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In recent years, there has been a rise in new fundraising methods, such as ICO and IPO, for startups and growth companies. Two of the major approaches that have gained prominence are initial coin offerings (ICOs) and initial public offerings (IPOs).
While ICOs and IPOs both allow companies to raise capital from public investors, there are important differences between the two in their processes, offerings, and impacts on stakeholders.
This article aims to provide a comprehensive overview of ICO and IPO by analyzing their histories, key mechanisms, strategies, and implications for companies and investors. Let’s start to explore each fundraising model in detail!
IPOs have existed for centuries as one of the primary means for private companies to go public and raise funds. The Dutch East India Company issued shares in the early 1600s, marking some of the earliest IPOs.
Since then, IPOs have evolved significantly with advances in regulations like the 1933 Securities Act and the 1934 Securities Exchange Act in the US. Blockchain technology has enabled ICOs, a more recent phenomenon.
The first ICO is widely considered to be the Mastercoin (now Omni Layer) issuance of tokens in 2013. In 2017, ICOs grew exponentially in popularity as an alternative fundraising model, raising nearly $6 billion compared to just $100 million in 2016.
While ICO tactics have since become more sophisticated, the underlying concepts of raising capital through digital tokens remain similar.
An IPO refers to the process by which a privately held company issues new shares of stock on a public stock exchange for the first time. This allows the company to gain a public listing and raise financing from a wider pool of investors.
In a traditional IPO, companies work with investment banks to determine stock offering terms like price, number of shares, and the listing exchange. Before shares become available for public trading, they publish prospectuses, file regulatory documents with the SEC, and conduct roadshows.
After going public, companies provide shareholders with regular financial reports and are subject to stock exchange compliance rules. Theinitial public offering process for an IPO can take 3–6 months and allows companies long-term access to public capital markets.
Initial coin offering is the process of raising funds by issuing digital tokens to investors in exchange for funds like fiat currency or other cryptocurrencies.
These crypto tokens can provide access to products or services the company intends to develop, hold intrinsic value, or even generate returns. To launch an ICO, companies typically publish whitepapers describing their concept and token utility.
They set token metrics like pricing and distribution schedules and formulate a blockchain-based smart contract to manage the sale and distribution.
ICOs, as a crypto fundraising model, can allow companies to raise significant capital within days or weeks with minimal regulatory oversight compared to IPOs. However, if not properly planned and executed, there is a risk of scams or failure to deliver on project promises.
While both ICOs and IPOs involve facilitating investment in a company, their inner workings differ in important ways.
Regulated exchanges list IPO shares, and brokerages trade them. ICOs rely on smart contracts deployed on public blockchains like Ethereum to automate token sales and distributions.
IPOs issue common stock, representing equity ownership in the company. ICOs issue crypto tokens that may represent utility access, security rights, or nothing at all, depending on the structure.
IPO regulations require comprehensive disclosures of businesses, finances, and risks. ICO projects can remain pseudonymous or provide limited transparency, depending on their location.
ICO tokens are generally liquid and tradable immediately on decentralized exchanges. IPO shares become liquid only when listed on a securities exchange, which can take months.
Additionally, ICO processes are more streamlined, while IPOs provide more investor protections through third-party oversight and auditing of disclosures and compliance requirements.
Companies and investors must evaluate the benefits and drawbacks of both ICO and IPO based on project circumstances.
ICOs offer more flexibility but come with greater uncertainty. IPOs offer the same benefits as traditional equities, but they are a longer process with higher barriers to participation. The ideal fundraising model depends on a project's goals and risk tolerance.
Beyond their core mechanics, companies also deploy divergent strategies when it comes to executing ICO and IPO successfully.
For ICOs, strong marketing, community building, and demo releases ahead of sales help generate buzz. Presales to VCs and strategic partners demonstrate early confidence.
Careful design of token economics incentivizing long-term holding is important to support post-ICO prices. Multi-tier pricing and issuance limits prevent dumping.
IPO companies focus on accounting, governance, and compliance readiness over many months. Underwriters help set fair valuations and craft investment narratives to excite demand.
Post-listing shareholder communication remains key to long-term performance. But ICO projects can thrive solely by efficiently delivering on the core product, regardless of secondary market speculation.
To participate in an ICO, you'll need to set up crypto wallets to store ERC20 tokens. Many ICOs accept cryptocurrency contributions sent to provided wallet addresses within the crowdsale window. For ICO funding, buy cryptocurrencies from reputable exchanges. Now, let’s see the IPO process!
While most IPO stocks are available to all investors, very few people actually purchase shares directly from an IPO. Before setting the IPO price, retail investors place pre-IPO orders through their broker. Brokers then allocate scarce IPO shares based on client profile and order size.
Neither ICOs nor IPOs strictly dominate each other for all companies or use cases. Whether an ICO or IPO is preferable depends on several factors, including business stage, funding needs, risk tolerance, transparency requirements, and regulatory comfort.
For the highest impact, companies may find the most success blending components from both ICO and IPO according to their unique circumstances and goals at each stage.
What matters most is strong governance, transparency with stakeholders, and delivering customer value as promised over the long run. It also depends on the project.
This comparative analysis of ICO and IPO highlights how both can be advantageous for the right companies and investors, depending on their specific needs and risk tolerances.
While ICOs offer greater flexibility and faster funding timelines, a lack of regulations comes with increased uncertainty and responsibility for due diligence. IPOs provide more established processes and protections but introduce new public market complexities.
The EURK euro stablecoin can support both effectively by facilitating secure euro transactions on and off exchanges, as well as enabling new applications and market efficiencies through its reliable price stability.
Going forward, convergence may also occur as sectors pioneer regulated security token offerings (STOs), incorporating lessons from ICOs and traditional financing innovations.
If sensibly regulated, the transformation of capital raising will likely continue to benefit entrepreneurs and backers alike, with improved access, transparency, and opportunities. If you want to experience secure transactions, EURK is here for you as a reliable euro stablecoin platform.
You can experience the power of stablecoins and stablecoin liquidity with EURK euro stablecoin only with your compatible euro stablecoin wallet. EURK, the best stablecoin for euro currency, provides fast, safe, and secure transactions with the power of blockchain technology.
If you want to learn more about EUR stablecoins, become a partner today. By eliminating the risk of volatility, explore the benefits of EURK for your different crypto projects. You can easily buy EURK on Coinstore, KoinBX, and Bitay and adapt to the future with a reliable stablecoin. The future awaits you!
