ICOs have revolutionized the world of fundraising, helping start-ups and enterprises raise capital for their projects. However, ever since their conception, this space has been prone to scams, which can potentially have a disastrous effect not only for the unfortunate sufferers who lose their valuable money to imposters but for the entire ICO ecosystem as well, for, as they say, one bad fish can spoil the whole pond. Is there a way out?
The Age of ICO 2.0
Equity Token Offerings (ETOs) have been famously called ICO 2.0 for one simple reason: they are scam-free. As a part of an ETO, investors are issued what are called equity tokens, which give them an unparalleled level of legal protection by providing them rights similar to equities. This applies to token issuers as well.
Another important advantage of an ETO over an ICO is the fact that an ETO allows any company, irrespective of whether it possesses a blockchain-based infrastructure or not, to issue its investors special equity tokens that are based on the blockchain.
Considering their versatility and security, many industry experts now regard the ETO as the future of ICOs and fundraising ventures.
Equity tokens are similar to stocks where investors holding the entities obtain part ownership of the blockchain. In addition, the investors also procure voting rights over the system. The result is a much stronger token ecosystem where investors and token holders are intimately associated with the growth of the blockchain network.
The equity token can be issued in both public as well as private placements. The token is highly flexible in nature and can be structured based on the desired plans of the company and as specified in their term sheet.
ETOs vs ICOs
While ICOs are ideally well suited to individual projects, companies generally work on several projects at a time, making ETOS a better tool for finance. Startups also stand to benefit from equity tokens more than utilities.
ETOs are basically very similar to stock issuance by companies and are, in effect, an ICO with equity tokens.
As stated before, ETOS is also much more scam-proof relative to ICOs.
Equities are basically securities and must comply with the legal framework of the jurisdiction in which the organizing company is registered. Prior to offering equities in a new jurisdiction, the equities must be approved for listing or investing by the financial authorities.
This is because, in essence, equity tokens are basically security tokens that are backed by an asset such as company stock.
The SEC has indicated that equity tokens are subject to the federal securities laws, which must be observed by all investors seeking to participate in an ETO.
ETOs are widely considered the future of ICOs by experts around the world. Once the legal stand is clarified and as companies and startups embrace this model in larger numbers, a clearer picture will begin to emerge. Without a doubt, ETOs hold the key to the future of fundraising on the blockchain and are here to stay.