What is the difference between ICO, STO, and IEO?
What is ICO?
The definition of ICO is Initial Coin Offering which is a process of alternative fundraising mechanism in which blockchain startups that issue the coins or crypto tokens. By selling the coins or crypto tokens, blockchain startups can exchange Bitcoin and ETH with the end-users as the issuing digital assets.
With the end-users turn, if they want to exchange at x3-x100 the price or want to spend digital tokens on the platform then it can be possible at their turn. In the other explanation, these tokens or coins are just like the vouchers that end-users can exchange for goods or services on certain platforms. The simple ways to understand what is ICO, Tomochain has integrated into local businesses in Saigon to allow end-users to pay their beers and food services by its tokens.
If we go with the author of “The business blockchain” “The William Mougayar” a token is “a unit of value that an organization creates to self-govern its business model. It empowers the users to interact with its products while facilitating the distribution and sharing of rewards and benefits to all of its stakeholders.”
What is STO?
STO is known as the security token offering in which an investor is issued with the crypto coin or tokens to represent their investment. However, it’s pretty much different from ICO and IEO. It is the new approaching way to represents an investment contract into an underlying investment asset, such as stocks, bonds, funds and real estate investment trusts (REIT). As the recent startup in Vietnam, there is https://realstake.io in which investors with a limited budget at 1000$ monthly income can invest for sharing profits on Real Estate, It’s REIT business model which is popular in the developing country like the US.
Security can be explained as a “fungible, negotiable financial instrument that holds some type of monetary value,” such as an investment product that is backed by a real-world asset such as a company or property. With the help of security token, anyone may get the ownership information of the investment product, recorded on a blockchain.
When you invest in traditional stocks, for example, ownership information is written on a document and issued as a digital certificate (e.g. a PDF). For STOs, it’s the same process, but recorded on a blockchain and issued as a token.
What is IEO?
It’s defined as “An Initial Exchange Offering” is the platform of a cryptocurrency exchange. An IEO is conducted by a crypto exchange on behalf of the startups who are seeking to raise funds with its current tokens. As the token sale is conducted on the exchange’s platform, token issuers have to pay a listing fee along with a percentage of the tokens sold during the IEO. In return, the tokens of the crypto startups are sold on the exchange’s platforms, and their coins are listed after the IEO is over.
As the cryptocurrency exchange takes a percentage of the tokens sold by the startup, the exchange is incentivized to help with the token issuer’s marketing operations. IEO participants do not send contributions to a smart contract, such as governs an ICO. Instead, they have to create an account on the exchange’s platform where the IEO is conducted. The contributors then fund their exchange wallets with coins and use those funds to buy the fundraising company’s tokens.
For example, Binance can work closely with the team for IEO launching based on their platform user database and ensure the tokens or coins will also be known by its traders.
So, We have some basic understanding of 3 types of fundraising in the blockchain business. Let’s go deeper to its pros and cons that need to feed our thoughts on whatever decisions will come later.
Pros of ICO
• Between STO and IEO, creating initiatives and setting up of an ISO project is a very easy task.
• The initiatives and setup of an ICO project are very easy compared to STO, and ICO project needs to issue a Whitepaper, a website to demonstrate its benefits and come up with concerns with a backup team which will take care in term of technical support.
• Cost for an ICO launch is relatively low and thus it is suitable for amateur investors who are new in the market with presumably low funds to invest.
Cons of ICO
• One of the main drawbacks of this system is that it’s security features. The system is susceptible to scams and fraudsters who pollute the smooth functioning of the system.
• For long-term investments, ICO is not a preferred option that already had a lot of bad reputation.
Pros of STO
• STOs deal with real assets and they comply with government rules which is one of the main reasons that it is one of the most trusted investment tools in the crypto world.
• STOs are more secure because of limited accessibility and only recognize investors who have been properly authenticated can take part in STO operation.
• It is good for long-term and serious investors due to high-security
• Liquidity is very high in IEO.
Cons of STO
• Fundraising cost is really high in STOs compared to the other two and relatively a complex process as well.
• Due to strict security regulations, cross-border investment is tight in STOs.
• Low liquidity level due to tight government regulations. In certain cases, the investments cannot be cashed out for a period of over a year.
• STO is regulated by the security laws and all transactions are KYC or AML accredited.
Pros of IEO
• All exchanges are KYC/AML verified so ensures very high security to the investors.
• Investors directly take part in the exchange, unlike ICO and STO.
• Due to the regulatory levels, the platform is trustworthy and protects the investors of fraudulent activities.
• Participants do not transfer their contributions to a smart contract but directly to their accounts.
Cons of IEO
• Cost of fundraising is very high in IEO and the system itself is difficult to set up.
• Liquidity is very low compared to the other two.
• Investors have very little control in the activities of the exchange.
We hope that you have understood there is a lot of difference between ICO, IEO, and STO that will help you a lot in any investment decisions in the future that not harm and taking risks. We have believed that Blockchain is the fresh baby born and especially emerging since 2011, there are also a lot of optimistic views ahead for any investors who really want to contribute to this technology disruption and transformation. But again, take some study on projects carefully beforehand.
Reference: View more articles on BitcoinVN News