An IPO, an ICO, a STO, and an ETO... Are you lost?

Not to worry, we're here to explain.

Today, as you are aware, there are new methods to support enterprises. Previously, firms seeking finance had three options: bank loans, personal loans, and stock selling on the stock exchange. Essentially, that was the only option for businesses to obtain capital. When we reflect on it now, we recognise that the blockchain has enabled us to make significant progress in recent years!

We are now seeing a true revolution in company finance approaches. We believe, is also one of the reasons why our time is so wonderful.

In truth, blockchain technology has enabled the range of possibilities to be expanded. Because of the blockchain, even a very tiny business, still in its early stages, may raise (excellent) financing.

As a result, the objective of this essay is to expose you to the many innovative techniques of obtaining funding for a company.

We will specifically discuss IPOs, ICOs, STOs, and ETOs and how they vary as fundraising platforms.

What exactly is a public offering (IPO)?

In other terms, it is an initial public offering. The initial public offering (IPO) is one of the most well-known and well-established financing techniques. It is also the earliest technique of fundraising. An initial public offering (IPO) is when a firm sells shares (parts of the company) to investors. These identical shares will subsequently be swapped/traded on a stock exchange.

Although financially favourable, the IPO is subject to highly tight standards and full restrictions since it involves outside investors who possess a stake in the firm. As a result, corporations lose part of their societal power.

When a firm completes an IPO, it indicates that its revenue and profitability are robust.

What is an Initial Coin Offering (ICO)?

We may compare it to an IPO, except that it takes place in the cryptography market. Tokens/tokens are sold to retail investors in ICOs. The last purchase tokens from a project using a cryptocurrency like bitcoin or Ether.

These tokens may belong to the project's blockchain or be distributed via another network, such as ERC-20 tokens, which utilise the Ethereum network.

ICOs vary from IPOs in another crucial way. An ICO, unlike an IPO, does not empower token holders. They are merely the project's detached investors if you will.

Indeed, in the context of ICOs, investors do not get a certain right or the opportunity to participate in the company's future initiatives. In an IPO, on the other hand, investors may have a voice in the company's initiatives since they now have voting rights.

When retail investors purchase a token from an ICO, they possess the tokens. They are unable to engage in societal choices.

Because the ICO concept is currently unregulated (for the time being) and very simple to deploy, dishonest persons may use it to deceive investors. As a result, ICOs are considered high-risk investments if one does not know how to identify real and reliable enterprises. I encourage you to read the article that describes how to spot ICO frauds.

What exactly is a Security Token Offering (STO)?

The Security Token Sale (STO).

Because of multiple examples of fraud, countries all around the globe have taken an interest in ICOs. It was required to develop a legislative framework to prevent potential frauds and scams. New crypto financing methods have evolved due to recent legal laws drafted by financial authorities throughout the globe. Typically, the STO is a fascinating new pattern.

Unlike ICOs, security token offerings allow investors to purchase regulated financial security in a token. Tokens offered by companies as part of STOs are no longer just tokens whose value is determined by supply and demand. No, they are tokens backed by real assets like real estate, precious metals, and so on. Within the scope of STOs, the purchase of tokens provides the same assurances as corporate bonds.

Although having an STO is significantly more limited than holding an ICO, organisations are increasingly drawn to this fundraising approach because it offers investors a solid legal foundation. Similarly, the latter are more comfortable investing in STO initiatives.

What exactly is an Equity Token Offering (ETO)?

Equity Token Sale (ETO).

It is the most recent kind of crypto financing. ETOs, as the name implies, are offers of business stock. As a result, investors may purchase shares of a corporation (equity in English) in the form of tokens once again.

These are symbolic participations that symbolise the investor's entitlement to the company's assets. He may vote there, for example, on corporate choices.

The Benefits of New Cryptocurrency Financing Models

Of course, the industry is still in its infancy. It explains why, at the legal level, it is neither ideal nor complete.

However, we are already witnessing unique advantages for all stakeholders in practice.

  • Anyone may become an investor and cheerfully contribute to causes they believe in it.
  • Companies are no longer constrained to certain fundraising formats.
  • Young enterprises may raise funding without developing a product (both an advantage and a drawback).
  • The administrative and legal procedures have been entirely streamlined and computerised.
  • We may anticipate new financial instruments that are easy to set up.

As the crypto economy develops, one could question whether These new forms of corporate funding aren't supplanting IPOs.