ICO vs. IPO: Where is the money, Zin?
Recently, the term ICO - Initial Coin Offer - has become popular in the crypto environment. This term refers to the process of collecting investments for a particular project. Only instead of classic actions, participants are given “coins” for their investment contribution - some electronic tokens (entries on the blockchain), which confirm the investor’s share in the ownership of the project and, accordingly, his share in the profit from the project. In other words, coins A are issued for project A, coins B for project B, and so on. Coins, as well as stocks, have value only within the framework of the corresponding project. It turns out that the coins of project A do not in any way affect the coins of project B.
The ICO mechanism has a number of useful features, such as:
- ICO coins can be split up and, conversely, added up. Just like ordinary crypto coins.
- ICO coins have the same anonymity as conventional cryptocurrency payment units.
- Coins can be sold-bought on crypto-exchanges, which, of course, will trade them.
However, despite the attractiveness of the ICO mechanism, there is a significant omission in it. This mechanism is good for raising funds and launching a project, but it does not provide a mechanism for distributing profits to shareholders from the economic activities of the project, that is, sending dividends. At least, this could not be found either in the relevant documents or in the speeches of the speakers.
It seems that ICO supporters are only planning their plans until the stage of receiving money. “They bought tokens - well done!” Your role is done, congratulations! Now you are investors! And we raised money, and much more than we invested in advertising, and now we can smoke bamboo in Hawaii. ”
Of course, we are far from asserting that all participants in the ICO are scammers. In no case! Just the majority of ICO organizers are completely conscientious people. But still, they do not think about the future, and do not build a perspective until the phase of the project “what will happen if my business becomes successful and it will be necessary to distribute profits to shareholders?” And if they even think about it, they themselves will console themselves with ideas: “we will buy ICO-coins on the exchange and thereby raise the value of shareholders' assets”. But this consolation is self-deception.
This cost recovery strategy for shareholders has two serious drawbacks:
- In the mechanism of coin buybacks, ownership shares are changed, which does not happen in the classical system, where shares are separated from dividends.
- The liquidity of any ICO-coins, by definition, is lower than the liquidity of money. For ICO-coins are a derivative of a project (company), and money is a derivative of the economy, that is, all companies combined.
In the latter case, the company has to “cross the spread,” that is, pay a margin for the difference between buying and selling an ICO coin to conduct a buyback. Moreover, the margin is very considerable, due to the low liquidity of the ICO-coin tied to a specific project. And the liquidity of an ICO-coin is lower than the liquidity of a universal coin tied to the economy as a whole.
For example, a company has N money to reward shareholders, but physically cannot make a buyback, because there simply aren’t enough offers to sell in the markets. After all, what is offered for sale in the markets is usually a fraction of a percent of the real volume of issued shares or coins. The practically low liquidity of ICO-coins will lead to price peaks during acts of repurchase and rewarding super-profits of speculators, those who “leaked on time”, and not real investors who buy for years and want to regularly receive a return on investment.
So, we see that the ICO is good for starting a risky project that has no profit and - accordingly - dividends. The game goes around the venture type of project, "what if it takes off." Although it is known that 80% of startups go bankrupt within the first three years, and this or that investment mechanism cannot radically affect these statistics.
For a real project that conducts business activities that has a turnover and revenues, and regularly distributes profits in the form of dividends, an IPO mechanism is preferable.
It is from these considerations that the Kolionovo farm, under the leadership of Mikhail Shlyapnikov, has chosen an IPO mechanism for investment. At the time of the issue of shares on the Emercoin blockchain, the economy was already running a real and profitable business, therefore, a working dividend payment mechanism was a fundamental requirement when choosing a platform. The Emercoin blockchain has the ability to "send coins to the current unit owner". This allows you to efficiently and quickly deliver dividends in the form of universal coins to unit owners, thereby avoiding the intersection of the spread and “shaking the market”. Here, the Emercoin blockchain has two functions:
- distributed register of shareholders;
- dividend distribution mechanism for current shareholders.
At the same time, Kolionovo conducted an ICO for one of its projects, successfully testing alternative investment mechanisms.
In addition, it should be noted that the IPO name record mechanism in the case of legal disputes can be reduced to a debt receipt mechanism like bonds (because these certificates are, in fact, debt notes, not only on paper, but on the blockchain), and thus in if necessary, transfer property disputes to classical jurisdiction. The mechanism of an ICO is generally not legally defined anywhere, and investing through an ICO is in no way protected by law. We also draw attention to the fact that in the case of an IPO, the history of each unique record is traced, and if an unlawful transfer of a unit is detected, the issuing company can refuse to service it, releasing another unit in favor of the rightful owner. In the case of anonymous ICO tokens, this is basically impossible.
The table below summarizes the above: