ZoneBitcoin EditorialIn the traditional financial world, we are accustomed to traditional fundraising, which takes the form of IPOs. These are called IPOs (Initial Public Offerings). From an entrepreneur's perspective, this is extremely regulated and is aimed at the strongest entrepreneurs.
It is with the advent of Bitcoin and then more preciselyEthereum that crypto fundraising has gained momentum. It was the first time that we had seen such a system called into question and made so accessible to everyone. No more need for intermediaries, all entrepreneurs who wanted to raise funds could do so (and technically still today, it's possible, it's just the credibility that has disappeared over time...We'll see that later) .
You have certainly heard of ICO which were all the rage in 2017, right? Or maybe you've even heard of STOs or IEOs (Initial Exchange Offering)?
If, in this article, we are interested in IEOs, it is because this is what seems today to be the preferred route for blockchain startups to raise funds. The model seems more appropriate, both from the point of view of companies and that of investors. You will understand why by reading the lines below.🤓
We will also come back in a future article on IDOs, the recent version of crypto fundraising!
So, if you like to understand more deeply the underside of the world of cryptocurrencies or simply want to know how to invest using these financing models, you are on the right page.
But why do we do fundraising?
Well, the principle is simple to understand. A company will seek capital to launch its project from investors.
Whatever the form of fundraising (ICO, IEO, STO etc), the mechanism is always the same. Investors will buy tokens from the company and with the money raised, entrepreneurs will be able to develop their projects.
Due to the fact that it is an upstream investment, the risk is greater because the investor does not know if the company will use the funds well and will develop the company as it wishes. Likewise, because the company is very young, its token is sold at a lower price because it has not validated the market and basically, we don't know if it will work.
I prefer to clarify this point because there are parameters that go beyond the investor and the entrepreneur himself. Running a business, generating profits, managing your team, updating your services, all this determines whether the business will be profitable or not. It is therefore a bet on the company that the investor makes when participating in fundraising.
If he invested in the right project, then, in fact, he can be proud of making a profit and reselling his tokens purchased at a low price, at a much higher price. This is even how many people got rich in cryptocurrencies.
They were able to invest early in projects which today are real successes.
This is also why many investors always want to invest in upstream projects while looking for the future nugget.
The start of fundraising with millions with ICOs
ICOs first appeared in 2014. It was the very first time that we could raise funds for a company without going through the traditional venture capital method. With ICOs, investors received tokens from the projects in which they invested in proportion to what they had invested. Thus, companies immediately had their own funds available without having to follow traditional fundraising procedures, which are long and above all costly.
Then, it’s true that in 2017, we only heard about incredible fundraising with ICOs. In fact, the craze was still legitimately retrospective. Before the creation of ICOs, there were few new cryptocurrencies created because there was no way to raise funds so easily.
Because that's the great revolution of ICOs: allowing everyone to finance new projects by purchasing tokens. The desired goal was then to be able to participate in new projects by having access to tokens at a lower price.
On the other hand, entrepreneurs had immediate access to start-up capital even before creating their projects...
Thanks to the ICO, there were many superb projects that you know and perhaps use today. There, it was a real success and the ICO had real meaning. We can cite the Ethereum project of course (which subsequently made it possible to explode ICOs), the project Brave with BIATEtc.
BitTorrent (BTT), for example, was launched in February 2019 by parent company TRON through an IEO on the platform. More than 7,2 million were raised in less than 15 minutes...Today, those who invested had a multiple gain of more than 10 times.
But, every good thing has its limits….
Why are ICOs no longer interesting to investors?
You understand the flaws of such a system…right? Speculators and scammers of all kinds saw it as the perfect way to find funds without having to develop large scam schemes. Sometimes, it was simply enough to create a site (just a Lansing page) with beautiful drawings and beautiful tables of estimated yields for the mayonnaise to take hold.
There were obviously abuses and there were so many scams with millions and millions invested in bogus projects that the authorities got involved.
So this is where the authorities pointed out ICOs because let's remember that at that time, ICOs did not fall into the category of fundraising.
It is from there that the legal frameworks were updated and fundraising took other forms, such as with STOs and the famous IEOs.
Although this article is not specifically about STOs, I think it is important to give a quick summary of what they are. It will perhaps be easier to understand why there were IEOs later.
