We are starting a series of posts about peculiar features of ICO.
The first one is devoted to the nature of ICO.
A regular venture funding is traditionally held in two formats:
it can either be credit financing, or selling company shares.
In first case, the project needs to return the lent money and pay interest — so the investor is mainly attracted by this interest. In the second case — the financing is not refundable, however the project founders tear away shares of their company. So the venture investor acquires part of the business value.
If we touch upon such institution as ICO, then we can easily identify the following paradox:
The projects founders derive money not for share of a company and they do not have to return this money either. All founders’ obligations lie in the token. Virtually, adherents of the idea and enthusiasts swap their money for some promises, manifested in a token.
This situation looks pretty much like crowdfunding, when money is accumulated for a promise of the project, to allow people get the conditional commodity, if they participate in financing now. In both cases founders are not going to pay the money and the interest back, they promise they will share what they create.
So, from the one side, an ICO, by its nature, is a form of investment attraction, but in reality people give their money just for an idea without ever counting on their return with any revenues.
By Andy Varns, blockchain enthusiast at Dolphin Blockchain Intelligence.
Keep up with more paradoxes on our blog!
Originally published on Medium https://blog.dolphin.bi/ico-paradoxes-1-805c02ae6ddb