Initial venture capital investment is an important part of any industry. When a new project wants to secure funding to develop or expand rapidly, it turns to IPO events, helping to find new investors and bring in capital. Even in the world of cryptocurrency, this practice isn’t uncommon. The only difference is that companies hold what is known as an ICO instead of an IPO.
An Initial Coin Offering is a form of crowdfunding during the early stages of a crypto launch. Within an ICO event, a crypto company will begin to sell a fixed quantity of their newly created cryptocurrency token to any investors that are interested. Not only does this create liquidity for the project, but it allows them to secure funding quickly.
As people begin to buy the project’s cryptocurrency, the coin’s relative value rises, allowing people to make money off ICOs when they plan ahead. While everything seems great on paper, the history of ICOs has been anything but smooth sailing.
In this article, we’ll turn to the history of crypto ICOs, outlining how things took a turn for the worst and how companies like BitTorrent, Peer, and Raven Protocol have been instrumental in driving the market forward.
Let’s jump right into it.
ICOs are not a new system for raising capital. In fact, the earliest contenders started all the way back in 2013. Since those early years, the popularity of this method continued to increase until coming to a peak in late 2017-early 2018. By the end of 2018, the reputation of ICOs had almost completely been derailed.
The rapid fall from grace was mainly due to scam projects, which were rife in 2018. Shockingly, 81% of all ICOs launched from December 2017 to December 2018 were scam projects, with the owners quickly liquidating their share of the crypto once the ICO had increased its early value.
These repeated events, which totaled nearly $700 million USD stolen, caused the industry to frown heavily on ICOs. They were seen as unreliable, unsafe, and a hotbed for rug pulls and scam projects.
This reputation has followed ICOs for many years, with the overall quality of capital invested through this medium declining each year. With this heavy shadow over the industry, crypto projects needed a change.
After the rapid fall in cryptocurrency investment after 2018, the crypto industry began to launch new ways of crowdfunding new coins. Thus arrived Initial Exchange Offerings and Initial DEX Offerings.
Both IEOs and IDOs provided a method for users to invest in new cryptocurrencies that had a further level of verification by the exchanges themselves. To list a new cryptocurrency on an exchange for early investors, blockchain projects had to leap through many hoops.
IEOs came first, with early projects like Bittorrent IEO raising over $7 million USD in only 20 minutes. In order to provide a completely decentralized method of engaging in this safer form of investment, IDO swiftly followed.
Another notable project that came out of IDOs was Raven Protocol, which raised $500,000 in record time. Another fact that makes these investment platforms much more secure is that launching projects must be done in currency pairs. Instead of simply buying one crypto, individuals must invest in a liquidity pool with certain pairs.
Due to this, volatile price changes are much less likely to happen as there are more steps involved with rapidly buying or selling a coin. The decentralized addition to this mechanism provided a further peer-to-peer system, helping all new projects launched into this space closely follow the best practices outlined by decentralized exchanges.
These two methods of investing have quickly become the industry standard for cryptocurrency crowdfunding.
Beyond IEOs and IDOs, the industry is still trying to innovate how they bring new capital into the market. Two fairly recent introductions into this world take the form of STOs and IXCs.
A Security Token Offering combines the best elements of ICOs with an additional level of compliance and safety. By hosting tokens on the blockchain, investors can buy cryptocurrency incredibly quickly. As all transactions are recorded on the blockchain, this is a legally-compliant form of investing.
Unlike with ICOs, the additional steps to create, form, and launch a project with STO standards makes this a much safer investment for individuals. There are many more hoops to jump through, meaning that the final projects are often more heavily vetted and safer to invest in. Deloitte has named STOs the next generation of safe investing.
Most recently, the blockchain company Peer Inc. has published documentation about their new investment protocol, Initial Coin Exchange (ICX). Within this new strategy, vetted companies can raise funding by selling assets and digital tokens.
The movement toward ICX allows businesses to promote early-access fundraising while still completely being aligned with the best compliance practices. Investors are able to find high-quality projects, while reputable companies can rapidly source crowdfunding.
The rise in STOs and ICX capital funding demonstrates the industry’s desire for safer, more rigorously protected investment channels. Their establishment and publication has allowed for more people than ever to safely invest in new cryptocurrency projects.
Although the world of crypto ICOs has been fairly untrustworthy for quite some time, things are now beginning to change. As people become more aware of what makes a good crypto project, as well as the various documentation that should accompany a trustworthy project, the industry is starting to see another influx of VC crypto funding.
By moving through a project in meticulous detail and working out how to tell the reputable projects from the quick cash grabs, you’ll be in the perfect position to make some high-impact early investments. And, if the projects we’ve touched upon in this list are any measure, there are a lot of fantastic companies still waiting for funding out there.
Best of luck in the world of crypto VC.