1.3$ billion were raised in the last quarter of 2017 through ICO`s, as this paramount funding method trickled many to think it would all come down to burst like a soapy bubble. But, there is a lot more to it than just a passing trend. It is actually an interesting new model that takes crypto trading onto a whole new economy. So what are these tokens actually? Who are the initiators/investors? Which coins are prominent?
What`s The Deal?
It is commonly known that start-up initiatives require a great deal of primary funding to get their product come to life. In the technological development industry, it is not that easy to gather up capital investors to prompt the start-up towards a realized business formation. That is why this new wave of ICO model is used by entrepreneurs to raise funds through a crowd-funding process. This “crowd” actually addresses the future users of the new born start-up.
ICO market, a.k.a TGE (Token Generation Event), increased its own market cap from 18$ billion to 550$ billion in under a year, so there`s no wonder the hype around cryptocurrency, ICO`s and blockchain technology raised awareness in global spectrum.
How Does This Model Work?
ICO is a financial model which raises initial funds of prospective new user community, throughout smart contract. These contracts offer the company`s token for sell to potential investors, based on cryptocurrency trade. There are 2 kinds of tokens which offer different purchase rights to their buyers:
- Utility Tokens:
The more common token of the two is a digital coin that enables its owner to utilize future services in the platform. Also, the buyer can re-sell these usage right onwards.
- Security Tokens:
These tokens offer their buyers to hold a relative ownership rights of the company`s revenues. These token offerings are less common as investors refrain from wanting to be regulated as shared owners, within a public company market issuing.
What Type of Investors are Involved?
To this day, classic type of investors are characterized as capital holders, hedge fund seniors and aggressive business traders. But, this trend welcomes new investors that mainly arrive from the tech community. These people are already blockchain pioneers who are considered as high value market cap holders, millions of dollars worth, after purchasing cryptocurrencies at low cost rate.
Smart Token Economy
A positive token economy thrives only when relying upon 3 basic conditions: decentralization, active market plan and incentives.
Decentralization: smart token economy is based on buyer-seller engagement, and not upon communication that is limited to a centralized issuing factor. The issued token is not limited to purchasing a specified company services alone, but any other product they wish to buy through the same economy.
Active market plan: it is important to plan the token economy on a motivating scheme which will prompt an active global market, combined of merchants and consumers who aggregate the token`s value by maintaining a fertile network.
Incentives: it`s not enough to create a shared trading base fed by investor-merchant connections. In order to create a vibrant and healthy token economy, the ICO company must combine attractive incentives to its token purchase. That way the token`s demand rises and the investors receive their money`s worth. This produced higher coin value and tradability advantage, which place the issuing company at a more popular rank in the trading community.