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Author: Admin | 2025-04-28
Will allow a broader set of market participants (d) very high levels of risk management and transparency from the issuers to give confidence to investors that their money will not be taken for an unexpected ride. Crowdfunding and Initial Coin Offerings (ICOs) Over the last couple of years, raising money through ICOs have really taken the investment scene by storm. In 2017, startups raised nearly $5 billion through ICOs compared to an estimated $21 billion through traditional venture capital firms. Both help startups raise funds, so what is really the difference? What are the pros and cons of raising funds through ICOs? When venture capital firms fund a startup, they do so in exchange for equity or ownership, and in addition may take on a more active role in the direction of the company by becoming a part of the board of directors. Such investment is regulated in most jurisdictions with the basic Know Your Customer (KYC) and Anti-Money Laundering (AML) norms to more advanced do's and don'ts governing all parties involved. While these regulations are intended to ensure fairness, there is also criticism of a growing number of intermediaries who control the information flow and the access to funding, and make it extremely complicated for a promising startup to find the capital needed to establish their business. An Initial Coin Offering (ICO) (or a "token generation event") is where an entity offers people some units of a new cryptocurrency or crypto-token in exchange against cryptocurrencies or regular fiat currency. The new ICO tokens could be backed by an asset or could be consumption units sold at a discount (eg: Powerledger POWR utility tokens discussed later). Compared to standard fund raising, ICOs are a completely decentralized way to raise funds through crowd-sourcing without any regulation (at the time of this writing) or legal protections, that leverages crypto-tokens on a blockchain platform. In one form, called the currency ICO or equity tokens, they directly mimic an IPO where private equity shares of the company are given away in exchange for capital. The Ethereum ICO is a classic example. In another form,
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