A Comprehensive Guide To The Next Generation Of Crypto Funding | (V)ICO | IEO | DAICO | ETO | STO |by@ruben.merre
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A Comprehensive Guide To The Next Generation Of Crypto Funding | (V)ICO | IEO | DAICO | ETO | STO |

by Ruben MerreFebruary 15th, 2019
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The Coming Of Age Of ICOs. Exploring The Next Steps In The Crypto Funding Revolution. (Part II)

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The Coming Of Age Of ICOs. Exploring The Next Steps In The Crypto Funding Revolution. (Part II)


What kind of crypto coin will be minted next? How can we design, implement, and keep under control a revolutionary wave that is tsunami-ing the hell out of the concept of investing as we know it?

The ecosystem burns with expectations. And in this peculiar instant, one cannot help but wonder about the future, and in it, how man will raise funds. However, in order to thoroughly understand where we ought to be going, it is imperative to understand where we actually come from and why such a shift in mindset is needed in the first place.

That being said/written, and while this article can be read entirely on its own, I do recommend having a look at Part I of this series.

In Part I, I shed some light on the very first ICOs in history, even before the great and legendary Ethereum token sale took place back in the summer of 2014. As it turns out, some of these token sales are actually omitted on most sites. To ensure that the future blockchain generation gets their facts straight when they take their Bitcoin exam, I decided to put these fundraisings back nicely where they belong: crypto history. That first chapter concluded with a visualised deep dive in all the exciting token sales over the period 2013–2019. And yes, how some of them blossomed, went rogue, went bust.

So, still a bit blurry on ICOs after that adventurous night out? Then click here to dive back in time and freshen up your memory about The rise, Boom, Bust, and Rebirth of thé Initial Coin Offering.

Ready for some more? Then read on and lets cover that next generation of crypto funding.

Meanwhile, and totally up to your own discretion, I warmheartedly welcome any claps and follows and shoulder pats and additional information that could make the world of blockchain and crypto a better place! (to clap, click the beautiful hands on the left of this page when scrolling)


Executive summary

  • 2017 was the amazing year of the #ICO aka “Initial Coin Offering”: basically anyone with a big love for a quick buck could present a digital so-called #whitepaper rambling about — in many cases — a completely fictitious business, and crypto investors — rather: speculators — would still be throwing amounts of money to them beyond imagination. Billions of dollars got raised to fund ICO projects of which unfortunately an overwhelming majority turned out to be raise-money-&-run exit scams. Lots of fun though. (And yes, there were also amazing quality projects, no worries!)
  • 2018 was the year of the bear. Many ICOs “failed”, but that totally depends on how you define “success”. If collecting US$5M & running off falls under success, it was actually quite a good year. But overall, 2018 made ICOs notorious for their scammy character. Dumping time. G-bye ICO!? Well, 2018 was actually not a bad year for ICOs, with the top 2 projects raising just under US$6B all by themselves. Following this frenzy, no one better but Buterin himself to call out for a possible improvement on the ICO concept. Just keep on reading to find out more about his “DAICO” idea.
  • 2019 — ah, a fresh year! Finally some sense in the crypto markets: companies such as Neufund, DESICO.IO, Polymath, SWARM, & a couple more are making history in #tokenising securities as we know them. Platforms really try to align with more traditional regulation, for instance typical #IPO docs such as a prospectus are required. We really talk actual stocks on the blockchain, including ownership, voting rights, dividends. But also art. Real estate. And a lot more.
  • You think you’ve seen everything? I say we’re just getting started. In the meanwhile, don’t forget to broaden your vocabulary by reading up on Initial Fork Offerings, IAOs, VICOs, and fundraising mechanisms that don’t even exist (yet?) or just came tumbling down from some visionary’s mind.

