An entire ecosystem has been established with the development of the crypto market. Over 10,000 crypto projects have been launched since the introduction of Bitcoin in 2008. The first projects that were launched back then, began with an initial offering.
Initial Coin Offerings (ICOs) are the first type of offerings in the crypto scene. They are the modern-day equivalent of the Initial Price Offering (IPO), found in traditional stock markets. ICOs were a massive hit during the 2017 ICO hype boom, but due to the suspicious and ambigious activities of many projects, the hype evaporated, leaving legitimate ICO projects to struggle with funding. During the ICO hype, $22 billion were invested in the crypto sector.
Initial Exchange Offerings (IEOs) on the other hand, are similar to ICOs, but with significant advantages – exchange listing is immediate, and the fees for the issuers are smaller (this is a result of joining forces with exchanges). Instead on the issuer website, tokens are issued directly on the exchange, so the exchange also takes the responsibility for the KYC/AML process instead of the token issuer. The exchange offering has some disadvantages, too.
Global crypto exchanges are already feeling the struggles of conducting an IEO. Binance’s CEO Changpeng Zhao stated that “things are getting out of hand” when it comes to IEOs. The main concern for Zhao is the “bottleneck” effect crypto that exchanges are causing. It’s hard for exchanges to conduct two concurrent IEOs with excellent results and the success of an IEO is strictly tied with the number of users for a given exchange.
Security Token Offerings (STOs) are taking it a step further into mitigating the difference between traditional assets and digital currencies. While ICOs and IEOs can be offering utility tokens, STOs give their users a share of the company, shares in illiquid assets such as real estate, and grant a different kind of rights – voting and dividend. STOs are the best representation of traditional stocks/bonds. They are issued on special STO platforms and have to be law-compliant.
As the market evolves, we may see a new renaissance for ICOs, but with an increased involvement from exchanges – migration from ICO to IEO. Security token offerings can also become of a great investor interest, due to the enhanced liquidity in traditional business.
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