What Happens After Initial Coin Offering?

Initial Coin Offerings (ICO) News

by DailyCryptoInfo 326 Views

What Happens After Initial Coin Offering?

Initial Coin Offerings (ICO) News

by DailyCryptoInfo 326 Views

An initial coin offering is essentially a fundraising tool. Firstly, a start-up can create a new cryptocurrency or digital token via a number of different platforms. One of those platforms is Ethereum which has a toolkit that lets a company create a digital coin.

Then the company will eventually do a public ICO where retail investors can buy the newly-minted digital tokens. They will pay for the coins with other cryptocurrencies like bitcoin or ether (the native currency of the Ethereum network).

Unlike other fundraising methods such as an initial public offering (IPO) or even venture capital, the investor doesn’t get an equity stake in the company. If you buy shares in a public firm for example, you own a small slice of it. Instead, the promise of an ICO is that the coin can be used on a product that is eventually created. But there is also hope that the digital token will appreciate in value itself — and can then be traded for a profit.

ICOs raised $3.8 billion in 2017.

One of the largest-ever ICOs was a project known as Bancor which raised $153 million in around three hours. The digital coin issued is called the Bancor network token (BNT) and it was built on the Ethereum platform.

A key aspect of Ethereum is the so-called smart contract functionality. Smart contracts are contracts that automatically execute when certain conditions are met from all interested parties. The automation can help to speed the process up, ensuring no mistakes along the way.

Bancor is creating a product that rivals cryptocurrency exchanges based on smart contracts. An exchange matches buyers and sellers and essentially acts as a middleman. But, Bancor’s network allows users to convert one cryptocurrency into another with low conversion costs and without fears of low liquidity. It automatically balances supply and demand and works out the correct conversion price of one coin into another.

It does this through what it calls “smart tokens” which can be generated through the Bancor network. These smart tokens or digital coins hold one or more other cryptocurrencies in reserve which means that it can always be traded. For example, if there was a digital coin that only had a few thousand users, it would be difficult to trade as there would not be a large pool of people wanting to buy and sell it. But if that digital token had a popular and large reserve cryptocurrency like ether then there would always be liquidity to trade.

But ICOs are not flawless. As a result of the large demand for BNT, the Ethereum network became congested during the coin offering last year, leading to delays for buyers.

What Happens After Initial Coin Offering?

e some companies run an ICO and keep a certain percentage of the coin for the owners in case their coin does well, or maybe their system needs a certain amount of their coin to get up and running. However, the next few years run on the selling of the funds collected.

When you see that an ICO raised between 48Mil(SALT) and 257Mil(Filecoin)that doesn’t alter their coin’s value. If they have a good mindset towards how to manage costs they should be able to run for a few or more years on that while they develop their products further.

Move down the road a little bit. Let’s say that the ICO company has run out of their initial ICO funds. At this point they either need to be supported by their products, will need to seek further investment, or close. (To my knowledge, no ICO companies have made it to this eventuality.) They could seek investment from capital investors… but it is much more likely that they will launch another ICO for some branch technology that will empower their tech to do more or start a whole new project altogether. They can do this because most ICO companies are beholden to nobody. They own 100% of their company since buying an ICO coin doesn’t grant any power or ownership to the coin holder.

What Happens After Initial Coin Offering?

The value of their ICO coin is proportional to the desire/need to use the coin. In our above example, the ICO coins will be worth whatever they are worth to people that use the platform. Also, if the tech platform they made is also decentralized, the company no longer needs to exist for the platform to work or have value.

Most projects depend on the inflation of their currency to fund their project as well as token sales. (there’s a difference between the token sale and the buying the coin).

So if the project if valuable and has an actual utility in the real world people are more likely to buy and so the price of the coin would go up. Usually the founders would own a portion of the coins ,5% or 10%, depends on each coin, and could go up to 50% in ripple’s case, but that means the coin lost it’s decentralization feature and if the owner of that 50% decide to sell their share they would trump all the other investors.

Some projects like cardano do depend on the inflation of the currency but they did seed money to start the project and getting going before and ICO.

The best ICOs are mostly the ones who have already built a working product or Beta or MVP and shown their competency.



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