First seen as a revolution in fundraising for seed-stage startups based on the blockchain technology, the ICO has been quickly criticized by medias from all over the world regarding unsolved issues surrounding the mechanism such as hacks, scams and high rate of project fails. Despite this media bashing, the ICO market keeps growing exponentially giving wrong to its detractors.
This is evidenced by the amount of funds that ICOs allowed to raise in the first half of 2018 only: $17 billion, much more than the $5.6 billion raised in 2017 as a whole!
The STO Alternative
We currently hear a lot about a new kind of fundraising system, presented as the expected law-compliant solution by governments and regulators: the Security Token Offering. The STO would offer to investors securities and voting rights in the funded company.
The main difference between ICOs and STOs would lie in the fact that tokens bought through an STO would be backed by assets, revenues and profits. As such, these security tokens would be as securities but in a tokenized version, making them fall under securities regulations.
The ICO: Not Dead but Evolving
Yet, not as dead as its opponents want us to believe, we still hear about ICO and its expected evolutions, like the ones performed by the Web after the bursting of the Internet bubble. Among concrete self-regulation alternatives emerging, we came across the Eqwity project aiming to fix the major dysfunctions of the current ICO version, without affecting its strong points.
Currently preparing its fundraising, Eqwity aims to introduce a new ICO standard, the ICO.E for Initial Coin Offering + Equity Airdropping. This ICO 2.0 would materialize through an ICO.E fundraising platform based on processes preventing from current existing weaknesses.
Scams vs Bilateral Transparency
For instance, scams would be avoided thanks to the introduction of the notion of bilateral transparency. Until then, we have heard about the verification of investor identity, through KYC and AML processes, but what about founder’s verification? Looking for bilateral transparency, Eqwity would introduce a new KYC standard, the KYF (Know Your Founder) process including founder’s identity and background verification as well as police record checking (if needed).
No Off-chain Assets vs Bidirectional Trust
Additionally, to counterbalance the “trust effort” asked to investors who only receive tokens in exchange of hardly earned funds, without any voting right or dividends. Eqwity planned what they call an Equity Airdropping: a free distribution of company shares initiated by project founders for returning the trust to their first backers. This create a virtuous bidirectional trust.
High Rate of Project Fails vs Proof of Viability (PoV)
To prevent investors from contributing to unviable projects, each project willing to be funded through the ICO.E platform would have to succeed an audit phase led by a decentralized network of blockchain auditors.
Those experts will follow what Eqwity calls the Proof of Viability process (PoV), in order to flag a project as viable or unviable. A bit as the proof of work or the proof of stake, the Proof of Viability could be a new due diligence process to determine which project is viable enough to raise funds through the blockchain community.