Unregulated issuance of utility tokens, mostly for corporate funding purposes.
An Initial Coin Offering (ICO) is a method of corporate financing. The so-called initial coin offerings are in part comparable to the issue of securities on a stock exchange. An ICO is a way to crowdfund to acquire tokens for projects in the blockchain ecosystem. Supporters or investors purchase the project’s tokens and speculate that these tokens will later have a higher value , similar to a share on the stock exchange with the prospect of price gains.
Typically, ICOs are used to fund startups and new businesses. The start-up “creates” the digital tokens and then sells them. The money goes directly to the company’s team. It will be used to build the company.
An important difference to IPOs (Initial Public Offering) on the stock exchange is that ICOs usually do not show ownership of the company via the token . It does not entitle you to a dividend, nor does it automatically entail voting rights.
Basically, two purposes of tokens can be distinguished:
The token does not represent any rights to the project or company. Instead, it should be used by users as a means of payment once the project is complete. So if the project is successful, the demand for the tokens increases and it experiences price gains on trading platforms. The token thus carries an inherent value.
Revenue share tokens
This type of token is more comparable to stocks. It entitles the owner to receive distributions of profits. It doesn’t always serve a functional purpose. The token may not be needed to operate the platform itself, but only serves as an investment vehicle to distribute profits.
Depending on how the token is technically implemented, the distribution may be automated via smart contracts. It is conceivable, for example, that a project generates profits in the form of Ethereum . Investors owning their own Ethereum -based tokenfrom the ICO, a corresponding share of the profit will be credited to their Ethereum wallet.
What are ICOs used for?
ICOs were initially used to bring new cryptocurrencies onto the market and to ensure initial financing through the ICO. The projects were usually blockchain-based and the tokens were utility tokens. Financing via ICOs is also becoming increasingly interesting for existing companies, for example on a project basis.For this purpose, tokens are issued as revenue shares, which are used to distribute the profit.