Free ICO Planning Guide
To date, ICOs have raised a lot of funds and created the first-ever visible ripple in the vast crypto space. In 2017, ICOs have successfully outperformed funding done via venture capital and it has risen as the best method of funding any blockchain-backed business. Many analysts are confident that ICOs alone can eventually make the entire crypto-verse a robust multi-billion-dollar sector.
In short, ICOs have the ability to shake up the entire process of early-seed fundraising; they have the potential to restructure today’s mainstream investment ecosystem. By using ICOs, many start-ups have successfully raised funds by issuing crypto tokens on the blockchain—most commonly Ethereum. Tokens are tradable and fungible typically in exchanges.
However, these crypto tokens are even more unique because their true value is always derived from something that they’re representing. So, all in all, these crypto tokens are definitely a big deal. Which is why, we have compiled this ICO planning guide that’ll cover the difference between two of the most prominent token varieties; afterward, you’ll see how the blockchain is making a big difference in the commercial landscape and how a business plans an ICO.
Security token versus utility token
Tokens might function as a currency, an asset, a method of payment, a company share, etc; that’s precisely why they’re too difficult to categorize and define. Ideally, every token has its own regulation because it’s definitely a fresh class of asset. An update is that SEC is currently tightening the reins on all the regulations surrounding the ICO landscape; it’s basically focusing on the ways through which a company issues security tokens.
A utility token, on the other hand, may not face any strict regulation from a national governing body—but the crypto world might still see some new ICO–specific regulations being implemented in the future. In this section, we’ll give the low-down on security tokens and utility tokens.
2017 was definitely the year of ICOs. As 2017 ended, nearly USD4 billion worth of funds had already been raised; the largest ICOs for the last year included Filecoin and SALT Lending—apart from them, one other notable ICO was ILCOIN. Utility tokens became the hottest investment commodity because people sold tokens worth billions of dollars; these tokens like ORIGAMI NETWORK, BunnyToken are almost always based on Ethereum’s ERC20 standard.
Also known as user tokens or app coins, utility tokens give access to the features of a platform it represents. In short, these tokens are basically designed for accessing a future service or product. With the help of these tokens, a blockchain-based start-up can raise the necessary capital for developing its future initiatives. These tokens help users buy future access to a blockchain platform’s future services or products. If you’re buying utility tokens, you’ll expect this access to come at a discounted rate or be exclusive right to the platform.
When a start-up creates utility tokens, it’ll sell different “digital coupons” for its range of services; this business model is actually quite similar to that followed by electronic retailers that accept pre-orders for console games that haven’t been released yet. For instance, Filecoin managed to raise USD257 million by selling its utility tokens that gave users access to its end-to-end decentralized cloud storage ecosystem.
However, as a buyer of a utility token, you should know that it’s never designed as an investment commodity. Sometimes an investor may contribute to the ICOs selling utility tokens with the hope that their value will rise with the demand of the company’s services and products. If, however, you’ve bought the tokens for a betting platform, then their price may be subject to some drastic fluctuations.
If the tokens and their usability are structured well from the beginning by their issuer, then they’ll be exempt from a range of federal laws that govern securities. It is necessary to be aware of marketing trends of ICOs before investing. ICO marketing guide is very helpful to get the clear idea for it, also ICO events organized by their respective companies provides a very good overview of market aspects.
Security tokens are built to be the issuing company’s share; while all the utility tokens represent the access given to business products or services. So, in short, utility tokens have a practical use while security tokens are similar to a company’s stocks. In order to determine whether the token is utility or security, the SEC does the Howey Test. This test was designed in 1946 to decide whether or not certain transactions are a form of investment contracts.
According to the latest rule, the project selling security tokens in its ICO will have to register them. If, however, a business doesn’t get its security tokens registered, then it’ll definitely be violating the securities laws. In this case, with security tokens, the legal risk is kept to a minimum by obeying the securities law.
Also, since security tokens are regulated, they can’t be bought by everyone. Yes, only a limited number of people can invest in this token and trade it. As a result, the liquidity of these tokens is reduced a lot. All in all, we can say that trading is very limited for every single security token. This restriction can even destroy any chances of a network effect and can throttle the platform’s development.
Blockchain technology is empowering industries
Now, ICOs—or any other form of crypto endeavor—will be based on blockchain technology. That’s why this section is devoted to understanding how this new technology is disrupting industries and many businesses. First, let’s look at some crypto-tech facts that highlight the massiveness of the blockchain and its related components.
In 2008, Bitcoin’s launch successfully changed the way a global financial system worked; the electronic P2P cash system disrupted finance and was definitely here to stay. However, after Bitcoin, its underlying technology—blockchain—came into the limelight. Businesses started exploring a number of ways through which this piece of tech could transform financial technology and other commercial sectors.
Ranging from transferring files to sending remittances, the blockchain could replace all the time-consuming back-office processes and other old-world systems that were created even before the internet. 2015 has become known as the year of the blockchain because most MNCs and top banks were embracing this technology.
Some big names such as Microsoft, IBM, and Alphabet (Google) were heading toward blockchain; likewise, there were many high-profile banks such as JPMorgan Chase, HSBC, and Bank of America that were about to leverage blockchain in one way or the other. All of this meant that blockchain had potential—all you needed was a perfect roadmap to put this tech into action.
