Blockchain Semantics Insights
Business Case | Deep Tech | Announcements | Blockchain Glossary |
What Is A Reverse ICO?By Krishna Vishwakarma | Aug. 2, 2018, 3 p.m. GMT
The ICO is popular and a known way of crowdfunding. However, there is also a process known as Reverse ICO that we will discuss here.
As we know, ICOs are a way of raising funds by crowdfunding new ventures. In cryptocurrency communities, a distributed network of investors, based around the world, are able to invest and purchase tokenized assets in new Blockchain projects either through fiat currency, Bitcoin, or Ether.
The concept behind ICOs is similar to that of IPOs in the stock exchange, which sees the initial public sale where investors can purchase shares of a company.ICOs, however, see investors purchase the project’s tokens (similar to shares in IPOs) and pay in cryptocurrencies, such as Bitcoin or Ether.
ICOs are a source for Blockchain start-ups and other projects; helping them accumulate funding and entering a worldwide market with a particular idea, product, or venture.
What is a Reverse ICO?
‘Reverse ICOs’, as they are known, use the process of an initial coin offering to tokenize or decentralize their business, accumulate additional investment, or for launching a Blockchain-based branch of their traditional business.
In simple words, the main aim of the ICO is to rapidly procure initial funding to start or launch a Blockchain business or project; while in a reverse ICO, an established company raises the funds to decentralize or open their pool of investors.
In reverse ICO, the company first offers tokens to the investors as a replacement for their traditional shares.
Benefits of Reverse ICOs
Since many large-scale firms either have a track record, are regulated by regional authorities, or have already conducted an IPO, reverse ICOs are thought to be more easily valued and can function with greater legal and fiscal transparency and trustworthiness.
Small and medium businesses raise their capital from venture capital and funding’s, whereas large-scale business conduct IPO to raise mass capital from a variety of investors. Although this process has its advantages and can be considered to add status to certain companies, the process involved is highly regulated and usually only open to accredited investors.
Whereas in reverse ICO, the companies will be able to distribute tokens or utilities to raise funds for a variety of worldwide investors without needing to follow a difficult legal process or comply with irrelevant regulations, as is required for IPOs.
There are some cases where established firms have conducted a reverse ICO to establish their own economies within their product. An interesting example of the reverse ICO is the messaging app Kik. The Kik successfully performed an ICO and launched its own cryptocurrency called Kin, which is used within its app to facilitate payments and purchases.
Other examples of the reverse ICO are Telegram and Kakao, a popular messaging app used in South Korea.
The reverse ICOs has enabled companies to distribute and decentralize their functioning or ownership with the use of Blockchain. To decentralize their operations, many cryptocurrency exchanges have turned to an ICO to launch their own cryptocurrency, perform their operations over a blockchain, or to attract new investment.
While it remains to be seen in practice, it is thought that many companies will eventually reveal an interest in performing reverse ICOs with the view of launching new products or attracting crowdfunded investments.