What is an ICO? Market overview.
Similar to crowdfunding, an ICO — initial coin offering — is a way for companies to raise capital with the help of digital currencies.
Instead of issuing shares to investors and giving them a major benefit to become a stockholder, companies create their digital currencies and sell them to the public through the ICO. People who buy the digital currencies can either use them on the platform developed by the company or trade them for other cryptos on cryptocurrency exchanges.
Why should the public participate in an ICO?
Long have past the times when companies could provide just a vague vision and overview of an idea and raise hundreds of millions of dollars through an ICO. Today, people are overly attentive to shield themselves from fraud and scam projects, which comprised a substantial percentage during the last year.
A project’s whitepaper is a crucial and fundamental document for any business aiming to conduct an ICO, which also serves as the primary reason why people should be interested to fund a project. The whitepaper contains detailed information about the business model, long-term plans of the company, technical details of the project, competitive analysis of the market, the team, partners, advisors, and information about the token sale. Hundreds of ICOs launch every month, but only a few succeed.
ICOs usually consist of the following stages:
- Private Sale
- Public Sale
The Private Sale starts when all the ICO details are set out. At this stage, the company is looking for initial investment. At this stage, usually, only a limited number of investors (accredited investors, angel investors, venture capitalists, etc.) are allowed to participate. Some ICOs set a minimum amount of participation, which ranges from $5000–500000. Again, this isn’t a fixed price, as there are no specific rules for the minimum investment size.
The initial investors participating in the Private Sale enjoy a number of advantages, as they have direct access to the founders and can have a private chat with them concerning all the questions and ambiguities they may have. The Private Sale participants usually get the beefiest bonuses and discounts. As a rule, the capital raised during the private sale doesn’t necessarily need to have to be recorded on the blockchain as opposed to the other stages.
The Pre-Sale is the next stage of an ICO. The minimum boundary ranges approximately from $1000–5000, but bonuses or discounts are lower than in the previous stage.
The Public Sale is the final stage. The minimum amount of investments is not as high as in the previous stages. For instance, one can invest as little as $15 as long as it satisfies the minimum token value defined by the ICO. Everyone can register online to participate in the preferred ICO campaign.
In some instances, companies also hold a Post ICO to distribute those tokens that weren’t sold. There are no specific rules for this stage as every company is free to make their own decision, but in most cases, the excess amount of tokens is burned to protect the interests of all the other participants.
All of the above stages can have multiple substages based on the business model of the token issuing company and the market requirements of a given industry.
In the last 12 months, the ICO market has been fluctuating in the numbers and reached its peak in March 2018. Afterward, ICOs began to decline and showed some recovery only in June. However, the market downturn doesn’t stop the blockchain enthusiasts to stimulate and promote new projects.
There is a significant dissimilarity between ICO projects, which becomes a huge obstacle when there is a need to analyze them by considering the aggregate and average values. By measuring the ICO hard caps in October 2018, a slight difference in their size becomes detectable. The hard cap average value of October 2018 was about $28 million in comparison with $38 million for September 2018. Moreover, in October the largest ICO aimed to raise $400 million compared with $1 billion for September.
Capital raised by ICOs/monthly in 2017
The bar charts above give information about the money raised monthly by ICOs in 2017 and 2018. The total number of ICOs and the total allocated funds of each year are also illustrated. Overall, there is an increase in the number of ICOs as well as in the raised funds. More ICOs started in 2018. Furthermore, the raised funds rose significantly to reach over $22 billion compared with 2017.
The number of ICOs began at just under $100.000 in 2017 and showed some decline during the next two months. Afterward, the numbers started to rise and reached its peak in December when the amount of money skyrocketed over $1.7 billion. 2018 became prominent when the raised funds reached over $5.8 billion in June.
Top countries by raised funds
The data confirm that the leading countries hosting ICOs show strong stability: USA, Singapore, and Switzerland keep rocking. The rise of Estonia is the only movement since 2015.
Telegram ICO was a real boom in the market. Only the two phases of Private Sale of TON attracted a total of $1.7 billion from around 200 private investors.
Important note: not all of these numbers are accurate or can be verified as the vast majority of the ICO’s take different payment systems which do not take place on the blockchain itself thus can’t be verified directly.