What is ICO? Get to know a new fundraising possibility for your project

Maciej Zieliński

17 Nov 2021
What is ICO? Get to know a new fundraising possibility for your project

Raising capital by your tokens issue - blockchain technology may disrupt fundraising as you know it. Thousands of projects have already raised billions of dollars through ICO. Why might yours be next?

What will you find in the article?

  • What is the intial coin offering?
  • Advatages of ICO
  • How do ICOs work?
  • Launching ICO step by step
  • Different structure models of ICO
  • ICO vs IPO
  • STO vs ICO

Most technology startups have limited options when it comes to fundraising. They can either raise a seed round from private investors, pitch a VC fund, or start a crowdfunding campaign. 

But if your project is blockchain-based, entirely new possibilities emerge, among them, you can find an initial coin offering (ICO). With ICO, you can issue your own utility tokens to be used in the network you want to create. As it grows, the demand for tokens increases, the same as their price, bringing profits to early investors. 

An initial coin offering - ICO is a blockchain industry equivalent of IPO (Initial Public Offering). Find why issuing tokens may be the best way to raise funds for your project.

What is ICO?
What is ICO?

What is the initial coin offering?

Among STO and IDO, initial coin offering is one of the fundraising methods brought to life thanks to Blockchain technology. Essentially, an initial coin offering regards raising funds for a project by issuing new cryptocurrency where new blockchain-based projects mint and sell new tokens in exchange for other digital assets or fiat money. 

Eventually, those token will have a specific utility on the platform built for funds raised during the ICO. For example, they may be exchanged for products or services of the company. In other cases, they become governance tokens that allow investors to vote to shape the project’s future.  

How did it start?

Everything started in 2013 with Mastercoin’s initial coin offering that raised approximately 5 million dollars. The Mastercoin launch was quickly followed by Ethereum. Yes, that’s right - one of the most influential technology projects of this decade was funded via an initial coin offering. During Ethereum's ICO, creators raised 18 million dollars. To this day, Ethereum remains one of the most successful ICOs. 

Yet, those 18 million sounds like nothing, compared to the 4 billion raised by EOS in several rounds during 2018-2019. It was the largest ICO to date. 

Democratization of fundraising 

But initial coin offering (ICO) isn’t all about big projects with enormous capital for fundraising campaigns. Their main advantage over IPO is allowing also smaller startups to arrange a successful funding round. 

Advantages of initial coin offerings 

Advantages of ICO
Advantages of ICO

Speed

Quick access to funding at a seed stage. Conducting an ICO campaign can be a matter of just a few weeks.

Fewer legal requirements

ICOs are far less regulated than any other fundraising method. Hence they require minimal bureaucracy. 

Your project, your equity 

During ICO, you can raise funds without loss of equity.

Community 

Your ICO investors will create a strong community, willing to test and even promote the project.

Liquidity

Global markets, where your tokens will be sold, operate 24/7.

Fundraising without borders

Contrary to a public offering, your tokens will be sold on a global market, which means that the campaign doesn’t have to be restricted to one jurisdiction. Anyone with a crypto wallet can buy them.

How do ICOs work?

Essentially, launching initial coin offerings means issuing your own tokens that will have a specific utility in your project. That’s why they are named Utility Tokens. You can read more about different token types in this article. Contrary to a securities offering, ICO doesn’t grant investors shares of the company. Instead, they distribute tokens with a specific utility in the project that will be built for raised funds.  

To raise money through initial coin offering, startups usually start with creating a white paper. This is a document that describes the project and its goals, providing investors with information that may help them decide whether they want to participate. 

During the ICO process, investors buy tokens with other cryptocurrencies or fiat money. If the funding requirements are met, raised capital will support the creation of the project. If they aren’t, they may be returned to investors. It depends on chosen structure model. 

Different structure models of ICO

Initial coin offerings may be structured in various ways. In some examples, tokens sold during ICO have a fixed price and specified limited supply. In contrast, others limit the supply but leave the token price dynamic, which means that fundraising will depend on the amount of raised funds.

There are also initial coin offerings that set a static price of token and dynamic token supply that depends on the amount of funding received. 

