How to Launch Initial Coin Offering?

Raising funds through Initial Coin Offering rather than offering shares through a prospectus has become a norm.

09:26 18 October 2021

Disruptive technologies like blockchain and its allied applications like proof of work and smart contracts have made a significant impact on work cultures in every industry. Now, raising funds through Initial Coin Offering rather than offering shares through a prospectus has become a norm. Despite monumental failures, ICO were able to raise a total of $7 billion during the first six months of 2018 according to a Bloomberg publication ‘Crypto Bulls Pile Into ICOs at Record Pace Despite Bitcoin Rout’. 

 

Start-ups and companies raised millions of dollars within minutes and days. ICOs or Token Sales are regulated as securities according to Crowdfund Insider provided a token satisfies the conditions of being an investment contract as per the conditions laid down in the Howey Test. 

 

According to Blockchainhub, 66% of the ICOs did not realize their purpose. Momtaz also reported failures in 47% of ICOs by 2017. Some were built on an ICO bubble, some did not reach serious investors, or the idea behind ICO was not convincing enough. According to Deloitte, a token is a part of the business in ICO. Therefore, it becomes important for a company to launch an ICO which catches the eye of an investor when the market is flooded with them. 

 

Steps to Launch an ICO

ICOs can attract all types of investors as the process of acquiring an ICO is not that long and requires fewer formalities as identified by the European Parliamentary Research Service. It also provides investors to exit early if they want as it takes only three months for an ICO to get listed on an ICO token exchange platform. But before that, it has to go through the following steps: 

 

1. Detailing the Campaign

The first step is to set up the structure of the ICO. This will include creating tokens that contain a plethora of rights. A timeline of events is laid down, the type of audience it wants to cater to, setting the price, laying out the business plan, implementing social media and other tools such as DEX charting tool, and releasing a white paper. 

 

 The firm which is normally a venture capital or a start-up also announce details like members of the advisory board. Usually, help from experts is taken to promote the ICO for a predefined fee or tokens. 

 

2. Pre-ICO Sale

The second step constitutes the Pre-ICO or Pre-sale. In pre-sale, a certain number of tokens are issued at a discount to a selected group of individuals or based on first come first serve when it is issued to the public at large. Pre-ICOs are conducted to raise money to launch the actual ICO and to ascertain the demand for tokens in the market or to know the percentage of bidders and the interest of big contributors to the business plan. 

 

It is witnessed in a presale that investors take tokens for fiat money instead of cryptocurrencies such as bitcoin making it easy for the capital seekers to raise the cost of ICO. The exercise is time-saving as the company need not change cryptos into real money. 

 

The ICO is launched by calling for contributions and bids in the opening time. It is at this stage, the company is able to send cryptos to the digital wallets of the public. Payments are made in Ether as most of the ICOs are launched on the Ethereum Blockchain. 

 

Smart contracts of many ICOs are drafted in a way that they do not allow a single investor to buy more than a definite number of coins. After the request and purchase, tokens are updated in the digital wallets of the investor as per the exchange rate of that time and the amount of purchase. 

 

This can either happen immediately or after the ICO is closed. Generally, an ICO remains open for a month but the duration also depends heavily on the demand of the token.

 

3. Listing on a token exchange

The third step after the ICO campaign is launched is very crucial as it decided the future of ICO. Several investors place their bids and submit their application of requests for purchasing tokens. This escalates the transactions for exchanging fist currency to cryptos and vice versa. 

 

These transactions help the ICO in getting listed on an online coin exchange platform which is a significant leap for an ICO. The listing allows investors to trade tokens as and when they like, providing liquidity to the asset. This attracts other investors and gradually increases the price of tokens and making them useful for using it as a cryptocurrency. 

 

But most of this depends on the business plan. If the ICO is unable to attract investors, it gets delisted. The token becomes infructuous and the project stands terminated. 

 

Therefore, every investor needs to fund ICO offered by a trusted brand to avoid being duped. The promoters of ICO shall also take necessary precautions to avoid getting the coins dumped after the scare and dump investors fuel the price of the ICO.