ICOs are a game changer.
We’ve all probably heard that ICOs raised $6.8b in 2017, which is more that seed-stage companies raised through VC. But there is a lot more to ICOs than meets the eye.
In this article I want to explore the consequences of doing an ICO, and how ICOs are impacting the very core of how we collaborate and do business.
Almost any company that has recently done an ICO will claim that their tokens are “utility tokens” and not securities.
Utility tokens tend to represent future access to a company’s product or service. The defining characteristic of utility tokens is that they are not designed as investments, but rather as “access tokens”. This “loophole” exempts utility tokens from federal laws governing securities.
We can all understand why this is beneficial to the companies (selling actual “security” tokens is an expensive affair), but there’s something else that most of us are overlooking.
A company that has issued tokens, whether utility or otherwise, relocates whatever value the company has or will have, to the tokens. This means that the moment you issue and sell tokens, the actual equity of the company loses meaning. Nobody is going to buy your equity because the value of the company is no longer in the equity — it’s now in the tokens!
Whether we like it or not, tokens are a form of equity.
We’ve established that most tokens are a form of equity. But there are two things that make them a unique asset class.
It’s the second attribute that makes tokens interesting, and makes crypto-companies unlike any other type of company we know today.
Today’s corporations are directly tied to countries. For example, Apple is a US company and its stock is traded on NASDAQ.
Can we tie Ethereum, IOTA or any other post-ICO entity to a country? Not really. They are truly global, and have teams that are spread across the globe.
ICOs are ushering in a new age of doing business. One that is borderless and unified. One that does not need countries, or banks, to operate. One that with the right tools, allows people from any country to cooperate towards any goal without third-parties getting in the way.
There are two primary barriers to the new way of doing business.
Lack of regulation: New-world companies still need to be incorporated somewhere. Unless you’re going to pull a Satoshi and disappear, a legal entity is required both to protect you personally and your customers as well. The main barrier here is old-world bureaucracy, i.e. massive armies of lawyers and accountants that companies need on a daily basis. I predict that in the future, we will be able to manage companies exclusively on the blockchain, thereby simplifying and streamlining a lot of the bureaucracy that we have today. ICOs are a great example of “doing an IPO” cheaply, and I believe they are just the start. We’ll be seeing more and more business, legal and accounting functions transitioning to the blockchain. But for that to happen, a new legal framework is required.
Lack of tools: Whether you are part of a more traditional style of company or a DAO, how do you effectively manage such an entity in the crypto space? How do you pay employees and contractors? How do you vote on decisions? The truth is that there are no real tools yet. But there will be.
What do you think? Are ICOs and crypto-companies a passing fad, or a we getting a glimpse into the business world of tomorrow? In future articles I’m going to explore the practical needs of new-age organizations.