ICO and federal securities laws  

It’s important to note that currently, in the majority of jurisdictions, ICOs remain largely unregulated. This means that they are far less restricted than IPOs or even STOs. 

Essentially, most tokens issued during ICO aren’t treated as securities because they don’t represent any equity in the project. Instead, they have a certain utility in their network. 

How to raise capital via ICO?

In the whole initial coin offering process, the following stages can be distinguished:

Make sure your project needs ICO

A brief disclaimer: not every company qualifies for ICO. And even if it does, there may be better alternatives. 

ICO isn’t a universal solution that will suit every project. Many factors should be taken into consideration before choosing it. 

First of all, initial coin offerings work best for blockchain-based projects. There are many good ICOs out right now; hence the competition for the attention of investors is high. If your project uses unnecessary tokens and doesn’t back them with attractive utility, investors probably won’t be interested in putting their funds into it. 

Yet, the crypto industry offers more solutions that support fundraising. Some of them, as STO, are also suitable for non-blockchain projects.

Get to know the local law

ICOs are a relatively new fundraising solution. Hence many countries still haven’t developed a clear legal framework for them. 

So far, only China and South Korea have banned ICOs. Yet, you have to be aware that in some jurisdictions launching your private ICO will be much easier than in others. You can find more information regarding this issue in our article: The 5 most popular jurisdictions for your company’s tokenization.

Create a distribution plan 

The plan will depend on your primary requirements and assumptions. For instance, there may be different stages of the token sale before you get to the actual initial coin offering. For example, Telegram managed to raise $850 million during the pre-sale only. 

At this stage, you have to decide which of the previously mentioned models you will choose? Is the price going to be stable or rather dynamic? What about the supply? Moreover, you should determine how many of them will be sold at each stage of the token sale. 

Choose the right technology 

This may sound trivial, but the right technology solutions are the backbone of your ICO’s success. There are several universally required technologies, among them blockchain, smart contracts, tokens, and solid back-end and security infrastructure.

When it comes to blockchain, the majority of the companies decide to use established, well-known protocols. In most cases, it’s Ethereum. Launching an ICO on your own blockchain is possible and can sometimes be observed in the industry. Yet, it’s time and cost-consuming. Additionally, for the majority of projects, there is no need to do so. 

White paper

A white paper is a document that describes the project and explains its goals in almost every possible detail. It’s aimed to provide potential investors with the information needed to decide whether they want to participate. This includes:

  • Vision
  • Market analysis
  • Goals
  • Available resources
  • Development strategy
  • Legal frames
  • Details regarding token and its distribution
  • Description of the team 

Not sure how to write a proper white paper? Our consultants will gladly guide you through the whole process. 

Website creation

You need to face that your project will be judged mainly by the content and appearance of its website. It has to contain clear information about your team, aims, and measures to protect investors’ interests. 

Before ICO launch, the website should also feature a token sale landing page. Remember about approachable UX here. 

ICO vs. IPO

The main difference between IPO and ICO lies in equity. During ICO, owners don’t have to give up a part of their equity in exchange for funds, as they do with shares in the case of IPO. Instead, they issue tokens that will have a utility in their project. Therefore, ICO is mainly used for blockchain-based projects.

Because during the ICO no equities are sold, there are fewer restrictions regarding ICOs than IPOs. For example, most ICOs don't fall under securities law. Thus, they require less bureaucracy and are more suitable for seed-stage startups. Furthermore, investing in ICO tokens isn't restricted to accredited investors, as it happens with IPO. 

ICO vs. STO: main differences

There are different types of token offerings out there. One of the most important is the slightly younger STO - security token offering. Here instead of utility tokens, security tokens are issued. This means that their value is backed by real assets - for example, shares in the company or real estate. You can read more about security tokens in this article.

The main advantage of STO is that they are suitable for various projects, not only blockchain-based ones. In this way, you can even tokenize alternative assets, such as cars or precious metals

On the other hand, because tokens represent specific equity, they are treated as securities. And this means far more legal restrictions.

What is ICO? - Conclusion 

Initial coin offerings are an excellent opportunity for seed-stage startups to raise capital for further development. During the past 6 years, billions of dollars have been raised using ICO, funding such projects as Telegram or Ethereum.  At the same time investing in ICO gained tremendous popularity, even outside the crypto community.

