Blockchain Fundraising Case Study

Blockchain Fundraising Case Study

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INTRODUCTION

Blockchain Fundraising

Blockchain Fundraising – What is it? And how to do it? During the 2017 cryptocurrency boom, Initial Coin Offerings, or ICO, had a positive impact on cryptocurrency startup companies. This period of time had many successful ICOs but did not last long due to a number of countries banning it and shutdowns from the Securities and Exchange Commission. 

ICO BOOM:

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ICO DECLINE:

 

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The decline of the ICO opens new opportunities for Security Token Offerings, a new form of fundraising.

 

ARTICLE

 

WHAT IS BLOCKCHAIN?

Blockchain technology is a new way of documenting data on the internet. It is a “digital ledger” that is stored across distributed systems. The key idea behind blockchain technology is decentralization. Power and authority are shared among everyone in the network. It doesn’t rely on a central point of control, so the system is fairer and more secure. Anyone can see the ledger of transactions. 

Blockchain gets rid of banks and intermediaries—there is no need for middlemen because we are able to trust the data that has already been verified on the blockchain. The ability for data tampering is reduced, which strengthens trust. Digital money can be sent to anyone anywhere instantly. The information recorded on a blockchain can denote a transfer of money, ownership, a transaction, someone’s identity, an agreement between two parties, etc.

Blockchain offers greater accuracy, consistency, and transparency because the shared version of the ledger can only be upgraded through consensus. Transactions on the blockchain are immutable. Data cannot be changed, removed, altered, or deleted because it would ‘break the chain’. Blockchain allows for increased efficiency and speed since record keeping is performed using a single digital ledger.

 

WHAT IS A SECURITY TOKEN?

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A security token is any cryptocurrency that pays dividends, profits, shares or interest or invests in any other asset that also generates profits.

To determine if the token is a security, the Howey Test can be used. According to this test, a transaction is considered a security if it is an investment of money, the investment is in a common enterprise, and there is an expectation of profit from the work of the promoters or the third party.

Taking part in an STO means you are purchasing digital ownership of an asset. In ICOs, the “utility tokens” give access to a specific network, platform, or service and not shares.  

Unlike ICOs, STOs are backed by something tangible like assets, profits, or revenue of the company. They are able to give investors a lot of benefits, such as voicing their opinions, gaining access to dividends, and other rights based on the proportionate ownership in the underlying asset or company.

Basically, a security token is an investment in a company.

THE ADVANTAGES of STO

  1. Lower-risk investments | STOs are enforced by federal regulation.
  2. Credibility | Investors can worry less about scams and frauds which was the cause of the decline of ICO.
  3. Fractional Ownership of real assets | This gives investors more options to diversify their portfolios.
  4. More Participation in Startup Ventures | These used to be restricted to accredited investors and venture capitalists.
  5. High Success Rates | STOs are more likely to have something to offer. STOs have a success rate of 99%.

 

THE DISADVANTAGES of STO

  1. Slower to Launch | Regulation is beneficial to investors but compliance is complex for token issuers.
  2. The platform is Required to Create and Manage Tokens | In launching an STO, it required you to create your own tokens and a platform to manage sales. If anything is done wrong, it could have bad results financially. Creating a secure platform is complex progress. 

 

Examples of Security Token Offerings

Facebook has launched cryptocurrency Libra, powered by a smart contract platform that is designed to be “secure, scalable, and reliable”. The non-profit Libra Association has issued its own STOs called Libra Investment Token to fund incentive programs and cover operating costs. 

Facebook strives for the Libra Investment Token to be a global currency in particular, for developing countries who have no access to banks or financial services. It would be digital money that can be transferred to other people or used to purchase things.

How to Participate in a Security Token Offering as an Investor

Investors have a less chance of losing money and have the ease to sell tokens whenever they want on an STO because it is backed by real projects. If the market fails, the company has to buy their security tokens.

Investors should ask themselves questions before investing in a token sale.

  1. Does the startup have a strong team that is capable of delivering results?
  2. Is there a market for the project’s product and service in this geographical area?
  3. Who are the competitors and can they be outcompeted?

How to Launch your Own Security Token Offering as a Company

In order to launch an STO, you must register your token offering with the SEC. Companies must keep in mind who they are raising money from, how much they plan to raise, and how they plan to do it because of the varying degrees of regulation. This can be time consuming, expensive, and difficult. 

Following the launch of an STO, your company must meet a number of compliance requirements such as providing investors access to materials and information about all of the activities of the company. You must gain trust from your investors. It is important to keep investors updated on whatever is happening in the industry, to treat them with respect, and ensure that your project stays true to its words and reaches its deliverables.

The Bottom Line

As you can see, blockchain technology is a game changer! Through blockchain technology, data is decentralized, more trust is built, and it allows us to interact directly with data and one another. Huge amounts of money and time are saved.

With that being said, raising money through blockchains is a major source of funding. Blockchain in crowdfunding is creating opportunities for growth and is helping startups.

The ease of raising funds makes it easy for startups to get the funding needed to start their business. Through crowdfunding, people, businesses and charities can raise money through individuals or organizations who invest in projects in return for a potential profit or reward.

Here at Crowdcreate, we utilize the blockchain to help raise funds within days of launching an STO. We build a sense of community and allow businesses to access a wider investor base.

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