Deloitte On Initial Coins Offerings (ICOs) As IPOs

An October 2017 white paper from Deloitte discusses the extent to which the offerings of tokens built upon blockchains have become the new IPOs of the crypto era.

There are no binding rules about how to execute an initial coin offering (ICO). Nonetheless, there have been enough of these so that a distinctive pattern has emerged.

There are four steps:

(1) Pre-announcement. Word is spread to as many potential investors as possible, often through relevant only forums such as Bitcointalk or reddit. The announcement will contain a statement of the project’s goals and ambitions, as well as notable and unique features of the product, etc.

The ICO team then receives and analyzes feedback to determine the level of interest and tweak the business model accordingly, developing a final business model and a written detailed offer.

(2) Offer. This will lay out the terms of the ICO and will cover the nuances of the project, the deadline, the token. It will cover all the rights that the token possesses and a start date for sale.

(3) Marketing campaign. The start-up conducting the ICO will usually not be well known, so marketing is critical. This will involve conferences and road shows, and it may last up to a month, with both institutions and smaller investors included as target audiences.

(4) Token sale. At last the ICO is triggered and the respective tokens are released. Some may be distributed only after a product or platform has been initiated in order to secure a return on investment for ICO participants.

Currently, most ICOs are based on Etherium, and the related ERC20 standard has become the orthodoxy. It makes the assets interchangeable. The assets issued can work with decentralized apps (Dapps) so long as they also adhere to ERC20. Moreover, as Deloitte says, “the introduction of this standard allows for the tokenization of other features, including voting rights.”

The native currency of the Etherium blockchain is “ether.” Tokens are not ethers. They are smart contracts running on top of the chain. They are digital assets – they can represent anything from loyalty points in a merchant-customer relationship to virtual in-game objects to actual physical-world objects.