Yet as with every solution, they aren’t free from limitations. While from a technology perspective process is getting easier every year, more and more legal restrictions emerge. Furthermore, because of several ICO projects, reaching investors now requires a well-planned marketing strategy. 

Are you interested in launching your own ICO, but you are not sure if your team will manage to fulfill all the requirements? After conducting one of the first tokenizations globally and many other ICOs, we may say that we know the ropes of successful tokenization. Hence, if you have any questions, don’t hesitate to ask.

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Authorization and Identity: Chainlink Use Cases

Karolina

14 Feb 2024
Authorization and Identity: Chainlink Use Cases

Chainlink stands at the forefront of enhancing security and compliance within smart contract-enabled blockchain networks. By enabling direct access to real-world data, Chainlink ensures that blockchain applications can operate with the same level of trust and verification as traditional systems. This integration is crucial for a wide range of applications, from financial services requiring Know Your Customer (KYC) and Anti-Money Laundering (AML) compliance to any form of digital agreement that needs to securely verify the identity of parties involved.

Overview

Chainlink is a decentralized oracle network that plays a critical role in bridging the gap between smart contracts on blockchain networks and real-world data. It enables smart contracts to securely interact with external data.

  • Decentralized Data Oracles. Chainlink's network of decentralized oracles ensures that data fed into smart contracts is accurate and tamper-proof, mitigating risks associated with relying on a single data source.
  • Smart Contract Connectivity to Real-World Data. It facilitates the seamless integration of external data sources, such as financial market data, weather information, and much more, enabling smart contracts to execute based on inputs from the real world.
  • Chainlink VRF (Verifiable Random Function). This feature provides a secure and provably fair source of randomness for blockchain applications, crucial for gaming, NFTs, and any application requiring random number generation.

READ: "What is Chainlink"

When it comes to authorization and identity verification, Chainlink's role becomes even more crucial. By connecting smart contracts with external data sources, such as governmental identity databases or digital identity verification services, Chainlink enables the creation of blockchain applications that require verified human identities. This capability is essential for applications that must adhere to regulatory standards or for those seeking to mitigate the risk of fraud.

Moreover, Chainlink's decentralized nature ensures that the process of identity verification is not only secure but also resistant to manipulation. By leveraging multiple independent oracles to fetch and validate data before it's provided to a smart contract, Chainlink ensures a level of reliability and trustworthiness that centralized data sources cannot match. This decentralized approach to authorization and identity verification opens up new possibilities for blockchain applications, making them more accessible, compliant, and secure for users around the globe.

The integration of Chainlink's decentralized oracle network into the domain of authorization and identity verification heralds a new era of security, efficiency, and compliance for blockchain applications. By leveraging real-world data and external verification services, Chainlink enables smart contracts to perform functions that were previously unthinkable in the blockchain space. Here, we explore several key use cases where Chainlink's technology significantly impacts authorization and identity verification processes.

E-Signatures

In the digital age, e-signatures have become the norm for legally binding agreements, eliminating the need for physical presence or paper-based documents. Chainlink oracles facilitate the integration of blockchain applications with leading e-signature providers like DocuSign. This integration ensures that e-signatures can be verified and recorded on the blockchain, providing immutable evidence of agreement and authorization. Furthermore, by enabling smart contracts to interact with e-signature solutions, Chainlink opens the door to automated contract execution based on the completion of digitally signed agreements, thereby streamlining business processes and reducing the time and cost associated with manual verification.

Biometrics for Smart Contract Authorization

Unstoppable Domains uses Chainlink oracles to enable users to tie their off-chain Twitter identity to their on-chain Ethereum domain name (Source: chain.link)

Biometric verification offers a high level of security and convenience for identity verification, leveraging unique physical characteristics such as fingerprints or retinal patterns. Chainlink enables smart contracts to securely access and verify biometric data, ensuring that only authorized individuals can trigger certain actions on the blockchain. This use case is particularly relevant for access control systems, secure transactions, and identity verification processes that require a high degree of trust and security. By connecting smart contracts with biometric databases and verification services through Chainlink oracles, blockchain applications can achieve a new level of security and fraud prevention.

