If you’re planning to launch an ICO, STO, or IEO in 2022, you should know that the processes involved in launching these token offerings have evolved from how companies raised funds in the past couple of years. In a nutshell, ICO, STO, and IEO encompass different methods to raise funds through a token offering. Unfortunately, the regulatory hurdles associated with these fundraising methods are constantly changing, and businesses need to make an effort to keep up. This article will look at the differences and similarities between ICOs, STOs, and IEOs and gain insights on how to launch them.
Is 2022 going to be favorable for ICO, STO, and IEO?
So far, it was two weeks down the road in 2022, and we can see positive market signals in the crypto space. The value of bitcoin has hit record growth, reaching $42,000, and most of the prominent cryptocurrencies and altcoins are bullish. The ICO market boomed in late 2017 and early 2018 when the market signals were similar to what we see today. With the growing demand for altcoins and crypto assets investments, we expect 2022 to be an excellent year for ICOs, STOs, and IEOs. The image below shows the 24hrs performance of altcoins today.
Securing the capital required for starting a new project can be difficult, especially since the outbreak of the COVID-19 pandemic in 2020. This is why non-traditional forms of fundraising like ICO, STO, and IEO are gaining more popularity. These methods can often help businesses secure large amounts of money. Before we delve deeper into how to launch your fundraising campaign, let us first look at how they are different from each other.
Here, we’ll help you gain better insights into the below topics:
- What is an ICO?
- What is an IEO?
- What is STO?
- Similarities in ICO, IEO, and STO
- Primary differences between ICO, STO, and IEO
- Launching an ICO, STO, or IEO in 2022
What is an ICO?
ICO or Initial Coin Offering refers to crowdfunding via crypto tokens. It was one of the first methods that gained popularity after the rise of crypto, and many startups have used it to navigate the strict rules that an initial investment process needs to follow. The basic necessity for launching an ICO is a website with the wallet address to which cryptocurrencies are sent. It was characterized by no legal boundaries, no investor protection, complete anonymity, and often the lack of MVP.
Any individual or company can fund any project or become an investor. It usually works through the issuance of digital coins against investments. The initial investments were made with cryptocurrencies such as Bitcoin and Ethereum, and then the ICO processes evolved and started accepting fiat currencies. Investors buy the offered token, which is a utility in the proposed project.
Benefits of launching an ICO:
- Easy to launch
- Lower launching cost, which makes it ideal for startups
- Investors will have complete control of their funds
- Limited government intervention
- The fundraising process is more straightforward when compared to STO and IEO
Disadvantages of ICO:
- Declined market acceptance due to scams and frauds
- The issuer needs to manage all logistics involved, including KYC verifications
- Not directly possible to offer monetary returns to investors
Related article on “How to start an ICO? The prerequisites“
What is an IEO?
The aim behind launching an ICO and IEO is usually the same. Essentially, it is to provide tokens to a large group of investors. However, there is one significant difference. IEOs are launched and managed by an existing exchange instead of the organization that created the token. The exchange holds and sells the token on behalf of the project team. As the exchange platform sells tokens, token issuers pay a listing fee and the percentage of tokens sold during the Initial Exchange Offering. In turn, tokens are presented on the platform and listed after the end of IEO.
Benefits of launching an IEO:
- No need to create an audience from scratch
- Traders in the exchange are already KYC/AML verified
- Easier to issue tokens compared to ICO
Disadvantages of IEO:
- Less control of issuance and token pricing
- Added expenses in listing tokens in exchanges
- Investors have very little control over the activities of the exchange
- High risk of token dumping and losing market value very early.
Related article on How to launch a cryptocurrency exchange?
What is STO?
STO stands for Security Token Offering; you can think of STO as a regulated ICO. They deal only with security tokens, unlike ICO. A security token can offer profits to the investor rather than a utility. STOs need to be compliant with several government regulations. Security tokens are securities bound by the country’s securities regulations. In STO, real-time assets develop security tokens containing all the ownership information. It provides high security to investors and reduces the risk of token issuers.
