DeutschA token sale, also known as an Initial Coin Offering (ICO) is a widespread concept in crypto projects, where companies sell a certain amount of tokens to the public to raise funds for their projects. In essence, it is a crowdfunding campaign in which investors typically pay with cryptocurrencies such as Bitcoin or Ethereum and in return receive tokens, which they can later exchange on trading platforms for other cryptocurrencies or fiat currencies.
Risks
There are some risks with token sales that potential investors should be aware of. A major problem is the lack of regulation. In some cases, there is hardly any investor protection, so that investors have to bear the full entrepreneurial risk. Reporting obligations and regulations on recourse claims, should the project or the underlying company become insolvent, are also usually not available.
Another risk is that fraudsters see their chance due to the anonymity of blockchain technology. Even if the projects are reputable, there have been many cases in the past where investors have lost their invested capital. Boston College has published a study on this. A total of 4,003 ICOs were examined. The study showed that over half of the ICO startups examined in 2017 did not survive for more than four months. Investors should be aware of this and think in advance about whether the business model really has a chance.
Another problem with token sales is that there are some projects that cannot provide complete or realistic plans on how they can achieve their planned goals. Some projects are created merely as a means of raising capital, but without a real possibility of implementing the planned project. Here, too, the lack of regulation plays into the hands of investors.
Advantages
Despite the risks, token sales also have some advantages. For companies and start-ups, they offer a way to raise capital quickly and efficiently without slowing down the process through lengthy regulatory procedures. For investors, token sales offer the opportunity to invest early in promising projects and potentially achieve high returns.
In addition, token sales have the potential to raise very large sums of money in a relatively short period of time, allowing project teams to quickly implement their development plans.
Well-known Token Sales in the Past
A very well-known and successful token sale was the ICO of Ethereum in 2014. The company was able to raise more than $18 million in just a few weeks and has since developed one of the most successful and influential cryptocurrencies on the market.
Another example of a successful token sale was the ICO of Filecoin in 2017. Filecoin is a decentralized cloud storage network that allows users to rent out their unused storage space to other users. The company was able to raise more than $200 million in just one hour and has since taken an important place in the decentralized storage industry.
Conclusion
Token sales offer many opportunities and possibilities for blockchain companies and investors. However, there are also a relatively large number of risks. It is important that investors do sufficient research and understand the background of projects and the people behind them before investing in a token sale. In addition, it is important that regulators around the world enact clear and uniform regulations for token sales in order to minimize the risk of fraud and protect investors.