Credential Verification

Credential verification is crucial in numerous applications, from financial transactions requiring proof of funds to access systems demanding specific security clearances. Chainlink oracles play a pivotal role by securely relaying credential verifications from external systems to the blockchain. This capability allows smart contracts to automatically verify users' credentials in real-time, facilitating seamless transactions and interactions that require verified identity or authorization credentials. For example, a decentralized finance (DeFi) platform can use Chainlink to verify a user's creditworthiness or asset ownership before allowing them to participate in lending or borrowing services.

Social Media Identity and Domain Names

The integration of social media identities with blockchain applications enhances user experience by providing more intuitive and human-readable identifiers, such as domain names or social media handles. Chainlink oracles facilitate this by securely linking off-chain social media identities to on-chain addresses or domain names. This use case not only improves the usability of blockchain applications but also adds an extra layer of verification, as users can easily confirm the authenticity of the parties they are interacting with.

Intellectual Property Management

Chainlink's decentralized oracle network enables smart contracts to interact with external IP databases for verifying ownership and facilitating transactions related to intellectual property (IP). This application is particularly useful for copyright and trademark management, patent licensing, and royalty distribution. By automating IP verification and transactions through Chainlink, creators and owners can more efficiently manage their rights and receive payments, while users gain access to verified IP assets.

Contribution Bounties in Open Source Projects

Open-source projects can leverage Chainlink oracles to automate the verification of contributions and the distribution of bounties. By connecting smart contracts with public code repositories like GitHub, Chainlink allows projects to automatically track contributions, verify the fulfillment of predefined conditions, and release payments to contributors. This application streamlines the contribution process, incentivizes open-source development, and ensures that contributors are fairly compensated for their work.

Conclusion

Chainlink significantly impacts blockchain, enhancing security and compliance, especially in authorization and identity. It bridges real-world data with blockchain, ensuring trust and wider adoption. As blockchain evolves, Chainlink's innovations promise a more inclusive digital future. Its key role in securing and streamlining blockchain applications marks a crucial step forward for digital interactions. Chainlink is pivotal for a secure, compliant, and efficient blockchain ecosystem, shaping the future of digital transactions.

If you are interested in utilizing Chainlink or other blockchain-based solutions for your project, please reach out to contact@nextrope.com

Chainlink vs. Avalanche: Exploring the Blockchain Frontier

Karolina

13 Feb 2024
Chainlink vs. Avalanche: Exploring the Blockchain Frontier

Chainlink emerges as the bridge between the real world and the blockchain. On the other side, Avalanche flashes through the blockchain space with a lightning speed platform that promises scalability without compromise. Both are revolutionaries in their own right, yet their paths are markedly different. Chainlink's quest to secure the integrity of off-chain data in a decentralized manner contrasts with Avalanche's mission to redefine blockchain's scalability and usability. But what happens when these paths intersect?

Overview

Chainlink is a decentralized oracle network that plays a critical role in bridging the gap between smart contracts on blockchain networks and real-world data. It enables smart contracts to securely interact with external data.

  • Decentralized Data Oracles. Chainlink's network of decentralized oracles ensures that data fed into smart contracts is accurate and tamper-proof, mitigating risks associated with relying on a single data source.
  • Smart Contract Connectivity to Real-World Data. It facilitates the seamless integration of external data sources, such as financial market data, weather information, and much more, enabling smart contracts to execute based on inputs from the real world.
  • Chainlink VRF (Verifiable Random Function). This feature provides a secure and provably fair source of randomness for blockchain applications, crucial for gaming, NFTs, and any application requiring random number generation.

READ: "What is Chainlink"

What is Avalanche?

Overview

Avalanche is a highly scalable blockchain platform designed for decentralized applications (dApps) and custom blockchain networks. It distinguishes itself with its emphasis on scalability, speed, and eco-friendliness.

