The Beginner’s Guide to Life Cycle Of an Initial Coin Offering (ICO)
Whenever anyone talks about ICO financing, every crypto enthusiast recalls when Ethereum was launched in 2014 as an ICO project. Ethereum has seen great success since its launch and has been able to compete with crypto giant Bitcoin.
Although Ethereum was not the first ICO project, since its launch, there has been an upsurge in ICOs. A Fundera report shows that since 2014, ICOs have raised a cumulative total of $22.5 billion for new projects. The same report shows that in 2019 alone, a total of 3,782 new ICOs opened. These statistics show the significant impact that ICO financing has brought to the crypto world.
ICOs primarily deal with the introduction of new cryptocurrencies into the market. The main advantage of ICO to investors is liquidity and decentralization. Unlike other opportunities that bound capital for several years, ICO’s capital is accessible from the time of holding. ICOs are also decentralized because anyone, anywhere can participate in an ICO and make profits from investing.
Unlike IPOs, which are highly regulated, ICOs have fewer regulations since they deal only with paper projects. How will a developer use ICO to raise funds for a new project? What are the necessary steps in ICO development? Here is a full guide on the lifecycle of an ICO.
The Pre-ICO Period
The pre-ICO period addresses the period where an entrepreneurial firm is planning to hold an ICO. What should the firm look for? What should they do before launching an ICO? It would help if the firm would follow the following pre-ICO stages:
The first thing that comes in for every project is the idea. To get the best idea, people always do a lot of brainstorming and market research. The trader will try to find out the market deficiencies and how to solve them.
The best idea is a solution to a market problem or something new in the market. Since the concept behind an ICO introduces tokens, or cryptos into the market, a trader will try to find solutions to problems associated with the crypto market.
At this stage, understanding the audience is the primary goal. The project holder should understand the market, know the audience, and then get an idea that addresses its needs. If the new approach addresses market failures, the public will put their money into the new project.
In project planning, the project owner should get an excellent team to work on the new project idea and ensure success. The team will know the legality of ICOs in the country where the ICO is to be undertaken.
The next step is writing the white paper for the project. This paper is mandatory for every ICO project, and it outlines all the essential aspects of the project. Contents of the whitepaper include team members, crowd sales, technical functionality, and legal issues.
Getting ICO advisors onboard is another crucial step in the planning stage. ICO advisors are professionals from different fields that can lend their expertise to the ICO team. The advisor can provide services covering legal, marketing, and industry advice, to name but a few.
Some of these advisors have helped other startups grow into big projects. However, a project owner needs to be aware of wannabe advisors who have zero ICO development experience.
The project’s risks are supposed to be outlined for the public to know. Creating the white paper, website, and Quora and Reddit platform’s participation is the right way to call people on crowdfunding for the ICO project.
Any projects launched through an ICO must have tokens, which will get registered in exchanges in the future. According to Coinmarketcap, there are more than 6 thousand cryptos in 2020. Therefore, if the project is to excel against all the competition, it must prove its worth. The project has to show relevance to the public and to show why it needs tokenization.
The last thing to do after all the pre ICO steps is advertising the campaign. At this point, the ICO project development team finds ways of promoting their new project. Advertising may involve the use of social media platforms to keep in touch with clients and potential investors. The public is informed of the exact date and time of the ICO opening.
The ICO Period
The ICO period involves the holding of the ICO, and at this point, the crowdfunding process begins. This process can take anything between a few hours to maybe a year.
Many ICO projects are always limited in the number of tokens so that investors looking to capitalize will come early to get the best. Therefore, once the ICO begins, investors can trade in their Ethereum, Bitcoins, or other currencies accepted by the ICO for the project tokens.
It is critical to keep an eye on the website during this stage to avoid security breaches through hacking. If there are any successful attacks conducted at this point, the ICO project will fail.
The Post ICO Period
Some developers tend to ignore this stage, especially after the ICO project has garnered the expected funds, as stipulated in the white paper. Ignorance may result in adverse outcomes, as the stage is as vital as all the preceding steps.
Investors will decide whether to save their tokens for the future or use them in a particular project. At the end of it, all the startups aim to be listed in the exchanges for investors to participate in token sale or exchange easily, process deposits and payments and get profits. For a project to be listed on major exchanges, it must:
- Be Unique
- Be Innovative
- Have high and real demand
- Prove that the tokens will not be involved in illegal dealings
Developers should do regular system testing and audits to check for any weaknesses and solve them immediately. Posting daily updates and informing the investors of any possible risks is an excellent way to maintain investor trust.
Investors should receive newsletters highlighting current news and updates. Developers may also choose to communicate with the investors and the public through social media platforms like telegram and Twitter.
As earlier stated, the purpose of holding ICOs is to raise funds from crowdfunding toward a particular project. However, it’s vital not to relax after crowdfunding; rather, it should be the beginning of future better innovations.
Although ICO projects have their upside, one significant threat against ICOs is that as soon as the tokens become tradable, the original investors chose to dumb the tokens at the exchange markets. However, that alone cannot kill an ICO project whose developers are focused on growth.
Developer-investor transparency will guarantee the faster growth of the ICO projects since there will be trust between the involved parties. All said ICO financing has, in the past, proven to be the best funding method for startup tokens and cryptocurrencies. It is only fair to say that ICO financing is the best crypto funding method.