There are three different types of presales available on the market. A couple of years ago even cryptocurrencies started with an IPO like offering. What are these sales and what do you need to keep in mind?
The Initial Coin Offering
Such a sale is meant to presale a crypto. Meaning that a specific number of blocks get pre-mined and the generated coins are sold to the buyers or bidders. After the public sale the blockchain goes public and everybody can participate.
Over time the Ethereum blockchain offered the opportunity to create tokens instead of building a new chain for each sale. Therefore, the term ICO still refers to coins, but most of the time there are tokens offered for sale which are programmed with a smart contract and are dependent on one blockchain.
Such sales are often unregulated and they come at high risks.
The Initial Exchange Offering
After the market got tired from the completely unregulated ICOs, investors and companies were looking for a more reliable model of a token sale. An IEO is offered by an exchange, meaning that the token sale will undergo internal quality checks and is possibly audited.
But there are still problems remaining for investors. It is not transparent how the projects are chosen. The offering parties do not answer to any regulatory body and don’t have to meet any criteria for a registered security.
While there are some checks in place investors still rely on a completely unregulated party and carry a high risk.
The Security Token Offering
This is the most up-to-date invention. A token sale that offers basically a registered security. In many cases those securities are not mere utility tokens like in IEOs and ICOs, but they offer the same opportunities as holding shares of a company.
STOs are also legally binding for the offering party and they have to comply to legal and regulatory standards. Still, an STO is far from being the same as an IPO or buying shares of a company. It still carries a higher risk, because these tokens are not very popular on the market and once invested it is not possible to enter the secondary market at the same speed as with other crypto assets.
STOs still bear a high risk, but at least investors can rest assures that they are buying a legitimate product.