The full form of ICO is initial Coin Offering which is a process of alternative fundraising mechanism in which blockchain startups issue their own crypto tokens. By selling these crypto tokens, blockchain startups can exchange BTC and ETH.
At the user’s turn, if they want to exchange at x3-x100 the price or want to spend digital tokens on the platform then it can be possible at their turn. In other words, tokens are basically like vouchers that you can exchange for goods or services on a certain platform. If we go with the author of “The business blockchain” “The William Mougayar” a token is “a unit of value that an organization creates to self-govern its business model. It empower the users to interact with its products while facilitating the distribution and sharing of rewards and benefits to all of its stakeholders.”
STO stands for security token offering in which an investor is issued with a crypto coin or token to represent their investment. But it is quite different from ICO. It is the method to represents an investment contract into an underlying investment asset, such as stocks, bonds, funds and real estate investment trusts (REIT).
A security can be explained as a “fungible, negotiable financial instrument that holds some type of monetary value,” such as an investment product that is backed by a real-world asset such as a company or property. With the help of security token, anyone may get the ownership information of the investment product, recorded on a blockchain.
When you invest in traditional stocks, for example, ownership information is written on a document and issued as a digital certificate (e.g. a PDF). For STOs, it’s the same process, but recorded on a blockchain and issued as a token.
As its name suggests “An Initial Exchange Offering” is the platform of a cryptocurrency exchange. An IEO is conducted by a crypto exchange on behalf of those startup who are seeking to raise funds with it’s currently tokens.
As the token sale is conducted on the exchange’s platform, token issuers have to pay a listing fee along with a percentage of the tokens sold during the IEO. In return, the tokens of the crypto startups are sold on the exchange’s platforms, and their coins are listed after the IEO is over.
As the cryptocurrency exchange takes a percentage of the tokens sold by the startup, the exchange is incentivized to help with the token issuer’s marketing operations.IEO participants do not send contributions to a smart contract, such as governs an ICO.Instead, they have to create an account on the exchange’s platform where the IEO is conducted. The contributors then fund their exchange wallets with coins and use those funds to buy the fundraising company’s tokens.
As we understand from above, there is something similar in ICO, STO and IEO that we use in the crypto world and all of them are related to fundraising in the Blockchain platform. But if you know the difference between these three then we are telling you the Pros and Cons of these three terms. So, let us discuss now!!!
Pros of ICO
• In comparison to STO and IEO, the initialization and setting up of an ISO project is very easy task.
• The initialization and setting up of an ICO project are relatively easy compared to STO and Companies with an ICO project needs to issue a Whitepaper, a website of the product concerned and a backup team which will carry out the technicalities of the project. That’s it!
• The cost of an ICO launch is relatively low and thus it is suitable for amateur investors who are new in the market with presumably low funds to invest.
Cons of ICO
• One of the main drawbacks of this system is that it’s security features. The system is susceptible to scams and fraudsters who pollute the smooth functioning of the system.
• For long-term investments, ICO is not a preferred option.
Pros of IEO
• All exchanges are KYC/AML verified so ensures very high security to the investors.
• Investors directly take part in the exchange, unlike ICO and STO.
• Due to the regulatory levels, the platform is trustworthy and protects the investors of fraudulent activities.
• Participants do not transfer their contributions to a smart contract but directly to their accounts.
Cons of IEO
• Cost of fundraising is very high in IEO and the system itself is difficult to set up.
• Liquidity is very low compared to the other two.
• Investors have very little control in the activities of the exchange.
Pros of STO
• STOs deal with real assets and they comply with government rules which is one of the main reasons that it is one of the most trusted investment tools in the crypto world.
• STOs are more secure because of limited accessibility and only recognize investors who have been properly authenticated can take part in STO operation.
• It is good for long-term and serious investors due to high-security
• Liquidity is very high in IEO.
Cons of STO
• Fundraising cost is really high in STOs compared to the other two and relatively a complex process as well.
• Due to strict security regulations, cross-border investment is tight in STOs.
• Low liquidity level due to tight government regulations. In certain cases, the investments cannot be cashed out for a period over a year.
• STO is regulated by the security laws and all transactions are KYC or AML accredited.
I am a freelance blockchain writer. Having 4 years of experience in blockchain industry, I have written many articles and blogs on cryptocurrency. My goal is to work with dedication, deliver accurate and transparent information that helps to companies and users to grow.