ICO stands for Initial Coin Offering. It is a popular term in the cryptocurrency space used to refer to fundraising for the creation of a new coin.
Think about it as a company seeking to create a new coin but do not have enough capital.
It then decides to make this project open to the public with promises of profit to anyone who supports the project with funds.
This profit will be determined by how well the new coin fares in the market.
ICO is common among startups desiring to provide products and services in the cryptocurrency/blockchain space.
While some ICOs have yielded huge profits for investors, many others have turned out to be a scam or did not perform well.
1.Ethereum’s ICO in 2014 raised $18 million over a period of 42 days.
We can say that this is the most successful ICO in history as Ethereum is doing very well today.
It also opened the channel for more ICOs.
At its launch, Ether was priced at $0.67. Now it trades at $379.81 (as of Oct. 21, 2020). Pretty cool, right?
2. NEO’s ICO of 2015–2016 raised about $4.5 million.
Many early investors received huge ROI as NEO increased in value.
At the time of its offering, the price of NEO was about $0.03, but today it is traded at $17.19. It was once traded at $187.40.
3. Dragon Coin’s ICO of 2018 received a whooping sum of $320 million
Moving on, we will see how Initial Coin Offering Works.
Launching a new coin is easy. One can generate cryptocurrency tokens in a short time.
The steps involved in organizing an ICO include the creation of whitepaper, collection of funds, generation of tokens, and then distributing them to investors according to plan.
A whitepaper provides information on the coin being created.
It is where the company states:
- What the project is about
- Problems it will solve
- The amount of funds needed and the type of money that will be accepted
- How long the ICO campaign will last
- Price of the coin during the ICO
- Road plan for the development and deployment of the coin
- Scheduled date of public listing of the coin after the ICO
- Projected future performance of the coin after public listing and trading
- Coin supply during the ICO and the maximum coin supply
- The number of tokens that the company will reserve
In the course of the campaign, interested individuals donate funds to support the project with the hope that when the project succeeds, they will receive huge ROI.
That is to say, they buy part of the project’s tokens in advance.
Usually, investors make payments using a popular token like bitcoin or ether.
There are 3 different structures that an ICO can take.
The only common feature in the three structures is that the duration of ICO is known.
Firstly, a company can set a limit for funds. Here, the token will be sold at a pre-set price, and the total supply of token is static.
Another structure is where there is a static supply of ICO tokens, but no limit is set for funds. In this case, investors will receive tokens based on the funds raised.
This means that the higher the total funds received in the ICO, the higher the overall token price.
Lastly, an ICO can also take the structure of a dynamic token supply. Here, the total token supplied will be determined by the amount of funds received.
So, the price of a token is static, but the total tokens supplied are not limited.
By the time the ICO is concluded and the expected funds are raised, the company will go ahead and execute the project.
On the other hand, if the funds did not reach the set amount, the money will be returned to the investors. And the ICO will be termed unsuccessful.
But then, some unfortunate investors do not get their money returned to them. I guess this is why some people now opt for IEOs.
I briefly explained IEOs in the next section.