Single Blog

Funding in The Cryptocurrency Sector

Created By : 1

      

       

  CRYPTOCURRENCY FUNDING 

                

        What is an Initial Coin Offering (ICO)?

An Initial Coin Offering is crypto’s take on Initial Public offerings. Although instead of getting a share of a company the investor gets coins in exchange for funding.  It is the most common way for companies or inventors to raise funding for their cryptocurrency vision or idea. However, it usually undergoes strict regulations set by the government bodies, and most of the time is accompanied by a KYC identification process.

 

           What are the requirements for an ICO?

Apart from the regulations set by the governments of the countries they are seeking funding in, there are no particular requirements for starting an ICO but to gain successful access to funding there are some key factors. The basis of every coin’s success starts with its team. Experience, connections, and clarity are all signs of a good team. Another key factor in spotting a good project is their plan. Do they have a clear and concise roadmap? Is their vision for the future realistic? These should be all taken into consideration, as well as the whitepaper which is a detailed document outlining how the currency's system will work. The last and maybe most important factor is the project itself. How will it work? What problem does it solve? How does one obtain it? This is all very important for the future of any project and can make or break them.

 

What is a Simple Agreement for Future Tokens (SAFT)?

A SAFT is a promise to provide future tokens in exchange for funding. While an ICO is usually available for the general public and adheres to strict rules to deliver tokens immediately and safely because they are considered securities. A SAFT is a bit more flexible because it is aimed at experienced investors with deeper pockets who can afford to lose investments and can take more risks with their funds. This process was created to help projects raise funds without breaking any regulations. Many projects are switching to this model to avoid dealing with any regulatory body, however, it is something to also be cautious of because there is more risk involved with these agreements due to the lack of structure or regulation.

 

  Types of Funding Rounds

 

                                     Seed Round

      The earliest available round of funding is usually reserved for close family, business connections, or friends. It is made for a very small group of investors and is often the cheapest available option for securing a commodity if you are not on the team. 

 

                                       Private Sale 

      Private sales are held when a team has a clear vision and roadmap for their project and wants investors who fit the mold of what they want in early adopters. Teams will offer investors in this round bonuses and commodities at a cheaper rate compared to later rounds.  While seed rounds are more likely to target individuals, private sales target groups of investors with access to larger funding. A project can end its funding here if its goals have been reached or they can choose to carry on for more funding. 

 

                                           Pre-sale 

      Presales are most often available to investors with less funding than the ones involved in the private sale or those who missed out on it. They are cheaper to buy into than the crowd sale but more expensive than the private sale and often come with fewer bonuses. However, the project is usually more developed at this stage and it is less risky to buy into because it is closer to the listing stage. 

 

                               Crowdfund 

   This is the last round available for funding and often requires rigid screening and verification through a KYC(Know Your Customer) process but is available for the general public to apply for as long as they meet certain criteria. When a project reaches this stage they have most likely reached some goals stated previously in their roadmap and can often be evaluated much more easily than at the beginning stages. That is why this is often considered the safest round with the help of the KYC process; however, it is also the least profitable round. The number of bonuses is negligible compared to the earlier rounds and the buy-in price has most likely doubled or tripled from the earlier rounds. 

                  

                          What are Token Generation Events? (TGEs)?

A Token Generation Event is the creation of tokens running off the Ethereum system through a smart contract. While it is basically the same concept as an ICO except it is exclusive to tokens running on the Ethereum blockchain, it is less regulated than an ICO because it is not considered a security.  

 

               

                         What Is an Initial Exchange Offering? (IEOs)?

An IEO is essentially the same as an ICO however it is a coin offering backed by an exchange. Depending on how trustworthy the exchange is, this can be considered safer than a regular ICO however if it is held on an untrustworthy exchange it can often be less reputable than a regular ICO.

 

                  What Is an Initial DEX Offering? (IDOs)?

We have established that an IEO launches on regular centralized exchanges but the decentralized alternative to that is called an IDO which takes the same concept but applies it to a DEX. IDO’s are an interesting proposition for teams to launch their projects due to the instant liquidity it provides for teams to take advantage of. Trading is available as soon as the project launches allowing for any project to be easily accessible to the general public. That accessibility means anyone can participate in the fundraising process and makes it harder for a small group of investors to monopolize a market. When it comes to IEO’s exchanges can be picky about what projects they list but a decentralized exchange does not discriminate which can be a good or a bad thing depending on the project. Many point out that the lack of control and volatile price movement are critical challenges to the IDO movement.