ICO – IEO – STO: How They Are Different From Each Other?

ICO – IEO – STO: How They Are Different From Each Other?


Cryptocurrency and Blockchain are both the present and the future of today’s financial world, where everything is digitized. However, the crypto world is constantly seeing innovations primarily based on raising funds for companies. The ideas of ICOs, STOs, and IEOs have provided the vital change which implements perfectly with the modern financial world. The introduction of this offering within Blockchain has led to democratizing investments and opening up new opportunities that reach more investors than the traditional marginalized systems.

However, in the middle of all this, investors are now seriously concerned with an increasing number of doubts. For example, does every collection system in the cryptocurrency have the same working method? If not, then what’s the difference? Do one of this collection system has the upper hand over the other? These are all genuine concerns that can strike any mind before entering this particular sector of the cryptocurrency world.

What Is An ICO?

ICO is an acronym for Initial Coin Offering. Although it sounds the same, it stands for a completely different format for raising funds for a project. These are high-risk investments that can generate extremely high returns. Participants have to go through a complicated “know your customer” process and register to participate. ICOs often have no product or prototype yet and are highly speculative because they haven’t yet officially launched. ICOs also have their digital currency, which you trade for other cryptocurrencies on an exchange.

Currencies that are trending today, like Ethereum, NEO, and IOTA, all started as an ICO. Experts suggest that the ICO has a key role in ensuring the success of these cryptocurrencies by raising sufficient funds that led them to their present state. While different authorities worldwide are trying to get a hold of regulating ICO projects, these are still majorly decentralized with very little government regulation.

It means that the developers of any ICO are not bound to follow any set of regulatory frameworks or abide by any protocol; instead, they can go out and sell their tokens. The only thing that links the investors with the project is a White paper that has all the vital details about their project. This whitepaper includes information like technological developments, a few financial aspects, the role of the team behind the project, its publicity, and overall the complete roadmap that shows the future of the project.

What Are Investors Take In An ICO?

While an Initial Public Offering (IPO) offers the investors shares of the project (traditional company), an investor of ICOs is making an early acquisition of its token. This said token of a particular ICO would get some specific utility or access to special services on the said platform developed by the developers and founders of that particular ICO project.

How Investors Make Money With An ICO?

The value of a token varies based on the project’s popularity, demand, and utility. You can sell your tokens at any platform available for cryptocurrency or use them within the said platform. There is also a set percentage of tokens that ICO developers keep with them to promote and develop their project and help secure its future.

When an investor pours liquidity into an ICO in exchange for acquiring its token, the main motive is to make money. This is why investors hope that the platform under development, where digital currency will find any use, will offer something useful after everything goes perfectly with its development. However, the true earning from these tokens is not through implementation within the said system, it comes by selling these tokens when the demand for these tokens gets high, and the supply remains limited. Therefore, any positive difference between demand and supply of this token causes a surge in its value, where investors thrive on making money.

What’s In For Investors?

It may seem easy to you, but making a successful investment in the ICO market is a tough nut to crack. The ICO market is quite unpredictable and compulsive and can easily turn into a nightmare in no time. On top of it, lack of regulation makes the situation worst, and in fact, it has caused many investors some serious fortune. These unfinished projects presented in the White Paper as utopias abound in the market, creating a sense of fear and suspicion among investors about losing their money.

Additionally, ICO is a concept that everyone, especially traditional investors, does not easily digest. People often find it difficult to trust something that doesn’t yield some fixed amount of profits. But if you happen to be a traditional investor looking for an innovative way of making money, you should do your due diligence before jumping into this ICO mess. The only thing you can rely on is thorough research about the vertical.

Do You Get Any Rights Of The Company By Investing In Its ICO?

Directly an investor can’t establish rights over the founders behind the idea of a company. Company is more like a legal term commonly constituted long before the launch of an ICO in the market. But, there are cases where holders of tokens of these ICOs experience some sort of leadership capacity once it takes the form of a DAO.

What is DAO?

The Decentralized Autonomous Organization (DAO) is a unique form of structure commonly seen in the cryptocurrency market. Within this structure, a holder of tokens of an ICO project has the authority to be a part of the project’s future and share his decisions about it. Currently, the use of such a DAO structure is getting more common in the ICO market as it creates more engagement and helps build a level of trust with investors. Investors’ participation is essential to ensure better growth and all-round development of any project.

The Decentralized Autonomous Organization (DAO) is a unique form of structure commonly seen in the cryptocurrency market. Within this structure, a holder of tokens of an ICO project has the authority to be a part of the project’s future and share his decisions about it. Currently, the use of such a DAO structure is getting more common in the ICO market as it creates more engagement and helps build a level of trust with investors. Investors’ participation is essential to ensure better growth and all-round development of any project.

What Is An STO?

Many large-cap investors are not easily convinced or entertained by the idea of investing in the wild market of ICO with zero regulation. ICOs have an image of extremely risky investments with a little chance of offering decent returns on your investment. To tackle such misconceptions among investors, some developers came up with the idea of developing Security Token Offerings (STOs). The smartest of brains at some of the best ICOs and IPOs in the market came together with this proposal of STOs to bring the market together.

For IPOs, the idea was to offer dividends from the company’s overall profits behind the STO made during its years of operation. On the other hand, for ICOs, STOs were made to display Blockchain’s potential to offer to the financial system. Blockchain can be the perfect source to develop an efficient and transparent system, far better than the conventional stock market.

With this approach, STOs are bound under legal regulations and frameworks that do not apply to ICOs. This involved applying many typical elements that were applied to listed companies, including control by financial authorities, public accounting of records, and another conventional approach of such projects that are now applied to Blockchain and cryptocurrencies.

