Initial coin offerings (ICO) craze took the world by storm back in 2017-2018. Although the interest in the ICOs is waning, the reasons to participate in token sales remain the same.

Main reasons behind investing in an ICO

Profit and the opportunity to participate in ambitious projects are the primary reasons behind investing in ICOs.

Backing a crowdfunded project, by comparison, basically means donating money. And in an Initial Public Offering (IPO) – the traditional way of raising capital on a stock exchange – an investor gets shares in a company, which come with voting rights and the right to dividends.

In an ICO, also known as a “crowdsale,” investors acquire tokens that may offer them various benefits. They expect the project they are investing in to become successful and the value of its token to increase. The Ethereum blockchain project, for example, raised USD 18 million in bitcoins in 2014 by selling its coin ether for USD 0.40. In December 2017 the price of ether stood at about USD 750. In other words, if you had bought USD 100 worth of ether coins during the ICO in 2014, your investment would have been worth more than USD 187,000 in December 2017.

Other reasons to invest in an ICO

An increase in value, however, is not the only benefit an ICO investor can expect. As has been explained by Smith+Crown, a research company specialized in blockchain and crypto finance, tokens generally give their holders various rights, and individual tokens can confer multiple types of rights.

Such rights can include:

  • Payment rights, where the token is the only means of payment for a platform or service.
  • Access rights, where the token is required in order to be able to use the platform.
  • Profit or fee rights, where holders of a token get a portion of revenues or profits.
  • Contribution rights, where tokens holders are allowed to play a role in maintaining the network that doesn’t involve creating blocks for a blockchain.
  • Block creation rights, where tokens determine who secures the project’s blockchain.
  • Governance rights, where token holders can influence project features, direction, protocol and more.

What rights come with particular ICO tokens should be specified in the ICO website or whitepaper.

 

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