Initial coin offering (ICOs) are among the most popular and most important part of cryptocurrency boom. Generally, a company launches an ICO by selling tokens to interested investors in a manner similar to an initial public offering where the company is generating crowdsourced funding and allows completing its launch and as well as attempting to break into a much broader market. A lot of blockchain-related companies have launched via ICO and some reached a significant level of success. There are also ways for pre-existing companies in making use of a related model, a process which is known as “reverse ICO”. It sees a traditional business take further steps in venturing into a decentralized realm of the digital world currency.
Established firms are looking more to reverse ICOs than any other option. It functions very similarly to an initial public offering (IPO) in that it offers a decentralization of a company structure, opening shared revenues and voting power to the public. While IPOs require months of regulation and a more proof-of-concept, ICOs of any fashion provide a quicker alternative for both the firm and the investor.
A reverse ICO differs from a standard ICO only in timing. Start-ups looking to develop their technologies and create seed money without the need for a venture capitalist look to independent supporters. The initial offering utilizes the money raised to build an overall structure, or further develop their products, often raising years of funding in a matter of months. Reverse ICOs are functioning, centralized companies looking to decentralize in a method other than traditional shares. Instead of the ordinary share, investors receive a token allotment from the blockchain network.
With this token allotment, investors hold a stake in the company’s future profits and in some cases, bargaining power. Blockchain companies still have the option to pursue a listing on a standard stock exchange, but many of the financial institutions which drive much of the stock trade lack the fervor of individual supporters. Lower barriers of entry open a wider base for investment, a key aspect of coin offerings which has led to the funding success mentioned above
Benefits of a reverse ICO
One of the biggest advantages of a reverse ICO is that the company holding it already has a fully formed business model. Now this definitely gives those companies a step ahead in comparison with the startups that haven’t yet developed a fully functional product and a business strategy. The established one has been serving for years and has a greater chance of keeping up to its promise.
Moreover, established businesses, due to their strong user base have a greater chance of decentralizing themselves as their customers would likely want to invest in the token and be a part of the ICO. For instance, the social media giant Telegram will be holding its ICO later this year, and with its 200 million user base, the token sale would obviously be a success.
By turning into a decentralized business, companies can also save up on their money by enabling users and customers support the platform by sharing their free resources such as disk space and bandwidth in return for their digital tokens.
In clear terms, reverse ICOs remain pretty rare as many well-established companies are keenly watching to know what becomes of cryptocurrency in the near future. But let’s be clear on one thing, the companies that will define the future of cryptocurrency are those that took the plunge to launch their products on the blockchain, swimming in uncharted waters that many others cautiously avoided.