Do STOs Offer Rights To Direct The Future Of A Company?

This is one of those topics with lots of arguments going on since the inception of the STO market. This confusion is the offering of dividends by STOs, which means there will be some sort of transfer of authority to the investors. Commonly possession is inferred as holding a place in the company’s direction. But the truth is rather contradictory to this idea.

STOs and ICOs work have this same working concept. Whether or not these token holders have power in their hands depends on the case where DAO is formed within the project. When there is a DAO approach in an ICO project, the token holders in such cases have the authority to become a part of deciding the future of the project.

In the event there are no special indications regarding DAO, you have to understand that this means there is no possibility of deciding anything regarding the future of the company backing the STOs, even if the project states that the acquisition of token will allow the investor to be a shareholder, its important to research about its DAO in the first place.

Key Differences between an STO and an ICO

In short, ICOs are essentially fundraisers, while STOs are more like future “receivable” events. Rather than sellers collecting money from buyers regularly, STO simply means issuing or selling securities or sometimes finding ways to get money cheaply (legally through the stock market). Here take a look at some common points of differences between ICOs and STOs:

1. Token Offer

Within the financial world and investors, the definition of Security-Utility, which refers to the tokens that an ICO or STO offers, is easily understood. However, both ICOs and STOs have some major differences in their token. The explanation of tokens for ICOs is quite simple as they offer a utility token (therefore said utility) for any specific space or platform.

Now for STOs, they offer security, which you can understand as a negotiable and fungible value. This value can be linked back to the financial sector in some monetary value. This Security token allows the investors receive dividends on the overall profit that a company makes during a certain set of time.

2. Legal Regulations

The legality of STOs is much more stable than that of ICOs. This is because STOs come under legal regulations for a limited time. This means that all rules and conditions of those securities are considered legitimate and within the framework to be followed by the current legal regulation system of the country. Therefore, ICOs are suggested for the future sale of services or access to specific services that will hit the market.

For ICOs, on the other hand, have no such policies, and their legal frameworks are manipulated by many individuals with other objectives than offering value to investors. As a result, STOs use a concept contradictory to that of ICOs. This is because the main motive of STOs is to provide Security for the investment, which ICOs miss out in the first place.

Many STO projects are now widely settled and [practiced in many jurisdictions worldwide where they find more flexibility in terms of financial regulations. Cyprus, Estonia, and Panama are prime examples of countries with fewer demands regarding regulations for such projects. As a result, these countries have proved to be a great oasis for developing such projects in these jurisdictions.

What are IEOs?

Initial Exchange Offerings (IEOs) are rapidly gaining popularity in the crypto market. This concept is combined between ICOs and STOs and takes the idea further. IEOs are the second generation of ICOs. The concept of IEOs is quite similar to ICOs, with the only difference being investors do not use their money to buy tokens. IEOs gained fame after the “Crypto winter” period, in which ICOs gained an all-time lowest collection in their entire time of existence.

These are simply ICOs but only with a limited capital collection from investors through a specific exchange. Initially, the only big-bull exchange in the crypto world to accept IEOs was Binance using its Launchpad. However, soon after, other exchanges in the market started to follow this model and become a part of this trend. As of now, more than 20 exchanges within the market are offering this service to their services.

Key Difference between ICOs and IEOs

The main difference that can be made between ICOs and IEOs is in terms of business model. Within the ecosystem of assets and cryptocurrencies, there are many strong projects with a stable foundation. These projects look promising and will potentially hit the mainstream market very soon. Many such projects have great potential but lack the funds and funding to reach out to the mainstream target audience. IEOs offer this funding and support in exchange for tokens issued by the project, which they consider valuable and beneficial in the future. Here take a look at some key differences between

ICOs and IEOs:

1. Involvement of Centralized Authority in the Project

Similar to other projects that raise capital through an ICO, the project will have to go through the legal process of issuing tokens and then listing them on major exchanges. This involves many steps and is not as seamless as it would look. But IEOs offer a more secure way in which they can be listed within the jurisdiction of their choice.

IEOs work quite differently than ICOs. To participate in a project for IEO, the exchange needs to authorize some norms and conditions that the project undergoing iEO has to meet. Only after fulfilling these conditions will the project be accessible for users through that exchange. Additionally, these requirements can also follow a long chain or series so that the project can even be listed on the exchange on the portal.

Apart from authorization of projects and complete review, the project developers have to pay a commission in exchange for making an IEO for their project. This is something you will not find in ICOs. Generally, this commission is a percentage stake of the total funds raised by the project. This percentage of commission in funds varies sharply across different exchanges.

2. Limitation of Investors to One Exchange Only

As IEOs work with only one exchange, it offers a range of security compared to ICOs. It also reduces the risk of losing coins because the exchange is an authorized body for trading on its own. This also makes IEOs more stable and credible in the long run. In addition, IEOs are generally in a shorter period than ICOs.

Whereas ICO requires anywhere between 3 months to 1 year just to finish their token sale, in some cases, IEO can be completed within 24 hours after their approval by the exchange that they are listed on. The best part of IEOs is that they provide better security and a certain level of trust for investors to make a better choice. IEOs generally offer that trust factor that ICOs were missing. The use of existing markets and exchanges to achieve the funding for a project.

These exchanges have a very large customer base and access to general investors who are not well versed in the crypto space. In other words, ICOs have been providing opportunities for crypto and blockchain projects to gain funding from their prospective clients. Still, no one knows or stays updated on all these new projects from which they could be benefiting.

IEOs offer security assurance to their investors that their acquired assets will link back to some type of commercialization in the future by listing the IEO on the same exchange where it was created. This is the main strength of IEOs, which is often overlooked and hence needed to remind investors from time to time.