Tony Conaghan and Claire Slunecko

Initial Coin Offerings (ICOs) 101

Tony Conaghan and Claire Slunecko

24 September 2018

IT

Initial Coin Offerings (ICOs), or ‘token offerings’, are cryptocurrency’s equivalent of Initial Public Offerings (IPOs).

In 2017, 873 ICOs raised around USD$6 billion in investment funds.

In just the first half of 2018, around USD$6.7 billion had been raised – 108% of all funds raised in 2017.

ICOs are a means for blockchain companies to raise capital in order to develop their products and services.

ICOs present opportunities for companies not previously available through traditional capital raising methods by creating a global,1 and horizontal rather than vertical, funding model. Investment into the company is made available to any investor (sophisticated and non-sophisticated) with digital or crypto currency, such as Bitcoin, as well as increasingly with fiat currency.

Process of ICOs and use of tokens

The process of an ICO generally begins with a company creating its own currency, which it then offers through an ICO in the form of tokens (coins) on the basis of a Whitepaper that sets out its proposed development objectives and utility of the tokens once its application platform is launched.

The tokens have a dual use:

  • they can be used to enable access, usage and/or purchase of the goods or services of the company (once these are developed and launched). This is comparable to using a movie ticket to obtain access to a cinema or using Australian dollars to purchase goods or services from traditional companies; and
  • they can also be traded on cryptocurrency exchanges (much like stocks on the ASX). Binance is one of the current leading cryptocurrency exchanges.

Although ICOs can technically be offered at any time during the lifetime of a venture, generally they are announced and offered prior to any actual product or platform launch.

Examples of ICOs in Australia include:

Havven

$38.6 million raised in March 2018

Provides a decentralised payment network and stable crypto coin through Havven (HAV) coins

Power Ledger

$34 million raised in October 2017 (current returns of around 26% since its ICO)

Provides an energy trading platform where users buy and sell low cost power with Sparkz tokens purchased with POWR tokens

CanYa

$12 million raised in December 2017

Provides a platform to offer and purchase services through use of its CanYaCoins (CAN)

Companies with ICOs cover most industries including social networking, housing, gaming, healthcare, education, intellectual property and transport.

A list of current, upcoming and past ICOs can be found here.

Companies have taken to ICOs like ducks to water. As with traditional companies, some will swim while others will sink.

We explore regulation of ICOs in our next ICO post.

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References

However, many ICOs ban US and Chinese citizens from participating due to the prohibitions and far reaching powers of the U.S. Securities and Exchange Commission (SEC) and the Chinese government’s bans and blocking of access to cryptocurrencies and ICO related websites.