ICOs are a type of crowdfunding or crowd investing tool conducted entirely on the blockchain. Originally, the main idea of an ICO was to fund new projects by pre-selling coins/tokens to investors interested in the project. Entrepreneurs present a whitepaper describing the business model and the technical specifications of a project before the ICO. They lay out a timeline for the project and set a target budget where they describe the future funds spending (marketing, R&D, etc.) as well as coin distribution (how many coins are they going to keep for themselves, token supply, etc.). During the crowdfunding campaign, investors purchase tokens with already established cryptocurrencies like Bitcoin and Ethereum.
Although their regulatory landscape is uncertain, it’s clear that initial coin offerings, or some alternatives, are here to stay. Even in 2018’s bear market, there were over 1250 ICOs that raised a cumulative $7.85 billion – over a billion dollars more than 2017.
More generally, tokenized fundraising is beginning to blend more and more with traditional methods. We’re starting to see Security Token Offerings (STOs), Equity Token Offerings (ETOs) and even Simple Agreements for Future Tokens (SAFTs), a spin on the favorite YCombinator-created SAFE.
With higher liquidity, 24/7 trading and the elimination of middlemen, it looks as if the future of tokenization, including more ICOs, is on its way.