Initial Coin Offerings (ICOs)

Hello!

I am Alex Merz, a sales manager at Platinum. We know how to market ico, promotion, and advertising! Need some advice about your ICO or STO campaign? Visit ur site:

Platinum.fund

Our partner, the University of Blockchain and Investing is a past master in teaching blockchain technologies, launching, promotion ICO and STO campaigns and many more. Do you want to have an in-depth knowledge of how an ICO occurs, and the skills needed to evaluate the basic qualities of an ICO?

Follow the link to learn more:

Get our Basic course!

The ICO Process

Before even researching the particular strengths and weaknesses of any specific project in which you may want to invest, it is important to know the overall processes of the ICO crowdfunding method. This will allow you to avoid any potential pitfalls if you do decide to move forward and invest money into a particular idea or project.

How does an ICO happen?

1

Stage One:

Token sale details are set: This takes place usually after release of the whitepaper, and the presentation of a project to prospective investors in forums and on social media.2

Stage Two:

Whitelisting for private sale begins: The vast majority of all ICOs have instituted KYC checks for investors which usually involve uploading a photograph of your passport or driving license along with a selfie holding the ID.

Did you know?

Participation in ICOs has proven to be a regulatory nightmare in some localities. Most token sales restrict contributions from investors in China and the USA entirely, though accredited investors may participate in the USA in some cases. 

2.1 The ICO Process Continued
Stage Three:

Private/Pre-sale states: Typically, 10% of tokens will be offered to early investors at a 10-30% discount. These select few investors will likely have a close association with the team. But not all projects have a pre-sale round, some go straight to public sale.4

Stage Four: 

for Public/Main sale starts: The same format used for pre-sale investors is used for public sale investors, though it is a regular occurrence to see main sale KYC checks closed early due to overwhelming demand.

2.1 The ICO Process Continued

An investor must then register a contribution wallet address. That is the address used to send cryptocurrency from, to buy the ICO tokens, and then also into which you will receive your purchased tokens. This wallet address must be a non-exchange wallet, like Blockchain.info bitcoin wallet, or MyEtherWallet for ERC-20. You already understand from the prior lesson that making a mistake with your wallet address may mean you lose the tokens forever as well as the BTC or ETH you used to purchase them.

Copying and pasting your cryptocurrency public key into the whitelist wallet form is the next task to complete. And then, as the investor, you wait for confirmation of successful ICO registration from the team.

Stage Five:

Public sale starts: Commonly on a specific date, though sometimes for a specific period of time.

If you are interested in participating in an ICO, it is important to make your contribution as quickly as possible, or you risk sending your ether or bitcoin after the hard cap has been reached, resulting in your funds being sent back. This refund can sometimes take many days, or even weeks in times of high market activity.

Did you know? In 2017 it was not unheard of to find ICOs that had originally scheduled their ICO period for many weeks, but then they met with such high demand that they could close their crowdsale in a matter of hours or even in just a few minutes!

ubai.co

https://www.platinum.fund/sto/

Stage Six:

Tokens are allocated to successful participant investor wallets, and trading can begin on some decentralized exchanges like IDEX, or EtherDelta in the case of Ethereum based tokens. Tokens will be sent to and received by the wallet addresses from which the investor contributions were made.7

Stage Seven:

Tokens are listed on mainstream exchanges: The tokens will then be listed on the exchanges with which the teams have negotiated listing, prior to or during the sale. It can cost huge amounts of money to list on large exchanges like Bitfinex Bittrex, Huobi or Binance, so usually smaller projects will not be listed on top 10 exchanges so quickly. As tokens are listed on more and more exchanges, their price usually rises because more and more investors are exposed to opportunities to buy that particular token.

This is known as an accessibility discount.

2.1 Evaluating a Blockchain Use Case

Evaluating a particular use case for Blockchain technology, and thus how successful an ICO project’s ambitions might be in a particular market, is not a simple endeavor.

As demonstrated in the graphic below, Blockchain technology has nearly limitless potential to be applied to a great variety of business areas, but as an ICO investor, you are looking for projects that have the potential to deliver significant long-term success. In the currently saturated ICO environment, some use cases have more potential than others. Ascertaining which use case is likely to have long term success is a key distinction.

Also, we must recognize that businesses and corporate entities may be overeager to experiment with this new Blockchain technology, whether or not usage of the technology is actually advisable or profitable for their particular purpose.

