ICO - the Initial Coin Offering – is a way to attract investments, based on the release of a new cryptocurrency and its subsequent exchange for more liquid analogues, the cost of which is already known .
1. Purchasing of tokens at an ICO doesn’t provide the property right.
2. The company that is carrying out the ICO may not have a real manufacture. Most often, the funds are collected for the implementation of fintech projects , which makes the ICO similar to the venture business.
3. ICO isn’t regulated by the government, which is why:
- There are no guarantees of the project implementation;
- The price for tokens on the first stage is fixed and not backed up by anything except the belief of the investors’ community that it is fair.
- No preparation of massive official papers is required; the creators will only have to provide a description of the final product’s idea.
- No restrictions on the dynamics of the capital flow: investments can be attracted from any part of the world.
Thanks to the characteristics listed above, the ICO is one of the fastest ways for collecting funds.
CHARACTERISTICS OF THE ICO MARKET
The ICO market is growing fast. The first ICO (Mastercoin) was carried out in 2013. Then, it was managed to collect $500,000 . The most successful ICO as of October 2017 - Filecoin - collected $257 million.
ICO MARKET GROWTH FACTORS
1. The growth of the crypto currency costs. From January 2016 to October 3017, the crypto currency market capitalization grew by 19 times . The rate of Ethereum grew by over 100 times .
2. ICO as a way to diversify the currency portfolio. When buying tokens, the investors can decrease the risks without transferring their savings to fiat money.
3. Growth of the demand for products on the blockchain base. Large technological companies actively create new projects built according to the decentralization principle .
A big part of Russian-speaking ICO-based startup. According to the Republic, Russian-speaking founders or employees participate in 21 of 55 projects that will be started in the next months.
Russian biggest ICOs
- Companies of the “real sector”: extracting production of synthetic zirconium dioxide ZrCoin and the “Kolyonovo Ecosystem” farm.
- Golos (“Voice”) Social Network; TokenStars – a platform for the investments in the beginner athletes.
- Fintech startups: EncryptoTel (VoIP telephony), KICKICO (crowdfunding platform), MobileGo gaming platform and the SONM project (a decentralized computer) .
INFLUENCE OF ICO ON THE CRYPTO CURRENCY MARKET VOLATILITY
- During an ICO, the market liquidity may be decreased: at the exchange of tokens for other crypto currencies, the latter ones are like temporarily withdrawn from the turnover.
- The exchange rate of a crypto currency is subject to the influence of the market players’ actions. When the project developers obtain cash to pay for the project expenses, the crypto currency rate goes down.
- Flooding of markets with a new crypto currency is one of the inflation forms.
REGULATION OF ICO
1. Self-regulation Teams coming to an ICO are interested in trust from the part of the investors, which is why they try to follow some rules:
- Keeping the incoming funds in escrow wallets . An access to a wallet may be received only after observing all conditions with a deposit agent.
- Giving the organizational and legal form when creating a legal entity, documenting all ICO provisions and conditions.
2. State Regulation
- The People’s Bank of China has recognized IPO as illegal financial activity.
- In the USA, tokens are equated with secure papers
- In Canada and Singapore, they aim to introduce new standards for carrying out the ICOs, in order to increase the transparency .
- In the United Arab Emirates, FSRA have announced that they equate the ICO with the issue of secure papers, but a crypto currency is considered by them as an exchange commodity.
- In Russia, no ICO regulation norms exist yet . However, the official statements of the authorities and the regulator regarding crypto currencies and the ICO are contradictory.
- In June, the creation of an ICO incubator on the Waves basis was announced.
- On October 12, 2017, Vladimir Putin announced that the government will not prohibit the use of crypto currencies, but it plans to establish measures of a strict control over this market.