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SFM Labs - ICOs

Updated: Sep 7, 2022

A quick disclaimer upfront: All information given in this presentation is researched and intended to be educational and illustrative to the specific topic, as always. Any companies, products, people, or other items mentioned do not constitute an endorsement, recommendation, or relationship. Every owner has to do their due diligence, as the decisions and responsibility about any investment lie with the owner. This information is not financial advice.

What is an ICO?

An Initial Coin Offering (ICO) is a method for a cryptocurrency to generate potential capital at an early stage. The currency is offered in shares to private or business investors to launch their venture. In this case, the opportunity is offered to generate a portion of public capital with a certain portion of the tokens that are offered in advance. This is usually offered with the option to exchange for fiat money, but BTC and ETH are also possible in the new era of cryptocurrencies.

What are the benefits of an ICO?

In an ICO, companies can raise funds at an early stage to securely launch their venture and take the first steps in projecting the cryptocurrency. It is important to consider three aspects that make an ICO possible and can lead to an improvement of the company:

1. More money means more security

Especially in the times of cryptocurrencies, it is important to generate securities. As a project, underestimating market situations, forgetting reserves or creating excessive debt can cause many problems. To prevent these, an ICO helps, because the early trust in the company also secures investment funds that would normally have to be generated via marketing measures or interactions.

2. Cheap way to do marketing

Marketing costs a significant amount depending on the measure. Especially when a company is starting out and with the goal of bringing a product to market or establishing a brand, one quickly realizes that marketing measures can put a heavy burden on the budget. The ICO offers one way of doing this, because the distribution of tokens also increases knowledge and awareness of the project. Therefore, if used in the right channels of the market, this is an almost cost-free way to get the name of the company and the associated currency into circulation.

3. Securing the market and stabilizing the price in the event of an actual launch

While an ICO is referred to as a soft launch, there are volatilities to a direct launch (or even a direct release). These arise due to the natural structure of supply and demand, which are always present and burden or influence every cryptocurrency. In order to cushion this somewhat, there is the possibility of already putting the tokens into circulation during a soft launch, which then provides a floor for an undertaking that dampens the volatility. Of course, the investors can also sell the tokens during a direct launch, but this is less the case with early investment and thus offers a small boost to the direct, public launch of the cryptocurrency.

Advantages over crowdfunding

Probably the most comparable alternative to ICOs in crypto is crowdfunding. In this, monetary goals are determined in a specific period of time, which is to be achieved in order to guide a venture into mass production. The disadvantage is that if the investment amount is not reached in a crowdfunding project, the company is usually discontinued and the funds are repaid, even occasionally no longer available.

With an ICO, the intention is different. Here, too, there is a period in which users can acquire tokens and become part of the investment mass that believes in a project at an early stage. However, the project does not end here, because whether all or only some of the tokens are taken by investors, the result will not stop the company from further planning. The project will continue and the more investors invest money, the higher the initial investment mass. However, there is hardly any ICO that has not started or has stopped its complete planning due to lack of funds.

Risk of an ICO

Certainly, there are also bad aspects to ICOs. As with all projections, there is the risk that malicious intentions are planned and projects use this function to generate money without providing a real benefit afterwards. The problem here is that it is very difficult to guess beforehand whether the ICO is an actual, meaningful venture or someone who wants to use this for their own enrichment.

In the end, it is important to always know that due diligence is the most important thing a user should do before investing money, because if a project looks great, but already seems dubious due to the lack of information, excessive hyping or faulty web presence, investors should think twice before joining it and investing their money. Here - as everywhere - the rules of trade apply, which say that you only invest in what you deal with and also only invest what you are willing to risk, as it could be lost.

Future of ICOs

Initial Coin Offering is a good alternative for companies to raise funds for a project that is starting or has already started. By offering their own tokens at the lowest possible entry price, this is attractive for investors who want to be involved in a project from the beginning.

What is important here is not to forget that there are also projects that try to generate money without meaningful project planning. Therefore, it is always important to look carefully before investing your money.

For the future, ICOs offer the advantage of being able to start and manage a project without a middleman and without much effort, which saves costs and is accessible to everyone due to its simplicity. The only thing that still needs to be optimized is security, so that not only the investor but also the company can be sure that their project can also start successfully.



Gandalf - SafeMoon Educator

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