ICO/IEO/STO - what is the difference between them?
What is an ICO? Is it only for scammers?
When it comes to IСO, the issue and sale of tokens take place on the same platform. In this case, it is possible to issue only utility or payment tokens. That means the investor cannot expect a return on the investment. Such tokens can be used, for example, as an alternative means of payment. One of the very first and most successful ICOs is Ethereum.
Today, ICOs are associated with a significant risk of investment loss. This is because due diligence is carried out negligently. Thus, today ICOs should be appropriate only for those projects that have a high reputation and investor confidence.
What is STO? Why is it criticized by crypto-enthusiasts?
As mentioned above, ICOs are designed to issue utility or payment tokens. STO (Security token offering), in turn, allows to issue security tokens. To determine if your token is security or not, you should analyze country laws. For example, the most famous test that answers this question is the Howey Test in the USA. It lists several conditions, and if your token does not fulfill at least one of them, then this is a security token.
The procedure for issuing such tokens is not easier than ordinary shares in many cases. Therefore, due to strict government regulation, STO is very often criticized by crypto enthusiasts. However, at the same time, it is less expensive than issuing ordinary shares, so this type of token issue remains popular for many projects.
What is IEO? Why is a bright future predicted for this?
The essence of IEO (Initial exchange offering) is very simple. While in ICO, the entire process of issuing and selling tokens takes place in a single marketplace, the IEO's tokens sales and marketing happen in cryptocurrency exchange stock. The mechanism is as follows:
- The exchange conducts the due diligence of the project and is responsible for the founders' real intentions to implement the project.
- The exchange sells tokens on its website. At the same time, the exchange carries out the necessary AML & KYC procedures for investors.
- The money goes to the account of the token issuer. He becomes responsible for financial obligations to investors. The exchange usually carries only reputational risks.
Thus, IEO is suitable for those projects that have neither a large sum of money, nor a reputation. Since the beginning of the year, more than 250 IEOs have been conducted. This indicates the vast popularity of this tool.
Therefore, it is very individual. A particular fundraising method may be suitable for each specific project. Our Law Firm SBSB has extensive experience in providing services in the blockchain industry. We will help you to choose the appropriate fundraising method.
Besides it, we provide such services as:
- legal consultancy and full support concerning setting up a company and obtaining a crypto license;
- preparation of any manuals, due diligence forms, White papers, and other documentation as may be required in connection with conducting certain fundraising method;
- other legal services as may be required from time to time including but not limited to drafting of contracts and agreements.
Don't hesitate to contact us if you don't want to miss the opportunity to raise funds.