2.1 Evaluating a Blockchain Use Case

The main questions to ask when analyzing specific solutions proposed by the project are:

1. What are the problems posed and the solutions offered?

2. Does this particular area of business need a Blockchain solution? That is, is a Blockchain solution in fact superior to the current way this particular business operates?

3. Is the use of Blockchain in this specific instance feasible and applicable?

4. What are competitors doing about Blockchain projects in this same area?

2.2 Practical Application

A Blockchain network provides a shared, replicated, secured, immutable and verifiable data ledger. The implication for use case analysis:

Shared and replicated: participants have a copy of the ledger and many people can view it or work on it

Secured: Secured through cryptography

Verifiable: Business rules are associated with all interactions that occur on the network

Immutable: Transactions (records) cannot be modified or deleted, therefore a verifiable audit trail is maintained by the network

2.2 Practical Application

So, with all this considered, what should we look for with regard to a possible business use case that would be best solved using Blockchain technology?

1. Data exchange that has trust issues i.e. businesses transacting with one another. Trust must be established through a multitude of verification processes with regards to employees and products. These processes increase operational cost. Example: Digital voting.

2. Any potential business process involving data storage, or compliance and risk data that get audited. Blockchain solutions would provide the regulators a real time view of information. Example: Supply chain solutions like VeChain or WaltonChain. The possibility of close to zero operational loss would of course be attractive to any business.

2.2 Practical Application

3. All kinds of asset transactions. A Blockchain network, with its tamper-proof ledger, validating traceable and trackable transactions, could save many different industries untold amounts of money. Example: Tokenization of assets e.g. Jibrel Network or Polymath

The Role of Tokens & the Blockchain Ecosystem at the ICO Stage

3.1 Purpose of Tokens

Within the cryptocurrency ecosystem, the definition and role of a token is widely understood. They represent programmable units of currency that sit atop a particular Blockchain, and they are part of a smart contract “logic” specific to a certain application.

3.1 Purpose of Tokens

In the business sphere, a token can be defined as a unit of value that a project or business venture creates to enable it to self-govern. And the business venture also allows token users to connect and collaborate with its business products, while facilitating the sharing of rewards to all of its stakeholders. A token can also be described in a more general sense as a type of privately issued currency. In the past it was solely within the purview of governments to issue currency and set the terms of its governance. With the advent of Blockchain technology we now have businesses and organizations offering forms of digital money over which they, not the government or central bank, have control of the terms of operations and issuance. Wide scale adoption of these mechanisms could fundamentally alter the global economy. This is like the creation of self-sustaining, mini-economies in any sector of business or life, via a specific token or currency.

3.1 Purpose of Tokens

Fun Fact:

Tokens of the particular Blockchain upon which the project is launched will usually have to be bought in order to be exchanged for ICO tokens,

hence it is important for traders and investors to be aware of the schedule for upcoming ICOs. ETH is usually the token used for exchange because the majority of ICOs launch on the Ethereum Blockchain.

But this is not always the case. During January 2018, two NEO token ICOs, both the Key TKY and Ontology ICOs, were being carried out, and this caused the NEO cryptocurrency to spike to its all-time high in excess of $160 USD.

Since the product or project is more often than not in its embryonic stage at the time of the ICO crowdfunding process, the ICO token’s true function and purpose is in most cases yet to be realized. At the ICO stage the tokens can usually be grouped together into one of three categories. Knowing how to distinguish these categories involves determining the specific nature and function of the token around which the project is centered. The main and crucial distinction, is whether or not a token is a security, and therefore subject to securities registration requirements.

3.2 ICO Stage Token Categories

ubai.co

https://www.platinum.fund/sto/

Howey Test:

This is the test created by the US Supreme Court to ascertain whether certain transactions qualify as “investment contracts”. If they are found to fall within this classification, then under the Securities Act of 1933 and the Exchange Act of 1934, those transactions are considered “securities” and participants must adhere to registration and disclosure requirements. One of the most important and amazing considerations of the effect of Blockchain technology is that normal people with a computer science background are now empowered to make decisions and offer products and services that previously only licensed financial institutions were able to do. This is a very complex and complicated situation with serious ramifications for anyone involved. One thing to note well is that ordinary participants and actors in this arena can easily commit white collar crime, violating serious securities laws, without even realizing it.

If a token falls within the US legal definition of “Investment Contract” then you must adhere to US regulations. For that reason, many ICOs simply do not want to sell to US based investors, perhaps until all the rules and regulations are clarified.