After the madness of ICOs, the hyper-regulation of STOs…
STO stands for "Security Token Offering" and is therefore a tokenized digital security token. STOs represent real financial assets such as stocks for example.
In fact, the big difference between a ICO and an STO, the first concerns utility tokens (Utility Token and STOs are those of Security Token. The latter represent a transferable security, equivalent to a security.
If you don't really see the difference yet, tell yourself that if you have a Utility Token from a company, you can then use the services of that company. But, if you own Secutiy Token from this same company, then you have shares in this same company.
We therefore see how STOs were an improvement on ICOs. Indeed, when we participated in ICOs, we simply had tokens in return as counterparty. There, with STOs, the investor has a portion of the company's securities, he becomes a shareholder in some way.
This is why in fact, STOs are then regulated and for example, in the USA, to participate in an STO, you have to be an accredited investor. This is explained by the fact that STOs are certified by the "Securities and Exchange Commission (SEC)". So an STO turns out to be more reliable, secure and regulated therefore.
Moreover, the first STO was that of Blockchain Capital (BCAP) in April 2017. This STO managed to obtain $10,000,000 in a single day.
That said, it is this same regulation which has meant that STOs have not been wildly successful either because access was becoming harder (especially on the business side). Businesses must register with financial institutions to meet all legal requirements. Obviously, this discourages phony companies and scams. In fact, only serious companies do it because the protocols are so serious. That said, this mainly concerns the United States because it changes from one country to another depending on the law adopted.
For the investor, the process did not change but he had more security and less risk to participate.
(To find out more, you can read the article: Difference between IPO, ICO STO ).
If you want to invest in STO, you must first create an account with a qualified STO trading platform. I'll show you which platforms are available later.
To invest in an STO, it is therefore a little more complicated than for the ICO. Very often, you will need to validate your identity. The more completely you validate your identity, the more you will be able to invest larger sums. For example, at level 1 validation, if you simply enter your first and last name, you must go to level 2 and provide your identity document etc. You will also be asked for your proof of address, telephone number, etc. It's regulated once again. And, this may therefore prevent certain investors from participating in STOs…
Well, there have been other attempts to regulate and democratize ever more, but what interests us is the most successful model so far.
What is an IEO (Initial Exchange Offering?) and why is it a win-win for everyone?
Thus, STOs and IEOs are the improved and legalized versions of ICOs, in a way. IEOs therefore appeared afterwards to be able to raise funds in a simple way while guaranteeing security for investors.
This is why IEOs are done on exchange platforms. In fact, these platforms will serve as an intermediary, no more, no less. Why do you ask me? Well, the benefits are multiple for all parties:
For the manager of a business:
- When you go through a marketplace, entrepreneurs benefit from the notoriety and solidity of the marketplace. It is in fact she who will agree or not to list the projects. Thus, they would not take the risk of listing just any project, at the risk of losing credibility.
- Therefore, the company benefits from listing its project on the platform for marketing reasons. There is no need for external communication. The platform will be able to show its users a new opportunity to seize.
For investors:
- Saving time: When a user wants to invest in an IEO, they do it directly because they are already registered on the exchange platform. Basically, since he has already completed the KYC/AML forms, he does not have to send new papers. Only registered customers can invest in IEOs.
- In addition, they are guaranteed to have liquidity afterwards and to be able to trade it directly on the platform.
- Easier! For ICOs, you had to install a dedicated wallet, have ethers and send them to the wallet. Sometimes you had to send your papers. Anyway, it was long and tedious. With exchange platforms, this is done directly without having to download anything.
- Furthermore, you are not obliged to invest in ether (ETH). In many cases, we can invest in euros or dollars.
For marketplaces :
For the market places, it’s blessed bread, I want to say. In fact, they will charge for this service so it gives them a significant additional source of income. Yes, because it can go up to 10 BTC for certain operations. Sometimes they can also negotiate a percentage of sales.
What are the disadvantages?
In fact, the biggest disadvantage of IEOs is that it is the exchange platform which will validate the projects upstream. Even if in absolute terms it is still a good thing for sorting the good projects from the bad ones, it can have its negative side.
IEOs: the ideal way to invest at the start of a project?
