Over the past two years blockchain startups have collected considerable sums of money on ICOs. Despite disappointing statistical reports, as long as there are blockchain projects, tokens will continue to be used for crowdfunding.
Let us briefly recall that a model for raising funds such as ICO assumes an exchange of money (often in cryptocurrencies, but also in fiat) for a so-called token — a digital asset that will be used as a payment for access to the project’s platform or as a local currency.
This model has become a popular tool to collect funds for many blockchain-based projects, which produced so-called utility tokens — cryptocurrency or coins that serve as a means of gaining access to a product or a project service.
But as we know from sad statistics very often this kind of crowdfunding doesn’t live up to the hopes of neither the investor nor the developers. Investors face the problem of not being able to protect their shares, which leads to a trivial money loss, since they have no guarantees in case of a project’s failure. It is almost like charity.
In their turn the projects face the realities of the market and understand that there will simply be no demand, which forces them to either return the collected funds or disappear with them.
Thus, if you haven’t a penny and you want to quickly raise money without giving any guarantees and commitment, well, this is your option. But let's face it — your chances are pretty low.
And which blockchain-based projects to support, who wants to honestly attract money and not escape liability?
You can opt for STO model or a Security Token Offering. STO investors pump their money into the project in order to receive dividends, the inflow of finances, or the right to vote. Security tokens are secured by assets, profits and cash flow, so they have real value. Also STOs must fully comply with the regulation of the country where the crowdfunding takes place.
One more important aspect is that STO allows projects to create lists of accredited and unfair individuals (so-called whitelists and blacklists), which help startups to comply with KYC requirements and AML procedures. In fact, STO is more like IPO than ICO. STOs are subject to strict rules, and therefore avoid the lawless fundraising.
The trend of using STO is gradually rising. There are examples of companies such as BlockSafe Technologies, Polymath, Blockchain Capital, and others that successfully used STO.
Another model that will allow to receive financing and be quite honest with investors is the Continuous Token Sale (CTS) or Continuous Token Offering.
The idea behind the model is that instead of a predetermined volume of issued tokens, the release of tokens depends on the demand. A continuous chain of releasing and selling tokens is created, and the price is determined by the number of tokens in circulation and is fixed.
In addition, the CTS allows developers to work ex post: if the released amount of tokens is purchased, the project receives funding and can use these funds for development and then releases the next batch of tokens. If the tokens haven’t been redeemed, then the project is worthless, as it’s not interesting for investors.
That is how the transparency of the project is created, which increases its attractiveness for investors. However, the projects shouldn’t flirt with the infinity of issuing tokens, since this behavior can lead to the court.
To sum it up, it doesn’t matter what model of crowdfunding you choose, the main thing is for what purposes — to raise money and do nothing or raise money for the development of the project. Your decision is your responsibility.