3.2 ICO Stage Token Categories
Security Tokens:

The broad and varying definition of the term “security” is a regulatory minefield. This has always been true for traditional financial products, and now it is especially true for the as yet unregulated cryptocurrency market. In the case of SEC V. Howey, parameters were established to determine whether or not a particular financial arrangement could be classified as a security and thus be subject to securities regulations. Cooley LLP Fintech Team Leader Marco Santori has said, an arrangement is a security if it involves “an investment of money, and a common enterprise, with the expectation of profit, primarily from the efforts of others.”

Investors have the option of accessing a huge range of security tokens through ICOs. Prime examples are the gold backed DigixDao (DGD) and CProp (still in crowd funding stage). A security token is fundamentally different from the currently available ICO project tokens in that it provides a legal and enforceable ownership of a company’s profits and voice in its governance much like common stock traded on any exchange.

If security tokens are the next step in the evolution of crypto-finance, real estate, stocks, venture capital, and commodities can all be tokenized. The traditional markets could be fully connected to the Blockchain. Financial assets would available to anyone in the world, not just licensed or accredited investors. That is one aspect of Fintech, the financial revolution taking place today, as Blockchain technology clashes with traditional finance.

Equity Tokens:

One exciting application of smart contracts on the Ethereum Network is the potential for startups to distribute equity tokens through initial coin offerings. That would reduce the hurdles that an average person has to face in order to take part in the early stages of a company’s development. And, democratic governance of a project could be conducted in a transparent manner through voting on the Blockchain.

As of yet, few startups have attempted to conduct equity token sales for fear of falling afoul of the Securities and Exchange Commission (SEC) in the US. But many Venture Capital insiders are bullish on the prospect of equity tokens taking a central role in the crypto finance industry, when and as the legal issues are resolved.

3.2 ICO Stage Token Categories

For example, the Delaware State legislature recently passed a bill enabling companies to maintain shareholder lists on the Blockchain. That is one major step to enable Blockchain based stock trading. Lawyers also generally believe it is only a matter of time before the regulations are clarified.

Did you know? Important consideration: The Sarbanes-Oxley Act of 2002 made it unfeasibly expensive for smaller companies to be listed on exchanges, causing a halving in the number of IPOs between 1996 and 2016 (7322 to 3671). In 2017 there was an almost 5-fold increase in the number of ICOs, from 43 to 210, with the 2017 volume already being eclipsed in the first 5 months of 2018.

Image of IPO volume decreasing 1996-2016

3.2 Token Characteristics

Utility Tokens:

However, given that this area is still a regulatory nightmare for people planning to issue security and equity tokens, many projects attempt to ensure that the tokens within their specific model fall under the definition of Utility Tokens rather than securities, so as to avoid the SEC regulations altogether. If a token is imbued with a certain functionality and use within the Blockchain infrastructure of that particular project, the token can avoid being labelled as a security, and thus render SEC regulations inapplicable.

3.2 Token Characteristics

Just this week in fact, the SEC made the long-awaited and momentous decision that Ether was not a security. In the words of William Hinman, director of the Securities and Exchange Commission division of corporate finance, “Putting aside the fundraising that accompanied the creation of Ether, based on my understanding of the present state of Ether, the Ethereum network and its decentralized structure, current offers and sales of Ether are not securities transactions.”

This means that Ethereum, in fact, fails the Howey test, which is exactly the decision the crypto world wanted. Hinman said, “When the efforts of the third party are no longer a key factor for determining the enterprise’s success, material information asymmetries recede,” Hinman said. “The ability to identify an issuer or promoter to make the requisite disclosures becomes difficult, and less meaningful.”

Voting Rights:

Some coins portray themselves as a company with tokens being held in a way that is analogous to voting shares of a stock. One coin held is equal to one vote. This form of token utility has a major flaw in that so-called whales (people with huge amounts of a particular cryptocurrency) can manipulate any poll conducted. The cryptocurrencies Aragon and Lykke are examples of projects that have written voting rights into the structure of their code.

You can also have deeper of knowledge of the purpose and role of tokens within the Blockchain ecosystem at the ICO stage. Buy the full course and get the best crypto education! Feel free to contact me and ask about all STO and ICO services that Platinum offers!

My Linkedin profile.

Related Post

Leave a Reply

Your email address will not be published. Required fields are marked *