So, although in absolute terms, investing in IEOs is a good way to invest in promising projects. Many good projects launched via IEOs have been real successes. That said, it remains speculative and it remains an investment all the same. Basically, we can also invest in projects that are not solid too. That can happen too.
Furthermore, one wonders if this new trend will persist. It would seem that depending on its format, we can answer in the affirmative.
In fact, the ICO craze is behind us even if some projects still do them, but are so much less successful than the ICOs of the past. Today, in 2019 and in 2020, definitely, IEOs are the favored financing methods. Here again, in the idea, it is always the resale of tokens that we will do on a specific exchange platform.
What are the platforms for investing in IEOs?
There are still several platforms that offer IEOs, such as:
- Binance Launchpad : In fact, it was the first platform to offer this, with BitTorrent in February 2019. Since then, other platforms have followed suit. Today, Binance Launchpad offers other types of fundraising like IDOs.
- Bittrex International : We can cite the Veriblock IEO for example during the month of April 2019 which was a proven success.
- Jumpstart, the OKEx launch platform: An interesting platform (We are preparing an article on the OKex platform).
- probit (an exchange platform in which we have an IEO tab.
So, why participate in an IEO?
The principle of the IEO (just like the ICO) is to create a utility token on a blockchain. This token is intended to be used to use the service designed by the start-up.
We will therefore speculate on the future value of the token in question. We imagine when we invest that the token will be used and therefore logically increase in value.
There are actually two big reasons why people participate in IEOs:
- For profit : However, many projects fail and few succeed; This is a fact which is indeed close to what we can see in the world of classic startups. That said, when you find the right project, the nugget, then it can really make huge profits. Remember, people participated in the ethereum ICO and got it for pennies.
- To support a project : Yes, it may be a lower participation but many people participate in IEOs because they want to support the project and want to use it later.
How to actually participate in an IEO?
The first thing is to register on a platform that allows IEO projects like the platform probit, for example or Binance Launch.
First step: Register on a platform that offers IEOs.
For the tutorial, we chose the platform probit, but we also advise you to try the other platforms that we mentioned in the article and make your choice. However, we use Probit because it turns out that it remains relevant and practical for certain promising projects.
Moreover, most exchange platforms now offer different types of fundraising. You will find everything there 😉
Registration is classic as on all exchange platforms. Also, you will need to complete the KYC if you want to go further and invest in projects.
Second step: Choose the project of your choice and prepare for launch day
You know, investing in an IEO, even if it is technically simple, still remains an investment. It is therefore necessary to carefully check the entire project. Discover the team behind it, see the roadmap, analyze the validity of the project, etc.
IEOs can certainly be very profitable, but on condition that you choose solid and viable projects.
Third step: Deposit cryptocurrencies
Depending on the platforms you choose, the deposit method may differ. You can buy cryptos directly by bank card or deposit them directly. This is how you can subsequently participate, depending on the crypto of your choice, in the IEO.
Please note: You cannot buy cryptocurrencies directly by bank card on probit. You will then have to buy, for example, USDT or BTC by bank card on Binance or another platform of your choice and send it to your Probit account. From there, you can buy PROB to buy tokens at a lower price or buy them for USDT or BTC directly.
So! It's that simple !
Conclusion on how to invest in IEOs?
Well, as we have seen, investing in an IEO turns out to be relatively close to that of investing in an ICO. Now, with new entrants almost every day, the most important thing is to choose the projects in which you want to invest. Even if it remains less risky in theory than ICOs, there is still an element of risk in the sense that the project is still new.
It’s up to you to look at the project carefully and the tokenomics in particular.
Above all, we also know that the choice always becomes more difficult, but tell yourself that among all the projects you see, only a few of them will prosper in the long term. Many investors speculate on these tokens and sell immediately after the end of the IEO.
We will also see in a future article, the new form which is gaining a lot of interest, namely IDOs! You will see that it is an equally interesting version of participating in the beginning of a cryptocurrency.
Be aware of the risks and if not, we hope you make a good, well-considered investment that will bring you big returns in the long term!
Note: No financial advice is given on the zonebitcoin blog. This is information of which you are the sole judge and master. Be responsible with your investments and only invest as much as you are willing to lose.
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