May 15, 2021

Attracting crowdfunding: choosing the types of token placement for financing projects in the crypt

Another boom shook the world of digital investments: inflow into cryptocurrencies reached a new peak of $ 4.2 billion in the first quarter of 2021.Over the past four years, token quotes have shown hundreds of percent growth and it seems that this is not the limit. The new record broke the previous quarterly high of $ 3.9 billion in the fourth quarter of last year. Since the beginning of this year, Bitcoin has received the highest inflow of $ 3.3 billion, followed by Ethereum with $ 731 million.

Attracting crowdfunding: choosing the types of token placement for financing projects in the crypt

Today, at 16.04.2021, according to the KickEX crypto exchange, the total market capitalization and volume of cryptocurrencies is $ 2.20 trillion, of which $ 1.18 trillion is Bitcoin alone. As a percentage, it looks like this: Bitcoin - 52.10%, Ethereum - 12.62%, then Binance Coin - 3.64%, Ripple - 3.27%, Tether - 2.15%, Cardano - 2.05% , Dogecoin - 1.79%, Polkadot - 1.76%, Uniswap - 0.86%, Litecoin - 0.85%, other cryptocurrencies - 18.89%.

These numbers are certainly impressive.

As a result, now almost any entrepreneur is increasingly thinking about taking his project to a digital environment in order to attract investments through DeFi, AIO, IEO, ICO, etc.

So what is the best form of attracting crowdfunding and why?

Let's figure it out. Let's start with the terms.

Crowdfunding - this is a type of fundraising for the purpose of financing a specific project from anyone, it often implies a free transfer of funds.

Crowdinvesting Is attracting investment for implementationany project on the part of several investors in order to generate income or other benefits in the future. Crowdinvesting in digital currencies is a public form of attracting investment.

Attracting crowdfunding, possibly inin a sense, easier than the traditional search for investors. At the same time, the publicity of the fundraising process also means that everything that you tell about the project can be used against you, namely the entire history of the project participants, all current materials will be analyzed by the community. For projects, this can also provide additional feedback, as the overwhelming majority in the community is well-disposed.

There is no doubt that despite the numerousfailures, worthy projects that can inspire investors will continue to appear in the crypto industry. The current huge hype around DeFi is an example of this: according to analysts of the cryptocurrency crowdfunding platform KickICO, the market capitalization of the TOP-100 DeFi tokens is $ 112.81 billion as of 04/16/2021, and the total volume in DeFi is $ 19.12 billion, or 7.23% of the total 24- hourly volume of the cryptocurrency market.

How did crowdfunding in cryptocurrency begin?

ICO pioneered digital crowdfundingspace. It is often compared to IPO (initial public offering) and crowdfunding (collective financing of innovative projects). In fact, the Initial coin offering combines the features of the first and second methods of raising funds.
Attracting crowdfunding: choosing the types of token placement for financing projects in the crypt

As in an IPO, in an ICO, investors acquirecryptocurrency tokens (not secured with rights to shares), which occurs mainly at the stage when there is no finished product yet. The three types of ICO rounds are conducted in the following order: private sale, pre-sale, crowdsale.

ICO, first of all, is the procedure for attractinginvestment, offering the sale of a fixed number of tokens to investors of a cryptocurrency specially created by a startup. For the success of launching an ICO, it is important to study and detail the project itself, as well as bullish trends in the cryptocurrency market, such as this year.

The peak of IPOs was in 2017. Now, it is extremely difficult to assess the profitability of an ICO, but the average amount attracted by developers that year was more than $ 36 million.

Choosing ICO as an attraction toolinvestments, it is worth considering the fact that a number of restrictions appeared on the ICO in several countries, which can create problems for those organizers who live in one of these countries. In this regard, legal advice before the ICO can help the ICO organizer in the preparation of technical documentation, where an important aspect will be structuring the utility of the token and its description in such a way that it is not considered a security. It will not be superfluous to pass the Howie * test and prepare an opinion together with a lawyer.

* Howey Test - or Huey's test, as it isalso called, developed by the US Supreme Court to determine whether a financial transaction means investing in a security. The test is considered positive if the transaction is similar to a classic investment, that is, transactions in which a wide range of people are given the opportunity to invest and investors do not control investment assets can be recognized as a security. In this case, a transaction will not be considered a security if:
if several people have the opportunity to invest
if investors control their assets

If the test is positive, thenthe financial transaction will be subject to the Securities Act of 1933 and the Securities Exchange Act of 1934. This means that only accredited (qualified) investors can legally buy these securities. In the cryptocurrency industry, Howie's test became relevant as a result of a lawsuit by the US Securities and Exchange Commission (SEC) against Telegram, where the Gram token was considered as an unregistered security. The class action lawsuit of American investors on the recognition of the Ripple XRP token as a security has a similar focus.