Key Features of Avalanche

  • High Throughput and Low Latency. Avalanche boasts a high transaction output rate with low latency, making it an ideal platform for scaling dApps and financial solutions.
  • Eco-friendly Consensus Mechanism. Unlike proof-of-work (PoW) systems that require significant energy expenditure, Avalanche uses a novel consensus mechanism that is energy-efficient, contributing to a more sustainable blockchain ecosystem.
  • Scalability and Interoperability. The platform supports the creation of multiple custom blockchains that can interoperate seamlessly, facilitating a diverse and scalable ecosystem of applications.

READ: "Avalanche’s Investment in Real-World Assets Tokenization"

As blockchain technology continues to evolve, understanding the nuances between different platforms and solutions like Chainlink and Avalanche becomes increasingly important. Here's how these two blockchain giants stack up against each other:

Underlying Technologies and Architectures:

  • Avalanche utilizes a unique consensus protocol known as Avalanche consensus, combining the benefits of classical consensus algorithms with the decentralized nature of blockchains. This protocol allows for high throughput, quick finality, and energy efficiency.
  • Chainlink, on the other hand, is not a blockchain but a decentralized network of nodes that provide data to blockchain networks. It uses a network of independent node operators who are incentivized to provide accurate data to smart contracts.

Consensus Mechanisms:

  • Avalanche employs a Proof of Stake (PoS) model designed to be lightweight and energy-efficient. Validators participate in reaching consensus by staking AVAX tokens, contributing to the network's security and governance.
  • Chainlink does not use a consensus mechanism in the same way a blockchain network like Avalanche does. Instead, it relies on a decentralized network of oracles to validate and relay data, ensuring the integrity of information provided to smart contracts.

Chainlink is best suited for applications that require secure, reliable, and tamper-proof data inputs from the real world. This includes:

Avalanche is optimized for a wide range of blockchain applications needing high throughput, quick finality, and scalable infrastructure, such as:

  • Scalable DeFi platforms and DEXes.
  • Enterprise blockchain solutions.
  • Custom blockchain networks (subnets).

Examples of Real-World Applications and Partnerships:

  • Chainlink has partnered with Google Cloud for cloud data integration and with numerous DeFi platforms like Synthetix and Aave for price feeds and randomness.
  • Avalanche has formed partnerships with Deloitte for enhancing security and speed in disaster relief platforms and with top DeFi protocols to build on its highly scalable network.

Ecosystem and Community

Development Community and Ecosystem Support:

  • Both Chainlink and Avalanche boast robust and active communities. Chainlink's community is highly engaged in developing external adapters and securing data for smart contracts. Avalanche's community focuses on developing dApps and custom blockchain networks.

Tools, Resources, and Support:

  • Chainlink offers extensive documentation, a vibrant developer community, and grants for projects integrating Chainlink's technology.
  • Avalanche provides developers with comprehensive resources, including tutorials, technical documentation, and funding for ecosystem growth through the Avalanche Foundation.

Tokenomics and Market Performance

  • LINK (Chainlink's token) is used to pay for services within the Chainlink network, including data requests to oracles. It incentivizes node operators to provide accurate data.
  • AVAX (Avalanche's token) serves as the native currency within the Avalanche network, used for transaction fees, staking, and governance.
  • In terms of market performance, both LINK and AVAX have shown significant growth and adoption, reflecting their utility and the demand for their respective network's services. However, their performance can vary based on overall market trends, technological advancements, and adoption rates in their specific use cases.

LINK vs AVAX

Potential for Integration

The potential for integration between Chainlink oracles and Avalanche’s blockchain platform is substantial. Chainlink’s decentralized oracles can provide Avalanche-based applications with secure and reliable real-world data, enhancing the functionality and scope of Avalanche’s already fast and scalable blockchain. This integration can benefit a wide range of applications, from DeFi and insurance to gaming and prediction markets, by providing them with the essential data needed to operate effectively and transparently.

Conclusion

Chainlink and Avalanche, while serving distinct purposes within the blockchain ecosystem, demonstrate a powerful synergy when combined. Chainlink’s ability to provide secure, reliable, and decentralized data complements Avalanche’s high-throughput, scalable blockchain platform, enabling developers to build more complex, useful, and transparent applications.

READ ALSO: "Chainlink vs Polkadot"

If you are interested in utilizing Chainlink or other blockchain-based solutions for your project, please reach out to contact@nextrope.com