A New Era in Fund Raising: Cryptos Offerings
Over the last twelve months, the global markets have been overwhelmed by a streak of frenzy on Initial Coin Offerings (ICO). Many new business start-ups have found this channel as the fastest and most convenient way to raise fund from a couple of millions or more, for their business expansion. Undeniably, many of these project vendors are bogus or have not reinforced a proper and legal structure to protect the investors’ monies.
True enough, the ICO exercise is a very straightforward way to solicit monies from investors’ pockets unlike the multi-thresholds of getting a loan from banks. Unfortunately, most investors are still oblivious of the hidden risk if the due diligence of such project is not properly done by industrial professionals. It could be worse if the investment scheme is operated through a referral scheme, hence the introducer of this crypto-investment is actually hoping to get some bonus payment upon your monetary entry instead of ensuring the viability of the business project.
Typically, we will briefly introduce the three major classifications of ICO tokens that may subject to certain regulatory license. Therefore, you are advised to exercise caution and research on further knowledge should you have interest to participate in these investment activities.
First of all, the simplest crypto-token among all others is the one based on utility cum services. These tokens are created and issued to users who will use them for the exchange of utility or services among the affiliated merchandising outlets. Generally speaking, the purpose of purchasing such tokens are the early-bird discount or otherwise, it may be used as an exchange of added value services upon a purchase (known as gift-with-purchase). Literally, the utility (service) token does not carry investment value and the issuance does not require any regulated financial license to operate on it.
Next, the venture tokens may be the most popular among investors. These crypto-tokens are created and issued to investors for the exchange of investing into a pre-defined business project. The fund will be disbursed as loan to the project vendor for some target profit-sharing on annual basis. After the full issuance, the issuer may plan to list the venture tokens in an open crypto-Exchange for public trading. Since no stringent control is being regulated on such online transactions like the traditional deals conducted on a typical equity exchange, investors might trade on the Exchange or among themselves on private deals through the transfer via e-wallet. Broadly speaking, the ICO in this second category may need a financial advisory license to conduct the issuance, reinforce the proper filing of information memorandum and construction of the white paper on the token characteristics.
Finally, the asset tokens may work almost similar to the venture tokens, except the possession of them will enable the investors to swap for an equity in the project or the parent company. Such scheme may be comparable to holding preference shares or convertible bonds in a conventional investment scheme. However, the bonus of investing into asset tokens may yield profit faster by liquidating in open market, in case the benchmark value of it flips higher in P/E ratio while listed in a crypto-Exchange. Notwithstanding the above terms, the issuer of an asset token may need a security license in order to execute the legal structure with proper filing of documentation.
While many business starters are considering the ICO exercise as an effective channel to raise fund for their business project, it will be more important to ensure the integrity of the crypto-tokens and the business project in order to maintain good reputation in the market. Of course, subsequent series of ICO will definitely invite more investors if the first one has paid off well.
Blockchain technology has emerged in the new era in multi-facets of all industries. It will not take too long to see the replacement of such technology in our banking system, financial market trading, agriculture and live herds, mobile data and so forth. Do not be too brave to just jump into any such investment without finding the legitimacy of it. Likewise, it pays to be cautious and you may find one such superb investment that will exponentiate your investment.
~ DAR Wong is a registered Fund Manager with 29 years of Financial market experiences on global basis. The expressions are solely at his own. He can be reached at firstname.lastname@example.org
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