All these measures will allow the project to properlymeet the necessary ICO criteria and minimize legal risks. Also, it is important to pay attention to the balance of attracted tokens: if too few are attracted, then the organizer of the project may be accused of price manipulation, and if there are too many, then the audience may suspect the project of cashing out funds.

Attracting crowdfunding: choosing the types of token placement for financing projects in the crypt

STO - (security token offering), means the sale of tokenized shares, security in this case is the ownership of a share, or a token providing the right to receive it.

Unlike ICOs, STOs are regulated. Sites offering STOs are fully compliant with regulatory requirements, including data exchange and investor onboarding procedures.

Thus, STOs are traded on specialized crypto exchanges.

First and foremost, STOs aim to eliminatepossible inequality among investors. They are beneficial for issuers as there is no need to declare tokens as having no intrinsic economic value. STOs usually have clearly defined stakeholder obligations regarding token distribution, issuance procedures and secondary trading.

Of the advantages of STO, it should be noted that theyallow blockchain and cryptocurrencies to regain some trust by strictly following the rules. Also, STOs simplify maintenance at a lower cost, they can be programmed and applied with smart contracts. The risk of institutional manipulation is reduced for STOs: a market with fewer intermediaries facilitates this.

STOs are designed to address the fundamental flaws associated with utility token sales and could potentially significantly improve traditional securities in the future.

As of April 16, 2021total STO market capitalization was $ 657.38 million, monthly change in STO market capitalization: + 6.42%. The total trading volume for February 2021 was $ 14.5 million, the monthly change in trading volume: + 123.83%, and the weighted average yield: + 6.97%.

IEO, IFO, IAO - the next stage in the development of cryptocurrency crowdfunding

IEO - means that the project goes to the exchange directly, without going through the ICO. This type of token issuance is mostly presented in those countries where ICOs are limited.
Attracting crowdfunding: choosing the types of token placement for financing projects in the crypt

IEO is designed to minimize the risks of investors, which during the launch of IEO projects was either partially or completely unsuccessful.

IEO has some significant similarities to ICO:The company issues tokens. Tokens are bought by investors in anticipation of receiving speculative profits or using the platform's services. The company provides token holders the opportunity to use certain services on the blockchain platform. Generally, however, no performance guarantees are provided. At the same time, it is almost impossible to file a claim for compensation. And if guarantees of profit or any rights equivalent to assets were provided, then STO would have to be dealt with, since such guarantees change the character of the token to capital / security.

As with ICOs, IEOs are usually preceded by a seed phase and private sale.

Differences between ICO and IEO:IEO tokens listed for public sale are not sold directly through the company's own platform, but through the Initial Exchange Offering. If ICO involves two parties (issuer and investor), then IEO usually involves three parties (issuer, investor and exchange), which significantly increases the cost of the project. At the same time, integration into an exchange project can represent some kind of marketing advantage, since listing on well-known exchange platforms, as a rule, confirms the credibility of the project. Unlike ICO tokens, IEO coins are issued even before the crowdsale.

All IEO investors must comply with AML (AntiMoney Laundering) / KYC (Know Your Client), but the crypto community is known to have a lot of privacy obsessed people, so going through the AML / KYC procedure can be a big limitation for some.

Like any crypto project, IEOs can also behigh-risk. Therefore, investors should always be careful when making investment decisions, especially if the issue of coins is small in volume or distribution is uneven. In short, regulatory restrictions such as IEOs do not always protect retail investors from the high risks of investment losses.
Basically, IEO can be regarded as a way tothe organizers of the project sell their tokens at variable prices. But if you transfer most of the coins to the exchange in advance and sell them at a fixed price, then this, in fact, becomes an ICO.

Interest in IEO peaked in mid-2019:in May, projects for the initial offering of tokens attracted more than $ 1 billion in funding, and in June of the same year this figure decreased by 90%, to $ 130 million.At the start, almost all IEOs showed hundreds and even thousands of percent growth.

IEOs really only try to promotelegitimate projects, since it is primarily a matter of trust in the crypto exchange. Therefore, the verification process is deeper here anyway. In addition, not every idea manages to get support on the exchange.

The evolution of ICO and IEO led to the emergence of IFO, IAO

IFO - initial futures offering, or primaryfutures offer. These are derivative financial contracts in which the parties are required to trade an asset at a specific date and price in the future. When crypto exchanges start supporting crowdfunding, their liquidity increases. This becomes an easy way to get exchanges to place a token, at least temporarily. The essence of the IFO project is that you are offered to purchase a token of no value for free, and if enough people purchase it and start trading, then it can suddenly acquire some value for a short time. Some exchanges refer to the fact that they are forced to support IFO, as they risk that their audience will start transferring tokens to other exchanges that offer this service.

In mid-2019, IFO was prettyin demand as traders gained access to more instruments, which provided new opportunities for broader portfolio diversification, and less stringent KYC and AML rules opened doors for smaller investors, while futures offered a relatively realistic price determination for the token, thereby providing a better judgment of the progress and success of the respective blockchain. However, leverage here often led to large losses. Generally speaking, margin trading is always a double-edged sword. Perhaps that is why this tool did not stand out from the rest.

