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Crowdfunding or participatory financing has been an undisputed star of Fintech since its appearance in the 2000s. Like cryptocurrencies, it comes out of traditional patterns and has the same disruptive particularity. It was only a matter of time for these similarities to give birth to crypto-crowdfunding.

An inevitable alliance

Crowdfunding is a mechanism by which funds are collected from a large audience for the financing of a project. It can take several forms: donation, loan or investment.

The global crowdfunding market is valued at $13.35 billion with a projected annual growth rate of 11.65% between 2022 and 2027. This is according to the market analyst Imarcgroupin sector study. Thus, crowdfunding is on an upward curve. However, for many years it has faced criticism for embezzlement and lack of transparency.

The blockchain therefore presents itself as the antidote by securing the investment and its process. Indeed, it ensures better monitoring, transparent and simplified management. This is possible thanks to smart-contracts which govern governance and therefore guarantee permanent traceability. Cryptocurrencies, on the other hand, promise to facilitate exchanges by their instantaneous nature. Crowdfunding is complementary to them by its capacity to bring a substantial mass of flows. Therefore, crypto-crowdfunding is a profitable alliance for both parties.

Crypto-crowdfunding in all its forms

Crypto-crowdfunding operations make it possible to obtain three types of tokens: utility tokensthem security tokens and the equity tokens. Utility tokens give participants access to a special product or service. In addition, the 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
  • The ICO (Initial Coin Offering or initial token offering) is the first type of crowdfunding to appear in crypto-crowdfunding. Similar to an initial public offering (IPO), it consists of fundraising that is done by issuing digital assets exchanged for funds for a project. Thus, the investment is made on the website of the start-up which raises the funds, which turns out to be risky for investors. One of the most famous ICOs is Ethereum, which raised $18 million in 2014.
  • The IEO (Initial Exchange Offering or Initial Exchange Offering) is quite similar to ICO. However, the difference is that for an IEO, the investment is made in collaboration with a centralized cryptocurrency exchange (CEX) which is the host. Also, the IEO presents itself as a more reliable alternative than the ICO. The first of its kind was in January 2019 when Binance launched its BitTorent (BTT) token.
  • IoT (Initial DEX Offering or decentralized initial offering) consists of raising funds through a DEX (Decentralized Exchange or decentralized exchange). It responds to a problem of cost reduction posed by the ICO and the IEO. This is because the public runs the decentralized exchange. The IDO is based on the principle of a pool of liquidity allowing participants to exchange digital assets. We can talk about Theos who was able to raise $350,000 in two and a half hours in 2021.

The couple cryptocurrencies and crowdfunding does not stop making sparks. Democratization continues, even more so with the appearance of launch pads or launch pads. They are pools of blockchain-based projects seeking investment in exchange for low-cost tokens. Crypto-crowdfunding therefore presents itself as a real niche for all micro-investors.

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