ICO or TGE (Token Generation Event) is the initial tokens offering. These terms are closely related to the use of blockchain distributed registry technology and cryptocurrency.
ICO or TGE process is the release and subsequent tokens sale for fiat money and cryptocurrencies. The project's investors, aimed at extracting long-term or speculative benefits are the buyers.
ICO process by its principles is similar to IPO (Initial Public Offer) in which the company starts to sell its shares to a wide range of investors on the stock exchange.
ICO is the business management tool
Start-ups often need funding for own development, so they release their technology-based tokens, followed by these tokens sale for fiat money or cryptocurrencies. Typical ICO is held at the early project’s life stage and is a kind of venture capital investment and crowdfunding mix.
Most tokens are released on the ethereum platform basis, which is currently the most popular for raising funds.
What does ICO attract investors by?
While buying tokens during ICO, investors:
- have an opportunity to get the project services at more attractive price;
- get a speculative benefit by selling tokens after a certain time after ICO start at a higher price;
- make a long-term investment in an attractive technology project at the initial development stage.
Initial Coin Offering - what risks are met by investors?
At the moment, fraud or scum is the main risk. In this case, the project creators just hide with the investors’ money. Such transactions for investors are often only trust-based, due to the fact that in most jurisdictions there is no legislation governing ICO and cryptocurrency.
The investor must consciously approach the participation in ICO and be aware of the fact this is a high-risk investment. What should I pay special attention to when investing in ICO?
An inexperienced investor can be embarrassed by the various projects abundance while an experienced investor will carefully read the documentation: whitepaper and token sale agreement. Probably an experienced investor will find the important moments during his reading which the organizers have forgotten to mention.
When choosing a project for investment, make sure:
- the project organizers have a good reputation;
- the project organizers have a successful relevant experience;
- Whitepaper and other documentation are compiled correctly;
- there is a ready-made working MVP (a minimally viable product);
- there are all the necessary rules and agreements depending on ICO jurisdiction;
- the project is implemented through a real, incorporated company.
- the jurisdiction for ICO meets the realities.
ICO launching legal nuances
Regulatory policy regarding Initial Coin Offering can be characterized as follows:
- the regulatory mechanism depends on the jurisdiction;
- it is very difficult to open a bank account for the project and is possible only in a number of jurisdictions;
- the most appropriate jurisdiction selection depends on the following criteria: project budget, planned turnover, activities;
- detailed elaboration of the project documentation and company, on which behalf it is implemented, is required;
- the project technical component must comply with the legal requirements.