1. Setting the scene: IFOs, IAOs — Say What?

Before we even dive into this stuff, let’s first take some strange terms right off the table. #IFOs or #InitialForkOfferings are one of those crazy inventions that in some weird way can still reach big valuations. Honestly, I can’t say it any better than the man Changpeng Zhao (CEO of Binance) himself:

Honestly, other than a limited few forks which are genuinely trying to improve upon the bitcoin protocol, most forks are… reverse scams. They leverage human greed to get freebies: “Let me give you something (that isn’t worth any value) for free, and if enough people receive it, and start to trade it, then it may suddenly have some value, for a short while.” (source: Changpeng Zhao on LinkedIn)

Once there is an abundance of these useless forks (fun fact: in China they‘re referred to as “candies”) and their value approaches zero, people will get the picture. I hope you do before that time.

#IAOs or #InitialAirdropOfferings* are, well, something of their own. Exchanges seem to welcome them though. The most frustrating about airdrops so far, is that getting them typically depends on where you are keeping them. If you don’t pay attention like all of the time, you might miss one or two. Oh, how I lost out on a couple of nice ones.

*A Crypto Airdrop is when a blockchain project distributes free tokens or coins to the community. The airdrop can be a completely free hand-out, can depend on an action of the user, and can depend on the location somebody holds his coins (exchange, hot wallet, etc.).

2. What’s wrong with ICOs?

Great, so we got that over with. Meanwhile, as thoroughly explained in part I, Initial Coin Offerings have earned themselves a — notorious — place in history as one of the first ways to really get funding into the crypto industry. The raw core of an ICO is quite straightforward: a team of blockchain avid fans presents a promising project and collects contributions in a crypto-form to obtain the required funding to further build out the project. A new token gets minted. People line up to buy it in grand expectation of superior returns. Most importantly, the effective counter-party for investors is the developing team itself.

So, what can go wrong? Well, first of all, most people lack the background to be capable to thoroughly assess the intrinsic worth of a project. So how can they even decide to invest in a project then if they don’t even have a way of properly valuing it. It’s like saying that you believe in the business model of Coca Cola and so you’re willing to offer US$20 for a single can of coke. Simply put, a lot of ICO projects were invested in at staggering, exceedingly high valuations. To make matters worse, there is another big loophole staring us right in the face: at the end of the ICO fundraising, all funds collected are immediately released to the project team in one blow. Even if the project team is truly dedicated to their cause, receiving such a high portion of the reward so early can be dauntingly demotivating or at least distracting. Furthermore, as generally there isn’t a prerequisite of installing a decent governance on top of the project, investors are left stressing out about their money, constantly searching for any news. And we’re not there yet as then there are “gas wars”. These typically occur when investors can contribute to ICOs by directly sending money from their own hot wallets (e.g. a mobile or desktop wallet; actually the most common way to contribute). When doing so, they have to define a “gas limit”, meaning the amount of transaction fees they are willing to maximally pay to get earlier in the queue of the transaction validation mechanism. When some investors are putting these limits very high, so-called “gas wars” can occur, pushing other investors further down in the queue. Over time and as a consequence of it all, the teams that initially very happily received their big chunk of investments, now start wiping off that smile from their faces as legal and regulatory bodies are starting to look into the actual legitimacy of these fundraisings. In the US, the SEC (Securities Exchange Commission) is actually diving into filing cases against previously concluded ICOs. Finally, the projects that do are legitimate actually fail to get the right amount of funding, simply because of the in the meanwhile scam-my denotation of the word “ICO”. So…I have this Initial Coin Offering I would like to present to you as a potential investment opportunity. Are you interested?

It’s not all bleak though. ICOs are simply one of the first versions to raise decent amounts of money by and for blockchain-based endeavours. If the objective is to raise a lot of money rather quickly and in a liquid manner, ICOs do the trick. There aren’t / weren’t extensive disclosure requirements. And well, if you as an investor participated in the ICO frenzy somewhere in mid-2017, it didn’t even matter that much whether projects were great. Speculation made many rich. Today though and with the hindsight we have accumulated, some improvements are worth exploring, wouldn’t you agree?


3. Improving the ICO concept: the contenders

Source: Author’s own analysis

3.1. Initial Exchange Offerings (IEOs)

Initial Coin Offerings are a great starting point in the formalisation of investing through blockchain technology in (non-)blockchain undertakings. The concept of the Initial Exchange Offering (IEO) as an alternative arose in early 2017. The main philosophy of the IEO is that it is no longer the project team who is the direct counter party for the investment: the project gets directly listed on an exchange, without going through the traditional ICO steps.

