ICOs: Identify What Crowdsale Operating Models Suits Your Business

As many investors may be aware of the general concept behind initial coin offerings (ICOs), an in-depth learning about ICOs can provide the public with better understanding on how to optimize the use of tokens, and how fundraising ‘success’ can be measured.

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ICO explained

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Initial coin offering (ICO) consists of a disruptive fundraising process designed to be integrated with blockchain technology that seeks to gain millions of dollars for startups. ICOs are inspired by the workings of initial public offerings (IPOs).

An IPO deals with the initial selling of shares of stock among private companies to the public. At face value, ICOs are like many of the fundraising approaches used for many years. Investors with a foresight look for potential financiers who seek to create a valuable product or needed service.

The main goal of an ICO is funding new projects by selling the business utility tokens to the interested parties in the project. Several documentations are drafted like whitepaper, pitches, decks and other marketing and technical materials in the attempt to raise capital through an ICO.

Not all coins have limitless supply

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Although some ICOs are setting limitations on the total amount of coins that can be bought, others opt to provide a huge supply of coins during the sale.

ICOs that put a ‘cap’ commonly have a maximum value that can be funded. Otherwise, it will refund any transaction that may be sold once there are no tokens left to be purchased. With this principle in place, it works on a ‘first come, first serve’ basis. Apparently, this sets a limit to the maximum funds that the team can procure. Also, it is shown that this type of model brings an increased sense of value and ignites the scarcity of mindset that enables the investors to be more motivated to be part of the ICOs.

The concept behind limiting the number of tokens on sale has strong ties to the digital currencies and makes use of an optimum supply cap. How the token sale is structured has a major impact on the ICO outcome. Currently, there are ongoing arguments regarding the optimal approach for a token sale. However, there is no one best solution that can be applied for all situations.

Basic ICO takeaways

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The best ICO method to use depends upon your personal and company goals. Do you want to optimize the amount of capital you raise? Is encouraging a fair distribution of the tokens among investors part of your plan? Do you want to prevent a potential pump and dump of your token as it goes live on the existing exchanges? Do you plan to minimize any negative downstream effects of your token sale with the rest of your exchange ecosystem?

Consider all these questions and other relevant factors before selecting the best ICO company model for your project. Evaluate all available cryptocurrency ICO/token sale models and how each has its own peculiarities. These models may range from capped to uncapped sales models.

Capped vs. uncapped sales models

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The capped sales model can then be further classified based on the money to raise such as soft caps, hard caps, and hidden caps. The uncapped sales model implies a reduced sales ceiling or applies no ceiling at all. Also, a fixed rate form of contribution applies to both capped and uncapped models of raising funds.

Capped sales model

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In this model, a fixed number of coins are sold at a predetermined price. As a result, this provides a fixed valuation for your network. The main benefit is the transparency and certainty of the valuation you are placing on your company tokens.

As your investors consider your network is greater than the valuation implied by the token price, they will be more confident in investing in your tokens. If you are lucky enough to launch a specific hot ICO, this can lead to a race among investors to purchase as many tokens as possible. Many investors seek to sell those tokens later, in exchange for a profit, after an exchange listing.

This trading strategy is usually used when the token initially goes live. Then the bigger investors might dump the coins to the public who were excluded from the first round of transactions. The succeeding investors pay a higher price as they become desperate to buy in. Among early investors, they take advantage of the intense investor demand to increase the price and resell the tokens as soon as possible. This may not be the best situation for your token sale.

However, this is a good situation for you to make your project popular.

Key attributes of a capped sales model

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Soft caps.

This type of cap is set. Upon achieving this cap, there is an extended period until the full sale closure. A soft cap has typically a lower limit. It is more like the minimum amount a team wants to raise. Also, this cap is often used in combination with a hard cap. Instead of a certain time period before closing the token sale, the sale ends once a specific monetary or cryptocurrency value is increased. If a team doesn’t attain its soft cap at all, the funds are returned to investors and the project is deemed unsuccessful. In some instances, the project may proceed with any amount raised even if this is under its target soft cap.

Hard caps.

There is only one fixed cap, where the ICO stops as soon as this monetary limit is achieved. Generally, there is a specific time period limitation attached. A hard cap is the absolute upper limit of funds that a team takes for its tokens. If a team generates funds in excess of its hard cap, the funds should be immediately returned to the investors.
Failure to promptly return excess funds leads to a big red flag.

Hidden caps.

A hidden cap ICO has checkpoints or goals that are not publicly launched before the sale. This triggers a price change for the coin, a closing sale, opening of the new sale to the new investors or the end of purchasing bonuses. Hidden caps are used for blocks of tokens sold at the different price points. This means an upward price direction for increasingly smaller token blocks. In a hidden cap model, the members are not aware when the allocation will be finalized. This is only revealed during the actual ICO creation. More likely, this model is used during the private ICO presale stage.

Uncapped sales model

This is the direct opposite of the capped sales model. No set limits for the coins that are to be distributed at a predetermined price.

The more people invest, the more tokens you need to mint. However, everyone has the chance to participate. No one needs to rush to make his investment before all the tokens are sold out or bought by large investors.

The major setback of this model is that it is quite impossible for an investor to know the implied project valuation. The number of tokens being sold is ultimately unknown. So even though this may allow for smaller investors to actively participate, they may get a poor deal. If too many coins are sold, there can be an imbalance during the exchange trading with either too much supply or too little demand.

Fixed rate contribution mechanism

In this model, investors should trade in cryptocurrency or fiat for tokens at a fixed ratio. Early contributors tend to get a better rate per token, although this is not always the case. Later, the investors commonly receive less discount or no discount at all on the token price. This model uses a specific period for the contributions.

This popular mechanism can help to attract early investors and let them earn a greater return of investment for taking more risks by making a purchase early. Also, it is essential to ensure that the early discounts are not too high or many tokens are not sold with a material difference to the presale or ICO price. Such factors will depress the token price at the time of the exchange listing.

Downside of conventional ICO funding

Lack of regulatory precautions, proliferation of fundraising fraud, providing private or institutional investors more privilege to get in first and the potential risk of reducing the token price after listing are some of the common disadvantages of traditional ICO funding.

Among buyers, the basic issues are lack of opportunity, poor initiative, and inadequate tools to store, compare, manage, optimize, and liquidate their purchases. For the affiliates, they usually face challenges like absence of lasting foundation, no user-friendly tools to use, no career progress, and the lack of pride in what they do.

AladiEx is on the rise

With the launch of the AladiEx ecosystem, this is considered the super exchange platform and financial supply for business. It is mainly created to address the setbacks of the traditional ICO funding method. Its main goal is to assist a million MSMEs in addressing their funding needs over the next five years. This is a very promising and worthwhile endeavor.

AladiEx takes pride with its crowdfunding method with a personal, social, and 3S trading platform, an insurance policy of up to $100 million. Also, the super token Aladin is widely used in the AladiEx ecosystem.

Aladin Token Offering (ATO) is a distinct fundraising approach of AladiEx with a total supply of over four billion Aladin tokens. ATO has 11 rounds and is set to be completed within 17 months. Currently, it is at its angel round. Grab this opportunity to be part of the token sale. Join today and get your bonus tokens instantly. For more details, visit us at https://aladiex.io/ today.

Conclusion

What makes ICOs so disruptive is their reduced barrier for entry. In theory, anyone can launch an ICO or contribute to ICO funding. This builds a new wealth of opportunity for investors, entrepreneurs, and coin enthusiasts worldwide.

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