Benefits of launching an STO:
- Only accessible to properly authenticated investors
- Handle tangible assets and comply with government regulations, which makes it more trustworthy
- It offers high security, which makes it ideal for long term investment
- Better market acceptance than ICO and IEO
Disadvantages of STO:
- Extremely costly
- Cross-border investment is complex due to strict regulations
- Low liquidity level
- Security laws and all transactions that regulate STO are KYC or AML accredited
Related article on Understanding STOs (Security Token Offerings)
Similarities in ICO, IEO, and STO
ICO, IEO, and STO are all methods used by startups to gather funding to commercialize innovative technological ideas. All three of them mainly deal with intangible assets. To begin the launch of an ICO, IEO, or STO, a company must prepare a white paper. This document contains information about the project’s objectives, its implementation technology, the required amount of funding, the number of tokens that the project founders will have at their disposal, and how long the campaign will last.
Primary differences between ICO, STO, and IEO
Now that we have a better idea about what these terms mean and how they are similar to each other, let us take a look at what the primary differences between them are:
- Go to market time:
STOs must comply with various strict regulations. Therefore, it takes a significant amount of time to resolve all the legal requirements, without which the company will not receive permission to conduct a crowd sale. On the other hand, the launch of an ICO and IEO does not require much time if a ready-made project idea is well presented in the White Paper, and a smart contract has been created. ICO offers the least time to go to the market.
- Cost of launching:
Launching an ICO provides you the flexibility to offer your token within your budget. The main expense involved in launching an ICO is on the marketing side, which can be tuned up or down based on your budget. For an IEO, the fundamental necessity is to meet the listing fees demand of the exchanges. And for STOs, you need to deal with the legal costs involved in the different filings and registrations.
- Regulators involved:
Regulations strictly govern STO. On the other hand, no law obliges an ICO to provide legal documents supporting a coin offering. The white paper has all the information relevant to the project, which is not mandatory either. IEO token issuers do not have to worry about the crowd sale security and regulations, as the exchange manages the smart contract. The exchange also handles the KYC/AML process, as most service providers do KYC / AML for their customers after creating their accounts.
Launching an ICO, STO, or IEO in 20222
Whether you choose an ICO, STO, or IEO, you will have to undergo some legal checks. These checks can vary greatly depending on the type of fundraising approach that you have chosen. For example, most of the exchanges offering IEO launchpads will want to verify whether your token is a utility token, among other checks.
You may have to verify whether your cryptocurrency is a security token under the federal securities law in the US. Then, it undergoes the Howey test. Howey test determines whether a crypto token should be considered a security or not. A token is regarded as a security if it involves an investment of money (not just buying) and offers profit expectations. Generally, the primary issue in evaluating a digital asset under the test is whether a buyer is expecting to gain a profit out of the transaction. However, acquiring a profit is just one aspect of security.
For more information on this test, you can read our article, Howey Test: What it means for Digital Assets and Cryptocurrencies?
Preparing a project for an ICO, STO, or IEO launch can be a harrowing experience if you don’t know what you are doing. Before launching, there are a few prerequisites and requirements that you will need to fulfill. At first, you will have to conduct extensive research on the crypto market. Understanding your target audience will also help develop your project in the best possible manner. Once you have finalized your project idea, begin to check the concept’s economical, financial, and social feasibility. Tons of ICOs have been launched so far. So, chances are not slim that an ICO similar to your project idea has already been launched or not. Websites like Coindesk, ICOdrops, etc. list past ICOs.
You can check for ICOs related to your domain or industry and see how that particular ICO has performed. You’ll get an idea of the market acceptance of projects in your industry, and based on your insights, you can decide on the marketing activities you need to focus on.
Once you have developed and verified the feasibility of your idea, it is time to begin execution. To do this, you will have to put together a reliable team of experts familiar with blockchain technology and crowdfunding approaches. They will be able to help you develop a sound technological roadmap that will outline the phases of your project and minimize the risks associated with it. Based on the data you gather at this phase, you can start preparing a whitepaper.
Drafting the whitepaper is one of the most critical steps during the launching process. A good whitepaper can help your investors understand your project and make an informed decision. The white paper should explain your project’s purpose and answer questions a potential investor may have. Writing a whitepaper for an STO and IEO is very similar to that of an ICO.
You can read our article on preparing your ICO whitepaper to get a better idea of how to go about this step.
Once you have drafted your paper, it is time to select your fundraising approach. As discussed at the beginning of this article, there are pros and cons to each method. Decide whether you would like to launch an ICO, STO, or IEO based on your business requirements. To ensure a smooth launch, hire your legal advisors who can give you factual legal information about the state of your token.
Upon completing these steps, you are ready to begin executing your campaign. Launching an ICO, STO, or IEO can be extraordinarily complex and challenging.
