An Initial Coin Offering (ICO) is a type of funding that usually involves cryptocurrency. An ICO can be used as a source of capital for start-up companies or projects, particularly projects involved in cryptocurrencies, blockchain technology, decentralized finance, and digital assets. A typical ICO involves the issuance of tokens or coins in exchange for fiat currency. Contrary to popular belief, the investor in an initial coin offering does not receive an ownership stake in the company or start-up business. Instead, investors simply receive tokens or coins based on the amount of their fiat investment. The main purpose of an ICO is to raise start-up capital. The owner is exchanging tokens for fiat, using the fiat to launch the new business or project.
If a cryptocurrency start-up company wants to participate in an ICO, the first step is to create a white paper. It is a document designed to fully describe the project. Typically, a start-up company is launched with the primary purpose of solving a problem or improving upon an existing business. The white paper aims to provide potential investors with a detailed analysis of the project.
The white paper should answer the following questions:
- What is the purpose of the project?
- What is the problem this project can solve?
- When is the estimated launch date of the project?
- How much money is needed?
- What type of funds will be accepted as payment?
- How many tokens will be issued?
The white paper is very important because it provides investors with detailed information concerning the ICO. Still, investors should be aware that the white paper is not a legal document and it has not been approved by any type of regulatory agency.
ICO VS IPO
The main difference between an initial coin offering (ICO) and an initial public offering (IPO) is regulation. ICOs are largely unregulated, depending on the country of origin. However, during the past two years, ICO regulation has increased substantially, particularly in the United States. Concerning IPOs, regulation has always been required regardless of the country. For example, in the United Kingdom, IPOs are regulated by the Financial Conduct Authority (FCA). The IPO regulator in the United States is the Securities and Exchange Commission (SEC). The IPO process is very expensive and time-consuming. Consequently, a small company can’t participate in an IPO.
Another important distinction between ICO and IPO is ownership of the company. When an investor participates in an ICO, they receive tokens issued by the start-up company. However, the tokens do not represent ownership in the company. Regarding an IPO, the investor receives shares in the company which represents ownership. The investor owns a percentage of the company based on the number of purchased shares.
ICOs and IPOs are very speculative investments. Investors should never participate unless they can financially afford to lose their entire investment. Also, always do your own research concerning the company involved in the ICO or IPO before investing. Ask questions and read all of the available information. The company should be able to answer all of your questions. ICOs and IPOs can be incredibly profitable for investors. Still, you can’t be too careful.
The Future of ICOs
The first ICO was conducted in July 2013. Additional ICOs were launched during the next three years, slowly gaining popularity. However, the real explosion occurred in 2017, when Bitcoin was setting new price records. ICO activity peaked in 2018, followed by a complete collapse in 2019. The number of ICOs in 2019 fell 91% compared to the record amount of activity in 2018.
What happened? Why did the ICO market experience such a dramatic decline in 2019? There are two reasons why ICO volume collapsed. First, the public enthusiasm for cryptocurrencies began to wane following the brutal price decline of Bitcoin beginning in 2018. Second, financial regulators began to crack down on ICO activity to minimize the amount of fraud and abuse among several unscrupulous business owners and ICO fundraisers. Despite their general disdain for over-zealous regulators, the vast majority of the crypto community welcomed the crackdown from the regulatory industry. Why? Because ICO fraud was ruining the good name of cryptocurrencies and digital assets. This explains why there was very little pushback from the crypto community when regulators stepped in.
ICO activity in 2020 has remained non-existent. Investors have completely lost interest in ICOs. Additionally, crypto start-up companies didn’t have the financial resources to hire a legal team to clear all of the ICO regulatory hurdles. Therefore, companies involved in crypto, blockchain, and decentralized finance are moving away from initial coin offerings, particularly companies with customers in the United States.
At least for now, it appears that initial coin offerings will no longer be used by start-up companies as a method to raise capital. Until financial regulators can provide a more coherent regulatory picture for the entire digital asset universe, crypto companies will find other sources of capital.
Brief Summary of ICOs
- Initial Coin Offering (ICO) is a type of funding that usually involves cryptocurrency.
- Typically, ICO is used as a source of capital for start-up crypto companies.
- ICO involves the issuance of coins or tokens in exchange for fiat money.
- The white paper provides investors with information concerning the ICO.
- The main difference between ICO and IPO is in regulation.
- ICO is largely unregulated, while IPO is highly regulated.