“From the perspective of a contributor, instead of sending Ether to a Smart Contract governing the ICO, each IEO participant has to create an account with the exchange and send ETH to this account. When the IEO commences, the participant can purchase the token directly from the exchange.” (Changpeng Zhao (CEO of Binance and Binance LaunchPad).

The BitTorrent IEO — US$7.1M IN LESS THAN 15 MINUTES

A great IEO example is the “ICO” of BitTorrent on January 28, 2019 on Binance’s Launchpad. The Launchpad itself was initially launched in August 2017. However, Binance wasn’t necessarily an enormous fan of the concept because of their own reasons outlined briefly here. Section 4 of this post provides a further deep dive on IEOs.

BitTorrent ICO Raises $7.1M in 15 Minutes — Bitcoinist.com_The initial coin offering of the popular torrent client BitTorrent has been completed successfully in less than 15…


3.2. DAICOs: Applying the DAO on ICOs

Following the ICO frenzy in 2017, no one better then Vitalik Buterin himself to propose a possible improvement on the ICO concept. In January 2018, Vitalik proposed a new modus operandi, called a DAICO. A DAICO or Decentralized Autonomous Initial Coin Offering incorporates some beneficial aspects of a Decentralized Autonomous Organization (DAO) with the inherent characteristics of an ICO. DAOs are known as some sort of digital companies with their by-laws set within the blockchain itself. Their rules exist on the blockchain in the form of smart contracts, making their management transparent and auditable. The DAICO concept includes smart contracting logic to add a dimension of accountability towards the project team. Instead of simply releasing all the raised funds in one blow, the contributors are now empowered to make investment funds available in a more controlled manner. Via a consensus mechanism, they can vote how many funds they want to release to the project team on a periodic basis. In the jargon, they decide on a regular basis what amount of the “tap” can be released to the project team.

Image source: Cointelegraph

The ABYSS DAICO — US$15.3M IN MAY 2018

One of the first DAICOs was The ABYSS DAICO, which is a “Crypto reward ecosystem for gamers & developers”. It positions itself as a next generation digital distribution platform, delivering all kinds of video games, including AAA titles, into the growing global gaming community. Unlike other gaming platforms (Steam, Origin, GOG…), The Abyss offers a revolutionary introductory and motivational system that allows gamers to make money not only from the game but also from the action, social games and payment systems. For the diehards, the Whitepaper can be found here.

Decentralized Autonomous Initial Coin Offering_DAICO is an innovative fundraising model that merges some of the benefits of Decentralized Autonomous Organizations…


3.3. Equity Token Offerings (ETOs) & Security Token Offerings (STOs)

Enter the real deal. How would you feel about tokenising everything that ever existed on traditional platforms. Think real estate on the blockchain, government bonds, public equity, private equity, startups in their seed stage, votes, diamonds, gold, commodities, etc. With the blockchain, we can go to whole new lengths. For the sake of simplicity, we can categorise most of these under “Security Tokens”. In this piece, I will focus on an immensely interesting subcategory: Equity Token Offerings (ETOs). Contributors can now pay in crypto (or fiat) directly on a blockchain platform and in return receive actual pro rata ownership of the company invested in, including voting and dividend rights (depending on the share type). This equity-crowdfunding mechanism allows for “off-chain” companies to issue (part of) their shares on a — well… “on-chain” — blockchain platform. Shares in private equity and seed-stage startup companies suddenly become available to an international investment crowd.


One of the first Equity Token Offerings worldwide, Neufund, raised over 3M EUR in December 2018. Neufund is actually an ETO platform itself and so to put the proof in the pudding, it decided to do one for itself, kickstarting the platform right into business as usual. Fun fact, my own company Ngrave will be conducting its ETO on the Neufund platform around Q4 2019. (You can find more information on the platform itself, and in Neufund’s blogpost on who else will be launching on their platform this year.)

