An Initial Coin Offering (ICO) is a means for startups to obtain funding for the development of their services.
It entails early-stage startups minting certain amounts of its own native digital token and offering them to early investors, usually in exchange for other cryptocurrencies.
Initial Coin Offering had overtaken venture capital as the native fundraising method for blockchain startups at its peak in 2017.
However, as a type of digital crowdfunding, it does not only enable startups to raise funds without giving up their equity but also allows them to establish a community of incentivized users who want it to succeed so that their presale tokens can rise in value.
This means that buyers can benefit from access to ICO service and a rise in the price of the token if the platform is successful.
The buyers can realize their gain either by selling the tokens on an exchange platform the moment they are listed or purchasing more tokens once they are in the market.
ICOs by nature can be used across borders as anyone with internet access and digital wallet can buy the tokens.
The tokens are often bought with cryptocurrencies but can, sometimes, be bought with dollars or euros.
They are usually structured in a way that they fall outside the financial jurisdiction or supervision.
This means that the protection that financial regulations give to investors is not applicable in this case because of the nature of ICOs.
ICOs are not entirely faultless. In fact, tokens sold through ICOs are considered high-risk investments.
As the crypto market is unregulated has made scam thrive in the space. Coupled with that, there is no protection for investors in the event of failed or fraudulent ICOs.
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