What is a reverse ICO?

What is a reverse ICO? 1
reverse ico

As already mentioned, Initial Coin Offerings, commonly abbreviated as ICOs, are a fundraising method using crowdfunding. In cryptocurrency communities, a distributed network of investors – based in various locations around the world – can invest and buy assets tokenized in new blockchain projects using either fiat currency, bitcoin, or ether.

ICOs are similar to the concept of Initial Public Offerings (IPOs) on the stock exchange, which involve the initial public sale where investors can buy shares in a company; In ICOs, investors buy the project’s tokens (which behave like stocks) and pay in a cryptocurrency like Bitcoin.

ICOs are a vehicle for blockchain startups and other projects to quickly raise funding and (possibly) penetrate a global market with a specific idea, product, or company.

So what is a “reverse” ICO?

“Reverse ICOs,” as they are called, use the process of an initial coin offering to tokenize or decentralize their business, raise additional investment, or start a blockchain-based branch of their traditional business.

Put simply, while a “traditional” ICO aims to quickly raise funds to start or launch a blockchain business or project, a “reverse” ICO sees an established firm raising funds to decentralize or decentralize its investor pool to open.

What are the benefits of reverse ICOs?

Because many large companies either have a track record, are regulated by regional authorities, or have already gone public (IPO), reverse ICOs are considered more easily valued and can function with greater legal and tax transparency and trustworthiness.

While small and medium-sized businesses can attract venture capital and rounds of funding, for the most part, large companies have had to go public to attract mass funding from a wide variety of investors. While this process is beneficial and can be expected to give prestige to certain companies, the process involved is heavily regulated and is usually only open to accredited investors.

Through a reverse ICO, companies are able to distribute tokenized assets or utilities to raise funds or features to a wide variety of global investors without – for the most part – having to follow a tedious legal process or comply with redundant regulations.

What are reverse ICOs used for?

In some cases, incumbents have conducted a “reverse ICO” to establish their own economies within their product. A notable example is the messaging app Kik, which successfully ran an ICO and launched its own cryptocurrency – Kin – for use in their app to facilitate payments and purchases.

In other cases, reverse ICOs have allowed companies to distribute and decentralize their operations or property over a blockchain without going through the normal processes involved in completing an IPO.

Many cryptocurrency exchanges – in order to decentralize their operations – have turned to an ICO to create their own cryptocurrency asset, conduct their operations over a blockchain, or attract new investments.

While in practice it remains to be seen, it is believed that many companies will show interest in running reverse ICOs in the future to bring new products to market or attract crowdfunding investments.

The article What is a reverse ICO? first appeared on Coin Insider.

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