Now, let’s have a rundown on the way this technology is implemented on some of the top blockchain projects. Also, we’ll let you know how these top blockchain projects have tackled one big business problem.
Dether—a blockchain-based trading app
As one of the first blockchain-backed mobile apps, Dether is decentralized to the core. It uses blockchain to make sure that it is bridging the gap between fiat currencies and cryptocoins. As a robust P2P ecosystem, this mobile app is actually creating a network of buyers, sellers, and different physical shops that are willing to trade using digital currencies. In a way, this crypto project is breaking all the conventional barriers that usually discourage the general public from experiencing the power of the blockchain and its core components.
CoinFi—the next-gen platform to deliver market intelligence
CoinFi unleashes the raw power of the blockchain to make sure that crypto traders and ICO investors can make the most informed, smart, intelligent trading decisions. Apart from the blockchain, CoinFi is also using the latest algorithms, techniques, analyses, and research studies to give crypto traders the much-needed edge. In short, this platform will assist a crypto investor in discovering the most relevant trading information among the fragmented data chunks present on different social media channels.
Cube—securing driverless cars of the future
The blockchain has even revolutionized the way the security of driverless vehicles is managed—now, that’s certainly a big deal. Cube is a crypto project that reengineers blockchain technology to resolve most of the security issues that self-driving cars face today. This project is using private key identification, AI, and Big Data to make sure that driverless cars aren’t easily hacked.
For these and many similar projects, launching an ICO wasn’t exactly a cakewalk. Instead, the overall process of forming an ICO and then launching it is pretty challenging. Which is why, in the upcoming section, we’re giving you the top factors that businesses usually consider before launching an ICO.
What preparation is done by businesses before launching an ICO?
We’ve seen some really successful ICO launches in the past. While analyzing these launches, we’ve noticed that the same set of steps is repeated time and again by the token-issuing companies. So, if you’re interested in knowing how a business launches an ICO sale, then here’s a list of all the important steps.
For some crypto projects, white papers exist for all the wrong reasons. Most white papers are actually marketing papers—and that’s where experienced investors smell a scam. Ideally, a white paper should always describe different problems that its project is addressing. Plus, the lion’s share of the paper should be dedicated to explaining all the workable solutions the project will bring to the table. A good white paper will always list the reasons why a project exists and how its solutions would work.
The token’s purpose
The business should set a very clear path on how it plans to incentivize all those who’ve bought the tokens. A business should always research and do its math to make sure that a sale’s hard and soft caps are always achievable and reasonable for the project. And if a business is planning to run an uncapped ICO, the investors will be cautious of such a sale. So, basically, uncapped ICOs require more investor research.
Terms and conditions
While launching a token sale, deciding the terms and conditions that govern the ICO is quite challenging. This means that businesses will first have to do legal research—and then they’ll decide what the terms and conditions will be. In framing the terms and conditions, companies usually decide who can and cannot join the sale. While writing an ICO’s terms and conditions, a business generally hires a legal expert to make sure that they’re legally accurate. Also, this section will decide how the funds will be raised and how the token proceeds will be used. Many good business teams even stay informed on the latest news shaping the ICO landscape. Marketing influencers plays a vital role in promoting ICOs. Marketing influencers are individuals who hold a grip on specifically targeted audiences and have huge followers and fans on their Facebook, Twitter and YouTube channels, as well as other social media accounts.
Building a reliable team
A business will often have a hard time finding a group of people who really believe in their idea. These people are the ones who’re credible and are willing to risk their own reputation for that idea. While building a team that can take the project from paper to the real world, a business must hire only those people who have verifiable LinkedIn accounts. Most ICOs go heavy on the top brass—for instance, a team will have CEOs, CFOs, CTOs, CSOs, and other blue-chip advisors. However, if the team lacks engineers, then that means it doesn’t have the ability to execute the ideas. If a business wants investors to join its ICO sale, its team has to have some blockchain developers.
Token technology to be used
When the ground work is done, it’s time to pick the blockchain that’ll power the tokens. At press time, Ethereum is one of the most mature and popular platforms for launching ICOs such as ORCA, Bitnation, Lotuscore. However, although creating a token based on Ethereum’s ERC20 standard may be simple, deploying the custom crowd sale logic around that token may be more challenging. Through ICO ratings, investors will get an overview and will be able to know about the best ICOs to invest.
A well-built execution plan
A business has to decide the number of token-sale rounds it’ll be keeping in its ICO. It’s quite a demanding task to decide whether a business will skip a private sale and a presale and go straight to the ICO or vice versa. Plus, the business will have to think about all the different discounting structures to use while the sale is live. Plus, the plan will have to decide to go with either KYC or AML regulations to establish the ICO’s credibility. For your information, the SEC has already started prosecuting all those ICOs that have ditched the KYC process altogether. So, for a business to establish its ICO’s reliability, it has to ensure that its crowd sale comply with AML or KYC regulations.
So that’s it for the free ICO planning guide. It definitely helps you to know how to invest in ICOs. If you have any questions regarding this guide or ICOs in general, then connect with one of our experts right away for services.
Written by Miikka Saloseutu