Source: CEO of Neufund, Zoe Adamovicz

Neufund | Enabling ownership for all_Neufund brings ownership back to the people. We enhance real-world assets with legally enforceable security


  • For those looking for a crazy overview and search database on relevant platforms and players:

Search - Security Token Network_Security token offerings, crypto and security token funds, token issuers, STO exchanges, STO marketing agencies, and…

Security Token Network search engine — screenshot

  • For those looking for a deep dive in the technicalities of an ETO, the Neufund white-paper thoroughly discusses the token economy, the initial capital building mechanism, the investment platform (on-chain governance, protocol tokens, investment terms, fees, KYC, platform security, etc.), organisational structure, roadmap, actual investment process (see part 5 of the white paper), etc.

4. Deep Dive — Initial Exchange Offerings (IEOs)

Source: Author’s own analysis

4.1. Initial Exchange Offerings (IEOs) — Implications for the project team

While the difference compared to initial coin offerings sounds simple enough (instead of the project, the exchange lists the token), an IEO actually comes with a lot of advantages compared to an ICO. For example, the project team doesn’t have to set up its own KYC/AML process as it can use the one of the exchange. Moreover, it can directly tap into the existing user base of the exchange. Also, getting listed on an exchange is an arduous process that requires lots of expertise that is typically missing in project teams. However, an IEO exchange needs a business-as-usual team that is dedicated to listing IEOs. Hence, projects can now have direct access to expertise related to smart-contracting logic, marketing, exchange listing, etc. As the exchange (or exchanges) is (are) now the counter party and fully catering for the listing of the investment, it is crucial for them to thoroughly assess the viability of the project. This provides additional credibility to the project as the exchange is putting its reputation on the line. Finally, as ICOs are prohibited in some countries, IEOs suddenly give projects a nice alternative. On the downside, exchanges charge high(er) listing fees, and project teams bear the cost of what’s considered a benefit for either the investors and/or the exchange. For example in the case where investors on the exchange would get a discount.

4.2. Initial Exchange Offerings (IEOs) — Implications for investors

For contributors, one obvious advantage is the reduced risk of scamming. As the exchange needs to “vet” the project more thoroughly before listing it, this — as I like to call it — “Vetted ICO” (“VICO”) concept makes for an important improvement over the traditional ICO. Also, as on a (centralized) exchange there typically aren’t explicit gas limits involved, so gas wars can be avoided (note that a decentralized IEO on the other hand could/would involve this risk again though). Finally, it’s just nice to have your newly minted tokens sitting there nicely alongside your other tokens held on the exchange platform. A very relevant drawback though is that centralized exchanges own the bulk of the private keys of their users, even to the extent that a trade or a transaction only happens on the exchange and not necessarily on the blockchain. That way, investors don’t truly own their tokens. This also opens up the possibility of a failure on the exchange’s part.

4.3. Initial Exchange Offerings (IEOs) — Implications for the exchange(s)

As mentioned before, IEO exchanges need a multidisciplinary team to conduct thorough due diligence on candidate projects. This raises the barriers to enter their market. Moreover, directly listing new projects is likely to attract new users and hence capital influx to the exchange, and caters for a potential increase in revenues (e.g. more transaction fees) as well as cost synergies (e.g. joint marketing cost with the issuing project). A “slight” inconvenience though is that exchanges are now the main counter party of the deal, and have to make sure they analyse the project accordingly.

5. Deep Dive — DAICOs

Source: Author’s own analysis

5.1. DAICOs — Implications for the project team

Decentralised Autonomous ICOs benefit greatly from the decentralised control character of a DAO. Whereas at the end of an ICO, the project team gets the entire investment sum all at once, the DAO addition to the concept allows for what’s called a “tap mechanism”. Simply put, contributors can now vote on what portion of the investment funds becomes available to the project team over time. A con here for the team is that they depend on that underlying voting mechanism now. However, potential qualitative contributors who wouldn’t invest otherwise might now be more inclined to invest. Also, a less experienced team can benefit from the joint expertise of its contributors. And finally, the investment funds are handed over to the team in more rational chunks, keeping their motivation more stable during development.

