An initial coin offering (ICO) is a controversial mean of crowdfunding centered around cryptocurrency, which can be a source of capital for startup companies. In an ICO, a quantity of the crowdfunded cryptocurrency is preallocated to investors in the form of “tokens”, in exchange for legal tender or other cryptocurrencies such as bitcoin or ethereum. These tokens supposedly become functional units of currency if or when the ICO’s funding goal is met and the project launches.
An Initial public offering (IPO) or stock market launch is a type of public offering in which shares of a company are sold to institutional investors and usually also retail (individual) investors; an IPO is underwritten by one or more investment banks, who also arrange for the shares to be listed on one or more stock exchange.
Here is the list of five main differences between IPO and ICO.
1. Regulatory Oversight
IPO: There is a legal document called prospectus; it is a part of the obligatory requirement to chronicle with the regulatory authority. It signifies a legal statement with an objective to issue its share to the public. For this, it is compulsory to meet the standards of transparency. It must incorporate important information regarding the company and its future IPO. This is done to help prospective investors in making informed decisions.
ICO: They are not restricted by any legal requests to issue any sort of legal documentation. However, document in the form of white paper is frequently considered by the developing team to plan main information regarding the project, such as its mechanics and purpose. It is also important to note that there is no standard for an ICO whitepaper. Any project can construct a white paper with the ability to exclude or include any info they deem fit.
2. Track Record & Credibility
IPO: There is a bunch of prerequisites that a company must accomplish prior to listing its shares via an IPO. This includes having a good track record and minimum earnings thresholds. The procedure requires professional accounting firms to confirm that investment banks and accounts to act as an underwriter for the deal.
This process acts as a natural filter for trustworthy companies to issue their shares to the public. Furthermore, the majority of the companies thinking of going public have been financed by official investors. They do research on the viability of the business.
ICO: They do not require devotion to any legal protocol and regulatory framework. Also, most of them do not even have a track record just a white paper to support their project. Most projects have a conceptual framework manifested via whitepaper, whereas some have the working prototype.
This makes evaluating their rudiments almost impossible. The main focus of your due diligence is on future expectation instead of history. This is the key reason, why investing in ICOs is risky. It is true that you get some sort of credibility by seeing at project developer’s experience. However, you can never guarantee the success of the project.
IPO: The stocks attained via an IPO signify an ownership stake in the prospect incomes of the company. Stocks can be divided into various categories such as a hybrid, preferred stock or common stock. The function of holding the stock is the prerogative of the shareholders in getting dividends and having a vote in the shareholders meeting.
ICO: Contrasting with an IPO, attainment of ICO coins does not award possession of the project. There are numerous techniques that investors of the coins probably gain future benefits. This all depends on how the coin is structured. Normally, a crypto currency’s value unswervingly relates to its apparent utility.
Some coins produce value by advising a stake in the prospect returns of the projects, whereas some coins associate its value to practice within its environment. In other words, the increased adoption of coins will lead to a higher value.
4. Duration of Offerings
IPO: Customary IPO issuance can be a time-consuming process, because of the necessity of lawful and compliance procedures. It takes approximately 4 to 6 months, from receiving approval via regulatory authorities to the IPO itself.
ICO: The whole ICO procedure is much littler in duration. The period length hinges on the timeline and nature of the project itself. Once a white paper is considered and a smart agreement for the crowd sale is confirmed, the crowd sale can instigate. The duration of the crowd sale can be reliant on reaching the fixed sale duration or maximum hard cap, which normally ends in a month. On the other hand, hyped-CIOs can frequently be over much quicker.
5. Access to Offerings
IPO: They are repeatedly allotted just to institutional investors like endowments, mutual funds, and investment banks. Often, just a little portion is assigned to retail investors. In simple words, it will be very difficult to acquire shares at an IPO, unless you are in the big boys club. We can just purchase the stocks once they are traded on exchanges.
ICO: Anyone can take a part in ICO. You only require the base currency of either Ether or Bitcoin, and it can be transformed into the ICO token. In addition to this, it breaks the oligarchic nature of customary investment raising, authorizing the public to contribute to investments that can possibly earn them multiples over their capital. This democratization is a big request to many because it gives power back to people rather than a close-knit club of elites.