The global market of crowdfunding has been on the rise ever since the beginning of Kickstarter era. Surprisingly enough there was not too many big platforms for crowdfunding campaigns before blockchain and there isn’t too many even now when the reign of ICO has begun.
Over the last decades crowdfunding became an indispensable tool for startups and indie projects to bring their ideas to life. Kickstarter and Indiegogo pioneered this market but evolving fintech industry soon came to a realisation that a new, more complex solution was needed. A new form of fundraising emerged along with blockchain’s advent.
The dawn of the ICO
Crowdsale or ICO is a new form of public financing that has appeared outside the traditional financial system. Globally crowdsales have attracted over a billion USD just in the first half of 2017. It’s also one of the easiest and more efficient ways to quickly raise a lot of money without turning to venture capital.
One would wonder what is the definitive difference between crowdsale and crowdfunding. The difference is fine but tangible. Crowdfunding can usually be described as a means to fund a start-up and simultaneously pre-order the product it promises to deliver.
Crowdsale is also about funding a budding enterprise but participants always get specific industry-defining assets in return for their donations: digital tokens. Token holders are basically buying digital coupons for services which aren’t there yet.
Another principal difference is that the declared goal behind a crowdsale does not always lie only in generating funds for development and marketing of a project. Tokens or cryptoassets are the lifeblood of every blockchain project used to fuel their internal economic ecosystems. Sometimes crowdsales are used to gauge interest in a project and distribute the initial coins so that the platform’s economy kicks off the moment it goes live.
The one issue with crowdsales today is lack of accountability. Anyone can invest in a start-up via ICO, but if the project then falls apart or turns out to be a hoax, no one is getting their money back. Unlike financial securities, crypto tokens are not yet regulated in a consistent way and there is much uncertainty and risk involved.
Building the infrastructure
Still the crowdsale market today has reached an industrial scale and there is a growing demand for platforms and services that will simplify and streamline at least some elements of ICO campaigns, like token issuance and other technical minutiae.
In the early stages of ICO market crowdsales were a fairly laborious enterprise. The common procedure involved creating a new blockchain (usually through cloning bitcoin or other existing blockchains) and selling tokens via a custom-built ICO platform. After the crowdsale developers had to maintain this new blockchain by setting up a node network which was also a resource drain if your main business was not revolving around your blockchain.
This was of course a major hindrance for those attracted by the supposed simplicity and smoothness of blockchain-powered crowdsale. To mitigate these issues a score of streamlined solutions were developed. Businesses have quickly realised that it is much easier and safer to launch their tokens on existing blockchains and to that end many blockchain projects developed convenient infrastructure. For instance the most popular tokenisation platform today is Ethereum with many competitors emerging regularly, like Waves, NXT and Omni.
Other than simplicity and accessibility, such platforms offer other important benefits like multiple currency gateways and established community of investors. Some even have built-in exchanges to allow trade before tokens can enter the actual crypto exchanges.
Cutting the path to exchange roster
Cryptoassets potentially have formidable liquidity and can be traded on various exchanges even before the project’s main platform is fully developed. Profits associated with trading tokens on the free market is a huge incentive for investors to take part in crowdsales and thus exchange accessibility became a major concern for most modern blockchain startups.
Thus the next logical move was for the exchanges to offer their services as crowdsale platforms. The benefits exchanges can offer comparing to other crowdsale platforms are obvious. Hosting your ICO on an exchange guarantees that your token will be listed on at least one exchange.
And of course while crowdsale platforms are usually a free-for-all, exchanges tend to pay more attention to projects they cooperate with, thus giving investors some sort of security and boosting developers’ credibility at the same time.
Of course that is not always the case and there are tiers among the exchanges as well. Different exchanges focus on different projects too. For example, Yobit hosts tradable assets of almost any kind and its roster is filled to the brim with deadcoins. Its services are not very expensive but also don’t go far beyond coin listing. While altcoin exchanges like Livecoin tend to be much more selective and offer a wide package of services to their customers. Many altcoin exchanges offer ICO hosting services and it is important to check exchange’s reputation and read the underlying rules very carefully before making a choice.
Custom blockchains, crowdsale platforms or online exchanges are all viable solutions for hosting a crowdsale. Ultimately the choice should hang on the project’s focus. Teams that simply aim to crowdfund their project should be content with a simple ERC20 token. While projects that rely heavily on their token’s tradability should strongly consider enlisting services of an established altcoin exchange.