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Blockchain technology has revolutionized various industries, including finance, by enabling new methods of fundraising such as initial coin offerings (ICO), security token offerings (STO), and initial public offerings (IPO).
In this article, we will explore ICOs, STOs, and how they differ from traditional initial public offerings (IPOs). We will also discuss the key factors to consider when deciding between ICO vs. IPO vs. STO in crypto. Let’s start to explore each crypto fundraising model in detail!
Fundraising refers to the process of gathering financial support for a project, business, or other cause. Traditional methods of fundraising include venture capital, angel investing, and going public via an IPO.
In the blockchain space, new digital fundraising models like ICOs and STOs have emerged that leverage cryptocurrency and tokenization.
As we will describe in more detail below, an ICO involves issuing digital tokens that can potentially appreciate in value, whereas an STO issues tokens representing securities like shares in a company.
Both ICO and STO allow startups to crowdfund and offer a new way for the general public to invest in promising ventures at an early stage, compared to traditional IPOs.
An initial coin offering, or ICO, is a type of crowdfunding campaign where a new crypto coin or crypto token is offered to investors in exchange for funding. With an ICO, a company sells crypto tokens to early supporters in exchange for capital, typically in the form of Bitcoin or Ether.
The startup is developing a future product or platform for utilizing these crypto tokens as coupons or vouchers. ICOs gained huge popularity in 2017, with over $5.6 billion raised globally. They are still popular today.
A security token offering (STO) is similar to an ICO, but with one major difference: the tokens offered are compliant with securities regulations and qualify as securities. With an STO, companies issue digital tokens that represent digital assets like equity, profit shares, or investment contracts.
This exposes STOs to securities laws, necessitating proper registration paperwork with regulators. By meeting securities criteria, STOs provide more legal protections for investors compared to the wild west of earlier ICO markets.
STOs aim to make crypto fundraising compliant while maintaining the efficiency of blockchain financing. EURK, the best euro stablecoin, could serve as a reliable digital asset for STO transactions.
EURK is a 1:1 euro pegged stablecoin that offers fast, secure, and easy transaction options by eliminating volatility with the security of euro currency in the digital realm.
You can easily facilitate EURK transactions with your euro stablecoin wallet and benefit from secure euro stablecoin platform advantages. All you need to do is buy EURK on secure crypto exchange platforms, such as KoinBX and Coinstore.
However, you may want to learn more about the stablecoins before making your purchase. So, it is better to check out “Are stablecoins really stable?” “How profitable are stablecoins?” “Are stablecoins a good investment?” and “Where does the power of stablecoins come from?” for more details!
An initial public offering, commonly known as an IPO, is the traditional method of going public in which a company lists shares on a stock exchange and offers them to the public for the first time.
Private companies can transform into public companies by filing with regulatory bodies like the SEC and floating a portion of their shares through an IPO.
IPOs allow companies to raise larger sums of growth capital from public markets in exchange for increased reporting requirements and shareholder accountability.
Additionally, they provide liquidity for early investors and employees to realize returns. However, IPO incurs high costs, more regulations, and lengthy approval timelines.
The main difference between ICO and STO relates to regulations and legal status. Crypto tokens issued through an ICO are generally considered unregulated utility tokens rather than security tokens. This provides more flexibility but less legal protection for investors.
On the other hand, STOs structure their tokens as securities right from the start. This subjects them to stringent securities laws and oversight from agencies like the SEC.
STO investments must meet accreditation and KYC/AML requirements. Furthermore, records and procedures have to follow stringent compliance mandates.
STOs provide greater transparency, accountability, and recourse for investors compared to the Wild West era of ICOs. A reliable stablecoin, such as EURK, could empower STO transactions with the same security and auditability as an EUR stablecoin.
While IPO and ICO both enable companies to raise funds by distributing new shares, there are key differences.
IPOs strictly adhere to securities regulations and disclosure requirements. ICOs were initially unregulated, which led to many scams. Securities regulations dictate the design of STOs.
After listing, investors can freely trade IPO shares on public exchanges. ICO tokens may or may not be readily tradable, depending on the listing and exchange support.
IPOs have no minimum investment size, allowing public retail participation. ICO and STO often have set minimum investments, effectively restricting investments to accredited players.
Companies heavily promote IPOs to build public awareness. Due to regulatory constraints, ICOs relied more heavily on word-of-mouth and cryptocurrency communities for promotion.
Initial public offerings are significantly more expensive due to mandatory disclosure filings and regulatory compliance costs. Initial coin offering costs are initially lower, but STO costs are higher than ICOs.
IPO proceeds primarily support business growth and expansion plans. Companies could use ICO funds more liberally for actual business or future development. Regulatory guidelines dictate how to use STO proceeds.
For a new crypto project, regulators favored STO over ICO due to compliance concerns. But each option has pros and cons, depending on the circumstances.
More established companies are better suited for regulated offerings, such as security token offerings and IPOs, which require high costs and transparency.
ICOs enable funding new concepts, while STOs and IPOs work for businesses with proven products and revenues.
ICO regulation varies globally, and some nations favor regulated STOs as a compromise between free markets and investor protection.
Retail investors flock to hyped initial coin offerings, while STO and IPO attract deeper-pocketed, regulated investors requiring thorough due diligence.
While ICO setup can be faster, STOs and IPOs are longer-term processes, providing greater acceptance from traditional analysts and investors.
For many cryptocurrency projects, an STO provides certain advantages over a traditional stock initial public offering:
For these reasons, many established crypto firms raising tens of millions opt for STO over IPO, seeing them as a natural next stage of fundraising after private sales and ICOs that also provide greater access to capital markets.
ICOs, STOs, and IPOs each have a place in crypto financing, depending on a project's characteristics and goals. ICOs remain avenues for high-risk funding of novel concepts, while STOs and IPOs denote greater maturity and scale through regulated exchanges and investors.
Choosing the right path between ICO vs. IPO vs. STO in crypto requires analyzing priorities around costs, timelines, audiences, and long-term visions.
With innovation in both regulation and blockchain technology, we will likely see hybrid "IPO-like" STO models emerge as the crypto industry matures to better serve both decentralization and protection priorities.
Are you a startup looking for crypto fundraising routes, but unsure which path may suit your project? EURK is a secure stablecoin that provides innovative tokenized capital market access through regulated offerings. Our founding team can advise projects on STO best practices.
With transparency and trust at its core, EURK euro stablecoin aims to empower builders while protecting investors through standards commensurate with backgrounds and goals. Become a partner today and take advantage of the EURK benefits!
