$3 billion USD is a lot of cash for a new concept to pull from a global pool of investors just within 4 years of its existence. Initial Coin Offering over the course of time continues to draw attention to itself by the unconventional system of operation.
With ICOs on one side hanging over $3 billion USD raised to date and cryptocurrencies on the other with market capitalization of over $300 billion USD, many Initial Coin Offering campaigns strive to maintain their proposed concepts and methodology in order to catch up with the revolving world of cryptocurrencies and their counterpart altcoins.
Since the first token sale operations in 2013 to date, Bitcoin and Ethereum alongside fiats have been used as the main exchange tenders by investors to participate in the crowd sale of tokenized assets. This is so because, there concept of the blockchain technology makes it possible for a distributed ledger to have decentralized properties such that, the transactions are open to a global audience and has immutable properties that makes them work in a trustless environment.
The blockchain has the perks of eliminating human factors that impede on smooth business relationships compared to those found in fiat payment gateways and the companies that host them by replacing them with smart contract protocols.
What exactly is an Initial Coin Offering? Well, Initial Coin offerings are simply activities that involve the sales of tokenized assets in exchange for ‘cryptocurrencies’ or fiat in rare cases. In most cases, these ‘tokens’ are not viewed as securities and only represent stakes in the company’s project, which once completed have certain values as determined by the larger market.
Often times, ICOs detail procedures on how to participate in their crowdfunding events. In the past, some ICOs accepted fiat currencies to the value of USD from their prospective investors. Due to the challenges of transaction fees charged by fiat payment gateways; cryptocurrencies have become the more predominant means of transacting within the project environment.
First, cryptocurrencies like Bitcoin or Ether have to be purchased and stored in a private wallet or in some other cases, they are stored on exchange wallets, then the amount of tokens to be bought are then transferred to the designated receiving wallet address of the crowd sales. The equivalent token worth is then sent to the participants of the ICO either immediately or on a later date.
i.e. from investor’s FIAT payment gateway → exchange market to purchase ICO’s choice cryptocurrency → Deposit of choice cryptocurrency to ICO’s designated wallet address → receiving of token equivalent.
The procedure above involves several exchange steps and would have been easy if it took one step. For investors new to cryptocurrencies, without a proper guide would find it challenging and may fall prey to fraudulent acts if proper channels to getting crypto are not followed.
Howbeit, many ICOs have integrated fiat based payment gateways to boost target audience and restore confidence in certain investors, as there are those in the community who are interested in certain crypto projects and would find it convenient to subscribe through fiat based payment gateways.
i.e. from investor’s FIAT payment gateway → ICO’s designated payment gateway→ receiving of token equivalent.
However, due to the high volatility in exchange values of cryptocurrencies, it has become pertinent for some crowdfunding to peg their crowd sales to fiat based values. The unpredictability of price index makes it quite inconvenient to use cryptocurrencies in most token sales event. As Crypto-enthusiasts are troubled by the volatility in the price index of coins.
This is peculiar to altcoins at the moment; moreover, Bitcoin being the frontier blockchain also has its moments where unpredictability and FUD (Fear, Uncertainty and Doubt) can influence market prices radically. Although, fiat based currencies are not impervious to volatility, but compared to crypto ones which are still fairly new to the economy, they stand at a higher advantage of encouraging Initial Coin Offering performance.
A practical example is seen when China placed a ban on Initial Coin Offerings, this ultimately affected the price of bitcoin which plunged down and relatively other cryptocurrencies, as the major crypto-market share came from the eastern part of the globe with China taking the major league. After a while, the price of bitcoin was able to attain a stable support. But with the damage done, ICOs doing their crowd sales at the time could not have afforded to maintain a grip on their offer price index.
Since most ICOs are based on the Ethereum blockchain model, and generate their digitized tokens from the site, price volatility of Ethereum has also be known to contribute to deferring attitude of most ICOs. As one could be looking at contributions from crowd sale set to 100 Ether worth at $300 per Ether and in the next moment reduced to $230 per Ether. This could pose a serious challenge because oftentimes, ICOs need to convert back to fiat based currencies to expend certain aspects of the projects.
This also affects contributors in the same vein, as contributors make payments at a particular rate in time, which is not constant; and ultimately affects the value of their investments when price index fluctuates unfavorably.
On the project side, it enables the token sale to accommodate a wider variety of prospective investors. With this, a wider net is cast to reach more intuitive investors. On the other hand, the investors can rely on any mode of payment in order to exchange for the digitized tokens without having to buy other cryptocurrencies first.
In the long run, fiat pegged coins such as USDT, backed by U.S Dollar stored in their backlogs created by Tether Limited and are paid off through the Tether Crypto Platform. This circumvents the volatility issues experienced by altcoins and their derivatives, creating a more stable and fluid coin. In other words, they can only be affected by real macroeconomic conditions that have fairly impact on the overall crypto market share.
One of the major objectives of the decentralized system is to eliminated the clogs created by middle-men entities who ultimately increase transaction fees through unnecessary protocols and gateways. Albeit, these fiat-based payment gateways happen to supplement the shortcomings of crypto volatility in the short run. Pending when regulatory policies and global acceptance of crypto projects and their derivatives, the most favorable means of transaction will be decided by the owner of the token sales and would hope it appeals to the prospective investors.