Definitive Guide to ICOs
Each year a rapidly evolving digital economy generates more and more cryptocurrencies and tools associated with them. How to make everything clear? How to seize the opportunities? How to contribute in an ICO and how to enter the cryptocurrency exchange? Ambisafe provides a complete guide to an ICO.
What is an ICO
An ICO isan analog of IPO in the cryptocurrency economy. If IPO is known to us as the initial public offering of shares on the stock exchange in the traditional economy, an ICO (Initial Coin Offering) is the process of release of the company’s owntokens (an analogue of shares on the traditional financial market with a number of unique properties) and their accommodation on the cryptocurrency exchange.
Due to innovations, provided by the blockchain technology, the cost of this process with the use of cryptocurrency exchanges isten times cheaper than the cost of the traditional IPO on the financial exchanges. If the typical IPO price for the European stock exchange is within $1-2mm range, the cost of an ICO process with access to the cryptocurrency exchange ranges within $100-200k. At the same time, the result is the same in both cases (the size of possibly attracted contribution is many times greater than the cost of the process of release), that is, spending about $100,000, a company may raise up to $50,000,000 of contributions.
Here are some examples of successful ICOs run in 2016-17 (the dollar equivalent of the funds raised is counted as of the dates of an ICO campaign):
- Iconomi is an open fund management platform. The ICO was held on 25\/08\/2016–29\/09\/2016 and brought 17,274 BTC, which is equivalent to approximately $12,000,000;
- FirstBlood is an infrastructure for gamers, a decentralized eSports platform based on smart contracts. The ICO started on 25\/09\/2016 11:55:33 PM and lasted for 8 minutes 48 seconds bringing 465,313 ETH, which is equivalent to approximately $5,500,000;
- Golem is a decentralized worldwide supercomputer that can be used by anyone to sell the computer's computing time over the internet. The ICO started on 11\/09\/2016 and was completed on the same day, as it attracted the necessary amount of contributions and fulfilled the plan in one evening. The project brought 820,002 ETH, which is equivalent to approximately $8,000,000;
- Filecoin is a decentralized file storage network where people earn Filecoin for hosting files: people who have extra space available provide it for those who need storage. The project raised $257,000,000 in 2017;
- Tezos is a brand-new blockchain that provides the ability for network-wide changes to be decided upon at the protocol level by stakeholders. It raised 65,627 BTC and 361,122 ETH ($232,000,000 million).
Usually, an already known company with a stable financial history enters the financial exchange. An ICO is mainly used forcrowdfunding projects, i.e., for companies that just start their history. New entrants cannot predict the reaction of the market to the full. Therefore, the first step to start an ICO is a pre-announcement of the project.
Stage 1. Pre-announcement
Pre-announcement is the announcement of the future project in the communities of cryptocurrency contributors, such as Bitcoin Talk, Reddit, and others. The founders of the project write anexecutive summary – a small presentation for contributors, in which they explain the essence and purpose of the ICO project. After the executive summary, the company receivesthe first feedback which can be analyzed to see whether the project could interest contributorsor not.
The pre-announcement will likely raise many questions. People may wonder about the project's business model and unperceived risks. Feedback then leads to business model adjustments until both founders and users are happy. Stage one ends once the project's business model has been finalized. The offer is then detailed in writing.
Stage 2. Offer
An offer proposes the terms of a contract. They can address a single person or an unlimited number of people. A listing company that enters into an ICO will have offers made on their behalf. The offer covers the nuances of the project. It specifies thedesired contribution amount and outlines project deadlines. The offer also dictates the type offinancial instrument that will appear on the stock exchange. As a rule, these are tokens.
Blockchain tokens are comparable to a financial instrument. Exchanges provide the clearest representation of each tokens monetary value. A token can represent more than a store of financial value, however. It could be worth $1 of debt, 10 shares in a company, the right to vote, and so on. There are no established standards that limit what a token may represent. Project specify this individually, with their offers covering all rights possessed by the token. Here is an example: Foreign exchange reserves back the value of DGD token. Each token gives holders the right to submit proposals. Shareholders use these proposals to guide the management of the company.
After signing the offer, they announce the start date of their token sale. The issuing company then carries out an active PR-campaign.
Stage 3. PR-campaign
Young and little-known companies are often the most likely to carry out an ICO. PR plays an essential role in the success of these projects. Working with specialized agencies, they host presentations at various conferences, and so on.
A similar type of campaign (called a Road Show) takes place before an IPO begins. In the financial economy, a Road Show is a series of meetings where major contributors and analysts meet in key cities around the world. In the case of an ICO, the PR campaign lasts a month on average. The focus is not on institutional contributors, such as banks and funds. Instead, they target a broad segment ofsmaller contributors
In this case, crowdfunding participants are your target audience. These are your so-called"business angels". Such contributors are more willing to support projects that match their experience. Personal involvement and expertise are the intrinsic differences between angels and private contributors. There are many entrepreneurs among active business angels that are attracting external funding for their projects. These funds are called "angel contributions".
The process of trading tokens begins once your PR campaign has ended. On your ICO's start date, the company provides a way to purchase the tokens offered. As a rule, there are two such methods.
Stage 4. Start of sales in the framework of ICO
There aretwo ways to release tokens on a blockchain:
Your smart contract releases your tokens once you have reached your funding minimum. It divides them proportionally between contributors. You will usually organize a special site within the contributor's office for this purpose.
To sell the token on exchanges, you must release it in advance. This allows the token to trade on more than one exchange at a time. In this case, the ICO's process is identical to that of an IPO.
After the completion of the token sale, the issuing company begins to implement their declared commitments to contributors.
Blockchain is developing rapidly. This is driving the ICO market to form in a way that is similar to the traditional stock exchange market. However, this happens at high cutting speeds.
ICO projects can reach an enormous size. Do you remember when Apple, Amazon, and Google launched their IPOs? Think about how much you would have made if you had contributed to those sales. Some people view ICOs as their second chance to become a part of history. They support worthy token sales because they feel that their own success will come from helping others to be successful.
Our goal is to help contributors and projects achieve their aims. We run our ICOs securely and efficiently by reducing market risks. We maximize profits through increased transparency and stability.