By CNBCTV18.com IST (Updated)
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Tag along as we round up some of these common fundraising methods and explain how they work.
Entrepreneurs in the crypto industry don’t want to wait in a queue to get the attention of venture capitalists. Instead, they have found more promising ways to raise funds for their projects. From the infamous initial coin offerings (which were eventually banned in China) to initial stake pool offerings — there are several innovative methods that crypto projects can use to raise funds for their projects.
Tag along as we round up some of these common fundraising methods and explain how they work.
Initial Coin Offering (ICO)
An initial coin offering is the crypto equivalent of an initial public offering (IPO). Only, instead of shares, crypto projects sell their newly introduced cryptocurrencies. Investors purchase these coins in the hope that the value of the cryptocurrency will increase in the future.
The process begins when a company launches a whitepaper explaining the project’s goals, mining procedures, distribution methods and so on. Based on this document, investors can make a judgement call on the scope of the project and purchase coins in accordance.
ICOs have received a lot of flak from the industry due to the number of fake projects that have used this method to raise funds, only to disappear with the accumulated wealth.
Security Token Offering (STO)
When tokenised digital securities—also called security tokens—are sold on a crypto exchange to raise funds, it is known as a Security Token Offering or STO. A security token is a unique token issued on a permissionless blockchain. It represents a stake in an enterprise and can be traded for real financial assets, such as equities.
Tokenised Security Offerings need to be fully compliant with regulatory governance. This requires much more preparation and compliance work on the part of the project launching the STO and is one of the reasons why they are more…