- ICO investors do not receive an ownership stake in the company.
- IPO investors own shares in the company, which represents percentage ownership.
- ICOs and IPOs are highly speculative investments.
Everything You Need to Know About Binance USD
Binance USD (BUSD) is a fiat-backed stablecoin designed to address issues of accessibility, flexibility, and speed on the blockchain. A cryptocurrency exchange leader, BUSD, is currently the second-largest stablecoin on the blockchain by market cap.
This flexible cryptocurrency is stable, regulated, and can be swapped on multiple blockchains. Investors can use BUSD on the Ethereum chain, Binance Chain, and Binance Smart Chains.
Binance USD (BUSD) was created to be a safe investment for cryptocurrency investors looking to invest in a low-volatility stake. This cryptocurrency is pegged at the value of the US Dollar. The New York State Department of Financial Services regulates Paxos, the creators of this currency.
USD is a fiat-backed stablecoin backed by Paxos instead of a government. As a result, Paxos holds the equivalent of the total amount of BUSD in US dollars in its financial reserves. BUSD is a stablecoin that keeps pace with the price of the United States dollar.
When the price of the dollar rises or falls, the price of BUSD fluctuates as well. Paxos issues monthly audits to verify collateralization.
1. BUSD is regulated
2. Fiat-backed stablecoin backed by a reserve
3. 1:1 ratio price fluctuates with US Dollar
4. Operates on multiple blockchains
Paxos and Binance created Binance USD.
Binance USD (BUSD) was launched in September 2019 as a partnership between Paxos and Binance.
They first issued BUSD on the Ethereum blockchain as ERC-20 tokens. Binance USD is one of only three cryptocurrency tokens currently approved by Wall Street regulators. The New York-based financial company Paxos issues BUSD tokens.
Paxos collateralize BUSD tokens by holding equivalent dollar amounts in regulated US bank accounts. Paxos is also responsible for creating and burning BUSD tokens.
Paxos and Binance designed BUSD to be a low-volatility investment for crypto traders seeking highly liquid investments. Investors can easily convert their BUSD investment into fiat-backed currency during times of volatility.
Cryptocurrency experts recommend taking security measures like using two-factor authorization (2FA) to manage online Binance USD accounts and wallets. Serious investors use Binance USD wallet software to store, protect, and manage investments. They do this by using public and private keys to store value.
We do not provide investment advice. Cryptocurrency traders looking to invest in Binance USD should do their research on the history and performance of BUSD and choose the best options that fit their investing style and budget.
It’s important for investors to consider how much they can afford to lose on investments with downturns before committing to any investment. The creators of Binance USD designed BUSD as a low-volatility asset for crypto traders seeking high liquidity. This stablecoin’s goal is to remain stable and as close to the value of one dollar as possible. While its performance appears stable, this can change at any time.
What are Candlesticks and How to Read Them
A candlestick is a type of price chart used in technical analysis to forecast the future price direction of stocks, commodities, and cryptocurrencies. Each candlestick is a graphical representation of a price movement for a specific period. Four different price points are displayed on each candlestick. They include open, high, low, and close.
Candlesticks are one of the oldest forms of technical analysis. According to historical records, candlestick charting can be traced back to Japanese rice merchants during the 18th century. Most financial historians agree that Munehisa Homma was responsible for popularizing candlestick charting.
Candlestick formations are based on a strict set of rules which are universally accepted among all traders and investors. Let’s review a few of the most basic candlestick formations and patterns.
A solid red candlestick is displayed if the opening price is above the closing price (Chart #7).
A hollow candlestick is displayed if the closing price is above the opening price (Chart #8).
Bullish Candlestick Patterns
Big White Candle – The market opens near the low and closes near the high (Chart #9).
Doji – The opening and closing price is virtually identical (Chart #10).
Hammer – A candlestick that consists of a small body near the daily high with a long lower tail (Chart #11).
Bearish Candlestick Patterns
Big Red Candle – The market opens near the high and closes near the low (Chart #12).
Inverted Hammer – A red or white candlestick within an upside-down hammer position (Chart #13).
Shooting Star – A red or white candlestick with a small body, a long upper shadow combined with little or no upper tail (Chart #14).
Brief Summary of Candlesticks
- A candlestick is a type of price chart used in technical analysis.
- Each candlestick represents price movement for a specific period of time.
- Four different price points are displayed on each candlestick.
- The price points include open, high, low, and close.
