When cryptocurrencies and crowdfunding meet

When cryptocurrencies and crowdfunding meet

Crowdfunding or crowdfunding has been the undisputed star of Fintech since its emergence in 2000. Like cryptocurrencies, it has evolved from traditional models and has the same disruptive feature. It was only a matter of time before these similarities gave rise to crypto-crowdfunding.

An inevitable union

Crowdfunding is a mechanism by which funds are collected from a large audience to fund a project. It can take several forms: a donation, a loan or an investment.

The global crowdfunding market is valued at USD 13.35 billion with a projected CAGR of 11.65% between 2022 and 2027. This is according to market analyst Imarcgroup, in a survey of the sector. Thus, crowdfunding is on an upward curve. However, for many years it has faced criticism for embezzlement and lack of transparency.

Blockchain therefore presents itself as an antidote by securing the investment and its process. In fact, it ensures better monitoring, transparent and simplified management. This is possible thanks to the smart contracts that govern the management and therefore guarantee constant traceability. Cryptocurrencies, on the other hand, promise to facilitate exchange due to their instantaneous nature. Crowdfunding complements them with its capacity to bring a significant mass of flows. Therefore, crypto-crowdfunding is a win-win alliance for both parties.

Crypto-crowdfunding in all its forms

Crypto crowdfunding operations allow the receipt of three types of tokens: utility tokensthem security tokens and on equity tokens. Utility tokens give participants access to a special product or service. In addition, security tokens represent a share of the company that was the subject of the fundraising. Equity tokens give rights to the company. Crypto-crowdfunding can take three forms: ICO, IEO or IDO.

Source: CNBC
  • ICO (Initial Coin Offering or initial token offering) is the first type of crowdfunding to emerge in crypto-crowdfunding. Similar to an initial public offering (IPO), it consists of fundraising, which is done by issuing digital assets in exchange for project funds. Thus, the investment is made on the site of the startup that is raising the funds, which turns out to be risky for investors. One of the most famous ICOs is Ethereum, which raised $18 million in 2014.
  • IEO (Initial Exchange Offer or Initial Exchange Offering) is quite similar to an ICO. However, the difference is that for an IEO, the investment is made in cooperation with a centralized cryptocurrency exchange (CEX) that is the host. Also, IEOs are presented as a more reliable alternative than ICOs. The first of its kind was in January 2019 when Binance launched its BitTorent (BTT) token.
  • IoT (DEX Initial Offering or decentralized initial offering) consists of raising funds through a DEX (A decentralized exchange or decentralized exchange). It answers the cost reduction problem posed by ICOs and IEOs. This is because the public runs the decentralized exchange. IDO is based on the principle of a liquidity pool, allowing participants to exchange digital assets. We can talk about Theos, which managed to raise $350,000 in two and a half hours in 2021.

The pair of cryptocurrencies and crowdfunding keeps on throwing sparks. Democratization continues, even more so with the advent of launch pads or launch pads. They are groups of blockchain-based projects seeking investment in exchange for cheap tokens. Therefore, crypto-crowdfunding presents itself as a real niche for all micro-investors.

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Paola Same avatar
Paola the same

As a financial professional, I consider blockchain a true revolution due to all its innovations that have a global impact. I am passionate about participating in this new digital era through my articles.

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