DeutschFor companies looking for new investors, there are various ways to raise capital. While established companies can take out loans or venture an IPO, this is usually not an option for crypto startups.
Methods of raising capital for companies in the blockchain environment include ICO and STO – but what exactly is meant by this is still a mystery to many investors. In this article, we would like to present selected methods and explain the difference between ICO, STO and IEO.
Initial Public Offering (IPO)
Initial Public Offering refers to the initial issue of shares on the stock exchange and is a traditional form of fundraising. A company’s IPO also means that it opens up its private circle of investors – because now anyone can buy shares. To protect the market and investors, the IPO is subject to strict regulations.
Initial Coin Offering (ICO)
Based on the term IPO, the first round of financing for a digital currency is called Initial Coin Offering. In exchange for established cryptocurrencies or fiat money, so-called tokens are issued. The function of a token can vary, here it is usually understood as a kind of “subscription right” for the cryptocurrency to be issued after the launch.
Because ICOs are hardly controlled, there is a risk of fraud. In ICO scams, bona fide investors can lose a lot of money by investing in a cryptocurrency that is never launched, but was only intended to collect money from the start. To prevent this from happening to you, we have summarized signs of an ICO scam.
But after the years 2017 and 2018, when ICOs were sprouting up like mushrooms, things have become much quieter now.
Initial Exchange Offering (IEO)
Due to their relatively high risk of fraud, ICOs are no longer possible without restrictions in many countries. They have been banned in China since 2017. For this reason, new forms of fundraising have developed in recent years; one of them is the Initial Exchange Offering. The IEO differs from the ICO primarily in that the sale of the tokens is not carried out by the coin provider itself, but via a crypto exchange.
Unlike the ICO, no smart contracts are concluded with the coin startup itself for the IEO. Instead, interested parties register with the crypto exchange and create a wallet there. This is filled with fiat money or coins of other cryptocurrencies and can now also be used to purchase tokens as part of an IEO. Because the Initial Exchange Offering takes place under the supervision of the crypto exchange, it offers far more security than the classic ICO. Some exchanges are already using lottery systems, where interested buyers are drawn because the number of interested parties exceeds the number of tokens.
The best-known representative here is the crypto exchange Binance with the so-called Launchpad.
Security Token Offering (STO)
Tokens are also issued in the Security Token Offering. Here, however, they do not serve as a subscription right for coins to be issued later, but as actual securities. Through their investment, investors secure shares in the company, including ownership control, interest and intermittent returns – just as is the case with the IPO on the stock exchange.
STOs are traded via a security token platform, such as Polymath or Harbor. The STOs are submitted to the Securities and Exchange Commission (SEC) via these. This regulatory authority checks the crypto startup for seriousness and only grants approval if the assessment is positive. This gives investors additional security.
At a Glance – IPO vs. ICO vs. IEO vs. STO
In order to break down the many pieces of information to the essentials, we have summarized the most important similarities and differences between IPO, ICO, IEO and STO in a table below.
| What? | What for? | Where? | How safe? |
| IPO | Capital procurement for an established company | Stock exchange | Regulated by the stock exchange supervisory authority |
| ICO | Financing a new cryptocurrency | Website of the crypto startup | Hardly regulated, risk of a scam |
| IEO | Financing a new cryptocurrency | Crypto exchange | Regulated via the crypto exchange |
| STO | Financing a new cryptocurrency | Security token platform | Regulated by the SEC |
Knowledge is power. If you are thinking about investing in a new cryptocurrency, you should inform yourself comprehensively (for example on CoinPro.ch). Choose the type of investment that best suits you and your needs. This minimizes the risk of loss.
You should tend to rely on regulated methods – this is also the international trend. The legislators have now recognized how important a legal framework is and are working worldwide on the development of guidelines and laws. Switzerland is one of the leading countries here. It remains to be seen whether the hardly regulated ICOs will be able to maintain their position or whether they will be completely replaced by regulated financing methods in the future.
