Initial Coin Offerings have become the state of the art crowd-funding /crowd-investing method for blockchain ventures. The are conducted entirely P2P on the blockchain. Funding through pre-selling coins/tokens to investors interested in supporting the project. As opposed to traditional crowdfunding where the investment is considered to be a donation or a pre buy of a product, ICOs give the supporters the possibility of a return of investment when selling their coin later at a possibly higher price. ICOs are similar to IPOs if the token represents a stake in the project.
What you need to know
# Lack of standards – So far, developers have had full freedom to chose how they want to implement the crowdfunding campaign. Procedures of an initial coin offering are solely determined by the team behind a certain blockchain project. Hardly any ICO has been conducted in the same ways as another.
# Regulation – Most countries currently lack any type of government regulation for these blockchain based token sales. This can produce a lot of insecurities for the stakeholders involved – for entrepreneurs and investors alike.
# Type of token sale – The price of a token during an initial coin offering period often runs through different stages. It could increase incrementally over time. This way early investors who take the biggest risk get the best price per coin ratio. Gnosis used a dutch auction mechanism for their ICO, where the price decreases over time. EOS used another type of auction: instead of setting a token price the total money invested gets divided by the amount of available tokens in order to determine the price. Some startups like Tau-Chain have decided to leave their campaign running without a cap and an end date.