Initial coin offerings have shown a stupendous growth rate in the past few months, with new cryptocurrencies hitting the crypto exchange market on regular basis. The list of cryptos in the exchange market is over 200 with a long list of others on queue pending, awaiting the conclusion of their ICOs and geared up to hit the exchange markets.
The type of cryptos used as a contribution value during an ICO is dependent on the project development team, whether or not an independent blockchain is involved and the budgetary make up; this is so because once a particular currency is set, it is usually inconvenient to the prospective investor if it changes sporadically as it could be a deterrent to many interest parties. A part of the raised sum is usually liquidated and converted to fiat currencies to cater for non-crypto related expenses such as power bill, stationeries, and other expenses which do not require cryptos to pay off.
Often times the crowd sales have been achieved using a single type of currency, others, on the other hand, have found it convenient to include multiple currencies on their platform to cater for discrepancies due to the volatility ratio of cryptos to fiat and crypto to cryptocurrency exchanges.
These volatilities are usually caused by a pump/dump cycle during the crowdfunding of other tokens. For example, most platforms that use the ERC-20 standard protocol to generate their tokens would require Ether as the means payment to generate funds from the community. Once these prospective investors place a demand for ETH, the demand is higher than the supply which ultimately affects the price of Eth, causing it to go up.
On the other hand, once a particular ICO has concluded its token sales, they tend to want to liquidate part of the raised funds to further other aspects of the project. In this scenario, much of the ETH is released into the exchange market, where the supply at the time is in excess of the demand frequency. This, in turn, lowers the price of Ether, because of its availability in the exchange markets. The same is true for Bitcoin and other altcoins that may be used as a choice during the ICO campaign.
The change in price index due to the volatility characteristics of cryptocurrencies, and the expenditure in the budget might have discrepancies and as a result, may affect the project especially if the exact amount that is required for the completion of the project is exactly what was soft/hard capped. This has often driven experienced ICO managers to slightly upscale the budget to account for these discrepancies, however, those minute changes can affect the success of the project ultimately.
Because certain investors may consider the budget cap outlandish or bizarre and therefore be repelling. Change in the price index of cryptocurrencies can have an adverse effect on an ICO campaign, therefore a more stable coin is used to cater for the fundraising campaign.
Another factor to consider is the relativity of altcoins. On the exchange market, most altcoins are valued to BTC, ETH, USDT, and often time, fiat. The conversion rate between individual cryptocurrencies is also important factors to consider. Take for example, if the price of Eth to BTC is to the ratio of 22:1 (that is 22 Eth = 1 BTC, this figure is also speculative, as the ratio may become unbalanced due to the price volatility of cryptocurrencies.
Hence, the inter crypto price fluctuation dynamics play a crucial role in the moderation of ICO campaigns. As many individuals may have a particular coin in holding, and may want to exchange to an acceptable format by the start of the token crowdsales, the differences between the altcoins can make a world of difference in a matter of minutes, either discouraging the potential investors if the price or driving them to exceedingly buy more than they bargained for.
Here, however, it may result in a conflict of interest on either end, with either investors gaining more than they bargained by buying more tokens at a relatively cheap price and the token brokers unable to adjust the price index for the tokens, thereby leading to a potential loss due to more tokens sold for less worth. On the other hand, if the investor is discouraged, the client is lost due to the high rates of buying less tokens for more cryptocurrencies.
More so, some ICO projects have confidently incorporated numerous payment gateways to include cryptocurrencies and fiat-based payment gateways to ensure their crowdfunding cuts across the various platforms of the web payment system – well at least almost all.
But the most frequently used cryptocurrencies are those of Ethereum and waves; with Ether taking the larger percentage as most tokens generated on the smart contract protocols using the ERC-20 compatible standard would require Ether as gas in buying the tokens and also use this same gas in transaction within the exchange market once the tokens reach to hit the exchange market on conclusion of the token sales.
One other reason Ethereum is the preferred choice because of the low transaction fees incurred and the speed in sending ether (as gas) during token purchase or during the transaction on the exchanges. Compared to the counterpart bitcoin, transaction fees could hike due to traffic on the network and also it would take a large amount of time to confirm transaction due to less amount of bitcoin miners on the respective network.
In a final note, it would be convenient if a tethered cryptocurrency is used to stable the price of the token to a fixed amount of coins, ensuring that both parties would not have a course to back out from the smart contract agreement should the contract no longer be favorable. In any case, so far tethered fiat cryptocurrencies would have sufficed for this purpose because of its relative stability, but due to regulatory policies, ICO suffers the fate of unfortunate isolation from the legal financial and economic policies thereby decreasing their chances of survival in a certain jurisdiction.