IAO

IAO - this form of crowdfunding is somewhat the samesimilar to IFO (Initial Futures Offering), but more flexible in how it allocates initial tokens. As with IFO, IAO organizers provide free tokens to potential investors to gain their attention and interest. The pricing mechanism is that the IAO determines a single price by aggregating all offers. Here, the final decision on who owns what is made at the end of the IAO round. That is, IAO is a blockchain auction process commonly used in traditional stock markets before or after trading hours, which determines the open and close prices by matching multiple orders to execute a trade at the same time. This approach should have been able to cope with the increased trading volume that was typical of the initial proposals. But users who store their coins on exchanges are faced with the problem of lost profits due to poor-quality distribution.

DeFi - replacing IEO, IFO and IAO

In mid-2020, popularity began to gainnew industry - decentralized finance (DeFi). These are applications, exchanges, services for issuing loans, opening deposits and much more. The main idea behind DeFi projects is that developers have no control over user funds. Actually, many DeFi projects have their own cryptocurrency, but mostly, these are tokens issued on the Ethereum blockchain, the performance of which is quite low, and the crypto world is still looking for solutions to scale it.

While investment in DeFi projects is gaining momentum, this market has continued to rock hard over the past few months. During this time, many DeFi tokens have lost more than 90% in value.

Attracting crowdfunding: choosing the types of token placement for financing projects in the crypt

And yet, according to analystscrowdfunding platform KickICO, more than 70% of investors plan to invest in Defi in 2021, 60% of whom are men under the age of 45. Analysts also note the very trend of more active investment than before the pandemic. Most likely, the pandemic crisis pushed investors to look for more lucrative sources of income.

Such sentiments confirm the fact thatinvestors have become more interested in investing in crypto assets, but they are held back by a lack of regulatory protection, a lack of awareness and education in the industry. It is imperative for the industry as a whole to step up and provide this new wave of investors with what it takes to ensure that investors have a positive experience and continue to invest.

AIO is the future

AIO (Auction Based Initial Offering) - software serviceorganization of crowdfunding and ICO implementation. Token sales carried out as part of the service are not directly related to the exchange. Trading pairs are not listed for them. This type of crypto crowdfunding is based on fair pricing, where the backers (investors) supporting the project place bets, and the more they make, the higher the price of the token will be at the end of the crowdfunding.

Thus, the project does not put forward on its ownthe price of your token, but the interest of investors in the project regulates its value. Backers can buy new tokens for only one predetermined currency, and if they need to buy these tokens for another currency, they will need to exchange it first. As a result, backers will receive a number of tokens equal to the amount of investment. However, since the price of the token may change during the crowdfunding period depending on the interest in the project, backers do not know how many tokens will be received as a result of the campaign.

The advantage of AIO is that access to allauctions held on the service are optional, in accordance with the specifics of national legislation, and during each trading day a strictly defined number of tokens is distributed, equal for each session. All AIO token purchase orders work similarly to exchange market orders. During the session, users view all orders in the order book. At any time before the end of the session, the backer can cancel his order, and at the end of the trading day, the acceptance of orders stops. At the end of the trading session, orders are executed in a strictly defined order in accordance with the parameters: in descending order of the token price specified by the user and in the time of order arrival. In order to avoid submission in the last seconds of orders with a minimum excess of prices relative to previously submitted orders, many services do not indicate the exact time of the end of the trading session.

If the campaign hard cap value is reached, the execution of orders is stopped, and the remaining orders are canceled, and not sold tokens are burned. After that, the campaign ends.

The AIO process is structured in such a way that investors receive high-quality project expertise, including all documents and company jurisdiction.

What problems does AIO solve

We all know that the list of coins on the market is constantis growing, but for a potential investor, the question of buying a specific coin that will bring him a profit requires studying the main questions about the project, namely: the purpose of creating the project (the product being created) and the team that is working on it. This gives the investor an understanding of how his participation in the project can be profitable and safe for him.

The main criteria for the success of the AIO project
Clear team rules, performance evaluation, meeting deadlines, a system for evaluating the work of individual structures in a team
Clear kpi of efficiency of the whole team
Clearly described functions of individual team members and their regulation
The end product is understandable to the community
Clearly worked out all upcoming expense items
Regular financial reporting of expenses and no unearmarked expenses

Following these criteria will allow not onlyto avoid typical, structural problems of launched projects, which often lead to unprofitability, but also to maximize the attractiveness of the final product for investors, without delaying its launch.

Thus, since financial expertssites such as KickICO, accepting AIOs, carefully assess the cost of projects and conduct a strict KYC, it can be argued that AIO is currently designed to make the entry into the cryptocurrency market as safe and profitable as possible for beginners both in investing and in attracting investments.