5.2. DAICOs— Implications for investors

For contributors, the risk of a scam ICO is now greatly reduced as they can simply vote for a refund of the remaining investment principal if the project isn’t delivering. Decisions become democratised, rather than centralised in the project team. As the amount of funds that gets released from the Smart Contract is limited and strictly controlled, it will also reduce the occurrence and impact of 51% attacks. And even if one occurs, the amount is limited to the tap release. However, the security mechanism can be weakened if contributors simply put their entire trust in it and don’t partake in voting, which would reduce the majority threshold. Also, if any of the developers holds a large additional chunk of the investment funds, he might be able to influence the overall vote. Another important risk is that investing typically comes with a psychological / emotional dimension. When the market is volatile and contributors see the artificial value of their investment plummet or move all over the place, they might make decisions that are non-beneficial for the project as a whole.

5.3. DAICOs — Implications for the exchange(s)

If done correctly, there isn’t even a need for an exchange (!).

6. Deep Dive — Equity Token Offerings (ETOs)

Source: Author’s own analysis

6.1. Equity Token Offerings (ETOs)— Implications for the project team

Finally: off-chain companies including start-ups and private equity can now be on-boarded to the worldwide crypto economy and investor base without having to rely on an in their case less logical utility token. Imagine doing a capital raise with (almost) the whole world as your potential investor. To make things even juicier, transaction costs between the two sides of the traditional investment process are reduced. Also, Reverse Dutch Auctions allow for gauging investor demand before actually doing the ETO, resulting in optimised price points for the issuer. To some extent and to be tested in the real world, more traditional shareholders might need some convincing on this new concept. So far, blockchain tokens have a reputation of being very volatile. This might make existing more traditional shareholders vote against such a form of capital raise. Also, and even though the likes of Neufund have worked jointly with the regulator for quite some time to make something as thought through as possible, it is again a new things that still needs to be tested outside of experimental environments.

6.2. Equity Token Offerings (ETOs)— Implications for investors

Investors can now look to an even broader investment universe as even seed-stage startups and private equity join the opportunities. Moreover, roadmaps of ETO and STO platforms include forging the bridge between on-& off-chain investments. This implies that for existing off-chain shareholders, the presence of the on-chain platform has the potential to ultimately merge all stakes in the company in a more liquid trading framework, improving the typical illiquidity of a young and/or private equity company. Also, the ETO set-up is one involving a high degree of regulation that on the one hand might make the investment process somewhat trickier than for ICOs, but on the other also better protects the investor side. Again, an unwanted side-effect could be that the on-chain activity increases the share price volatility.

6.3. Equity Token Offerings (ETOs)— Implications for the exchange(s)

Pioneering exchanges can greatly benefit from the barriers to entry of such a regulated market. Be it the thorough vetting process by the regulator, or the accumulation of offering a wider range of tokens over time. If the exchange makes it through the initial barriers, the world can be its market place.

7. The future

So which option should you choose as a project team, as an investor, as an exchange? Clearly, it all depends. As a project team, are you issuing a utility token or a security token? As an investor, do you want to be the owner of your cryptographic keys? One thing is certain, ICOs are entering adolescence. That first root is starting to branch out and with it brightening up the future of crypto financing. It’s still a little misty. But I’m starting to see a gigantic sequoia. A whole new fundraising universe.

Source: Reddit’s SonyAlpha


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About Ruben and Ngrave

Ruben Merre is CEO at Ngrave, a blockchain tech company on a mission to make the world of blockchain technology and cryptocurrencies a safer place, with the greater goal of sustaining and co-nurturing the technology’s widespread adoption. To this end, Ngrave is developing an ultra secure blockchain hardware wallet solution for safe-keeping one’s cryptocurrency investments, in collaboration with tech giant IMEC and a world-renowned team of cryptography and hardware security experts.

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Ngrave | Building The Next Generation Hardware Wallet_Ngrave's goal is to contribute considerably to the Blockchain security space by offering a very safe and easy-to-use…