- Candlesticks are one of the oldest forms of technical analysis.
- Candlestick charting was first used by Japanese rice merchants during the 18th century.
- Munehisa Homma was responsible for popularizing candlestick charting.
- Candlestick formations are based on a strict set of rules.
- These rules are universally accepted among all traders and investors.
What Is an IEO?
An Initial Exchange Offering (IEO) is a type of token sale administered by a cryptocurrency exchange. The entire process is controlled and managed by the exchange on behalf of the crypto company. Both parties have a vested interest in the success of the IEO. Neither party receives a payout unless investors purchase the token through the participating exchange. Therefore, it’s not uncommon for the exchange and the token issuer to join forces to help with marketing, promotions, and advertising.
Before launching the IEO, the crypto exchange and token issuer sign an agreement outlining the payout structure. Typically, the token issuing company is required to pay a listing fee along with a percentage of tokens sold through the crypto exchange. The majority of IEO agreements stipulate that the new token must be listed on the exchange for a predetermined amount of time following the initial sale of the token.
Investors who participate in the IEO are required to open an account with the participating crypto exchange. Instead of sending money to the token issuer through a smart contract, the investor deposits funds into his/her crypto account. Funds are dispersed by the crypto exchange to the crypto company.
IEO Versus ICO
As you may recall from our ICO discussion, the first ICO was launched in 2013. However, the ICO explosion did not occur until 2017, followed by its peak in 2018. Without question, the chief complaint within the crypto community concerning ICOs was a large number of failures and outright scams. In fact, the failure rate approached 90% in 2018.
As we have discussed several times, the cryptocurrency community is incredibly innovative. This community is filled with some of the brightest minds in global finance. Not surprisingly, a small group of young men and women were quick to replace problematic ICOs with IEOs in early 2019. The first major crypto exchanges to join the IEO wave occurred in January 2019. IEO activity continues to flourish in 2020.
The main difference between IEO and ICO is the level of success. In a typical ICO, the crypto company received funding immediately upon issuance of the token. Investors had very little recourse once the tokens were dispersed. They were trapped in a vulnerable position. Sadly, many unscrupulous start-up firms basically disappeared upon receipt of the funds commonly known as a ‘rug pull’.
IEOs solve this problem by preventing the token issuer from receiving funds immediately upon the distribution of the tokens. As we discussed earlier, both parties work together to ensure the success of the project, which increases the likelihood of a rising token price.
Although IEOs have only been in existence for two years, the popularity of this new fund-raising method has increased substantially. The success rate of projects launched on IEO is much higher compared to ICOs. Most likely, this trend will continue.
IEO Regulatory Environment
As you may recall from our ICO discussion, crypto companies struggled to clear all of the regulatory hurdles to satisfy financial regulators. Unfortunately, IEO participants, are experiencing the same type of regulatory problems that plagued the ICO marketplace. This by and large means that regulators dissuade people from taking part in IEOs.
A positive to this is that IEOs are largely unregulated and don’t have to satisfy bureaucracy that can stifle innovative projects.
Financial regulators, particularly in the United States, claim that an initial exchange offering is similar to an initial coin offering, even though the token issuer is not directly involved in the sale of the token. An ongoing problem with regulation is whether or not any particular token counts as security and needs regulation, or whether they are utility tokens. Exchanges will typically avoid listing securities on an IEO as it means they have to submit to regulation.
To avoid the strict regulation requirements around securities, crypto exchanges may even opt not to offer tokens in countries like the United States where there is ambiguity about regulation. As long as the IEO is not soliciting in a particular country, registration is not required.
Due to the overwhelming success of IEOs, many of the world’s largest crypto exchanges are becoming heavily involved in IEOs by offering tokens on behalf of start-up companies. Most likely, this trend will continue.
Brief Summary of IEO
- An initial Exchange Offering is a token sale administered by a crypto exchange.
- The entire process is overseen by the crypto exchange.
- Neither party receives a payout unless investors purchase the token.
- The exchange and token issuer will often collaborate with marketing and advertising.
- Both parties sign an agreement outlining the payout structure of the IEO.
- The new token will be listed on the exchange for a predetermined time period.
- Participating IEO investors are required to open an account with the exchange.
- Investors pay for the token by depositing funds into their crypto account.
- IEOs have proven to be safer than ICOs.
- Many crypto exchanges are not participating in heavily regulated countries.
- IEOs have become very popular in the crypto universe.
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