![]() Reality proves that regulators are rather unwilling to delve into intricacies of cryptocurrency crowdsales. IPO’s are heavily regulated in all major jurisdictions, and many people wonder what about ICO’s, are they security offerings? Do they fall under Howey test? (a test that determines whether a given offering constitute a security offering). In a way this model resembles classic IPO model, equity in a company is sold to investors, proceeds are used to develop the business. Developers use the raised funds to cover development and marketing costs. The coin begins trading at exchanges, investors can exit their investments and possibly make money. A certain portion of a cryptocurrency tokens is issued before the full system launch and is sold to investors. That allowed crypto startups to stay under the regulator’s’ radar and actually develop their products.īasic ICO model is simple. Why did this approach become so successful, at least in the cryptocurrency ecosystem? The reply would be this is a very natural approach for cryptocurrency start-ups, on top of that it might be not exactly 100% compliant with current laws and regulations but it does not break them in any obvious way. Current volume of ICO markets can be estimated at around 200 mil USD yearly, and growing. This is a reality one has deal with it won’t go away. Before considering more derivative approaches let’s give a brief description of traditional ICO’s, that have become a rather established market by now.Ĭrytpocurrency start-ups raise funds at ICO’s. It will be a rather non-technical and high-level description of the tokens economy, the things you can do with them and some kind of a best practices guide. Let’s consider what you can do with blockchain tokens, starting from classical ICO’s. Historically that was the first model to appear it brought forth a lot of other ideas and approaches, going beyond crypto. On top of decentralized blockchains emerged centralized marketplaces where the tokens could be traded, thus investors had an access to quite a liquid market, and could exit their investment at any time. Investors bought the tokens hoping that their value would grow if the system was successful. Coin developers sold the tokens in their blockchain systems to investors, and used the proceeds to fund the system development. The model which naturally emerged was ICO, Initial Coin Offering model. People are just starting to figure out how those tokens can be used, both from technical and legal perspective. ![]() Of course it brings a whole new dimension into economic systems. Blockchains are decentralized and don’t depend on one party you basically issue your tokens into a cloud, they can be gone if the whole cloud is gone, which is hard to do due to their decentralized nature. Installing a blockchain wallet and issuing your token without any hassle is such a stark contrast to it. You had to rely on some government approval, some private infrastructure which could reject you. Of course private currencies, coupons, depositary notes existed but you couldn’t simply issue your currency or a value token in a couple clicks, the way you can do it now. Never before in the history of mankind was it possible to create your “money” more or less out of thin air. Actually any kind of financial instrument can be implemented as a blockchain token. But it can be basically anything - it can be money, loyalty points, voting rights, equity…. Thus it is only natural that there’s a certain value attached to these tokens. Blockchain token is just an entry in a decentralized database, which has some intrinsic maintenance costs. This is the most obvious choice, but not the only one. As a matter of fact native bitcoin token is application-agnostic, and its usage in the form of money is a result of a social consensus. Bitcoin shows how to create your value tokens without any centralized authority or regulating body.
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