According to a handy ICO tracker at CoinDesk, nearly $ 4 billion in funds have already been raised through initial coin deals (ICOs). In news articles, you may have seen the ICOs described traditional IPO terms. Many define an ICO as a “digital IPO” or, as Bloomberg writes in October, “as an ICO, but with digital currencies”.
That is not correct
In an ICO or “Token Selling”, an Internet company sells digital tokens that have created for later use in their ecosystem. Typically, investors buy the new token with existing Cryptocurrencies such as Ether or Bitcoin, or with US dollars. There is no guarantee that the token you buy will add value.
Listed below are the key differences from an IPO:
- If you buy tokens in an ICO, you will not get any capital in the business. You have no property rights, you have no choice, nothing to do with the privileges that you receive if you are a stockholder of a listed company.
- Tokens are not comparable to shares. They can hypothetically increase their value according to the success of the company, but this is not the case, even if the company is successful.
- And the company does not owe you a real commitment.
At ICO, new Internet companies are seeing a quick way to increase capital, and investors are seeing immediate entry into Cryptocurrency. But investors must be careful: ICOs are extremely risky and many are likely to be fraudulent. Most symbolic sales companies have not yet launched a product, they merely publish a white paper on what they want to introduce.
CoinList recently separated from AngelList, is a service provider to ICO, which says it has carefully planned country offices and works only with those it considers legitimate. The first ICO listed by CoinList involved Filecoin, which raised more than $250 million in August and set a new ICO record. The second sale of tokens was Tezos, which raised more than $230 million.
“If the company raises undiluted funding because they see it as the only chance, it may not be the best option,” said Andy Bromberg, CoinList CEO.
In fact, many companies that make up the ICO make an ICO for that reason: making money fast. It’s not very similar to a company debuting on the public market when it trades its shares on the New York Stock Exchange or Nasdaq.
This month, SEC President Jay Clayton issued a public warning about investing in ICO. “Investor protection is significantly lower than on our traditional equity markets,” he said. And Stefan Thomas, CTO of Ripple, predicts the death of the ICO in 2018.
As influential capitalist firm Tim Draper said at the Web Summit this year, “Security is not ICO vocabulary, so if you invest in ICO, you better understand the full coin cycle.” Is there any real benefit? a reason to buy it?
Joseph Lubin, co-founder of Ethereum, said in the same panel, “Anyone interested in purchasing a token should buy this utility token for using the platform that allows it.”
And most importantly, you should not go for one who thinks it’s like an IPO.