeavors.
What Is An ICO?
ICO or Initial Coin Offering is similar to Initial Public Offering (IPO). It is an alternative way for corporations and companies to raise capital across the cryptocurrency market. An ICO is another process of fundraising and crowdfunding that came up in the blockchain ecosystem. Instead of selling shares or getting loans and dealing with banks or capitalists, ICO allows startups and companies to create a digital coin or token. These digital tokens could be sold to investors in exchange for cash or cryptocurrencies, like Bitcoin and Ethereum.
How Does An ICO Work?
The first step for developers and marketing teams is to issue a whitepaper consisting of technical, functional, and fundamental business details and announce their new project and roadmap. The next step for getting involved is to broadcast the details of their ICO. These details include the total number of tokens, the token’s price, and how long these tokens need to be held. Before launching their company, they sell tokens to the investors. Most investors use Bitcoin and Ethereum for tokens and hope that the startups become very popular to become more valuable than their tokens.
ICO VS IPO
- Listing: Instead of listing the ‘token’ on exchanges in ICO, IPO ‘shares’ will be listed on exchanges.
- Initiate: The IPO process involves lawyers, banks, and a lot of patience. In ICO, the only requirement is a whitepaper.
- Regulatory: The main difference between IPO and ICO is that IPOs work well when centralized and fully controlled by a corporation. ICOs work well when decentralized, and there is no central authority.
- Timing: The ICO process takes less time than an IPO.
What Is An STO?
Blockchain is changing the traditional financial market to streamline the process of financial fundraising. IPO is being replaced with ICO and STO on the blockchain ledger. STO stands for Security Token Offering and is quite similar to ICO, another important method in the financial world to push your business forward. Using STOs is a simple and cheap way to raise capital for companies and associations. An STO is a process of selling security tokens to the public while preventing the long unbearable process of an IPO. STO offers secure and transparent direct investment to investors of a company. If a company issues a security token, the process is called STO.
STO enforces all the companies and entrepreneurs to fulfill the regulations and disclose their information. Blockchain and smart contracts certify that these processes are safe, transparent, valid, and fast and reduce the risks.
STO Vs ICO
Despite the differences, both STO and ICO are proven fundraising ways for blockchains and similar projects. The main difference between ICO and STO is that ICO is built for utility tokens, but STO is for security tokens. To participate in an STO, one needs to have an accredited company. Meanwhile, an ICO does not require a company operation for buying and selling utility tokens, and anyone can launch an ICO. ICP offers investors the company services and products, whereas STO offers tangible securities. Unlike the ICO, STO is regulated by the government and needs to adhere 100% to the rules set by the governance bodies.
What Is An IEO?
So far, we have learned about IPO, ICO, and STO and figured out how they work. Now, let’s elaborate on an even newer method known as IEO. IEOs are ICOs administered by a cryptocurrency where crypto startups raise capital through crypto exchanges.
How Does An IEO Work?
In IEOs, crypto exchanges will confirm whether the projects and their whitepaper, core team, and tokenomics are rightful and valid before any token sales. As a startup or company issues some of its tokens to the exchange, the IEO will be listed on the exchange website, where users can purchase tokens with funds directly from their own exchange wallet.
IEO Vs ICO
Although an IEO is a type of ICO, there are several significant differences between the two fundraising methods:
- Risk Of Fraud: As we said earlier, too many money grabs occur due to ICO’s not having any regulations. But IEO aims to solve this problem and involves a third party to weed out fraudsters.
- Investors: With ICOs, anyone can be an investor. But with IEO, only users who have an account on the exchange and have been verified can become investors.
- Third-party: In ICO, there isn’t any authority, but the IEO is run by exchange and is centralized.
- Token listing: Through the ICOs, sometimes the tokens aren’t listed, and the project crashes. With an IEO, the tokens are listed on the exchange within a few days after tokens are sold.
What Is An IDO?
One of the most popular terms in crypto is Initial DEX Offering or IDO, the newest pattern for crypto projects and a substitute for the previous fundraising model. An Initial Dex Offering is like an IEO but with more freedom. IDO was first introduced in 2021 and is used by projects looking to raise funds from investors, like Uniswap, PancakeSwap, etc. The IDO coin is distributed via decentralized liquidity exchanges, such as Uniswap, Bancor or Binance. Binance DEX has hosted the first-ever IDO.
How Does It Work?
IDO works with a DEX (decentralized liquidity exchange), a type of crypto asset exchange. DEX relies on liquidity pools with which traders can swap tokens, it also makes companies launch a token, and instant liquidity will be available for them. In an IDO, developers don’t need to wait for a pre-sales end to access funds like in an IEO.
IDO Vs IEO
- Marketing: During an IEO, the crypto exchange promotes the project. Through the IDO, marketing is done by the project and launchpad.
- Token availability: Unlike the IDO, tokens in IEO are not available immediately for trading.
- Listing: Instead of listing the token on exchanges, the IDO tokens are listed on the DEX and the launchpad.
What Is An IGO?
Initial Game Offering or IGO is a new crowdfunding and fundraising platform with its own gaming blockchain. IGO allows developers to invest in blockchain before starting a project for expanding the games. Additionally, it helps developers get extra funds and returns for their projects while giving gamers early access. An IGO is generally similar to an ICO with some differences. IGO is an advanced concept of the crypto space that makes it possible to enhance the level of NFT gaming to a greater space.
Initial Game Offering Launchpad
Various IGO launchpads have surfaced recently, given the agile development of many blockchain gaming platforms. IGO launchpads are designed to help users build a space to showcase their skills on their projects and implement their gaming ideas freely. Launchpads are hosting and offering several game-based projects on their platforms. To expect considerable ROI as an investor, you can put your money and stock into the gaming projects, and once that gaming project is launched on the greater crypto exchanges, you will earn more funds. Such a hack, ha?!
GameFi (GAFI), Enjinstarter, Game starter, Seedify. fund (SFUND) are several launchpads through IGO.
IGO Vs ICO
As we said earlier, the concept of IGO is similar to ICO, and the only difference is that in IGOs, the platform hosts gaming projects that are based on NFTs or tokens as their in-game currency and rewards.
Although the ways and models of investing in new blockchain projects have major improvements every year, it doesn’t mean that you should blindly trust IPO, STO, IEO, IDO, or IGO projects. Before investing in any project, you should do your own research, study the whitepaper, be aware of all the details and information about the project, and compare the market value. This article and other similar articles in Crytplogist.st are just a collection of information gathered for educational purposes to help you make crypto decisions confidently, and you must not rely on us for financial advice.