What are the differences between crypto ICO vs ISO? Initial Coin Offering or ICO and Initial Securities Offering or ISO are in no way the same thing.
The differences between the two are significant, and are often unknown to the mass. This article differentiates between the two for the knowledge of those ignorant people.
Typically, companies need to raise capital for the growth or expansion of their business. Check out Centralized vs Decentralized Crypto Exchange.
Raising capital from the public is the commonly followed process especially by those businesses that are capital intensive because funding the entire business from one’s own pocket is not at all a feasible option.
This is when the companies, depending on their type and style of business make different offerings to raise capital from different sources.
A few of these include conducting an ICO, ISO, IPO, or STO. Each of these has different characteristic features but this article will deal with only two of them, ICO and ISO.
7 Differences Between Crypto ICO vs ISO
If you are looking to make the best out of the different fundraising opportunities such as ICOs and ISOs, be informed that both these are good to go for, depending on your business type.
However, it is good to know the differences between the two at the fundraising level to be more confident in your move to make the best out of these new age fundraising opportunities. Read on.
Initial Coin Offering or ICO, according to its definition, signifies a crowdfunding model that is popular among the startups. This is a common practice followed, now that the crypto market has matured quite a lot.
In this model digital tokens are offered to the participants in a token sale or to the early supporters. The primary objective of an ICO is to raise funds for any project development.
Initial Securities Offering or ISO, by its definition, on the other hand, refers to the securities tokens that are used on the blockchain. Though an ISO is more like a token, it differs from the ICO which is usually a utility token.
The significant features of an ICO differ significantly from the ISO. The holders of the ICOs typically do not necessarily mean that they have ownership of the companies issuing the tokens.
The tokens offered to the participants are equivalent to the amount of investment made by the participant in the particular project. Anyone can purchase an ICO which is typically offered for a short period of time.
On the other hand, ISOs provide some kind of ownership to the company. The holders of the securities are entitled to earn dividends on their holdings, which is typically a share of the profit made by the company.
When it comes to the regulation aspect, the ICOs are entirely unregulated as of now. There are no regulatory or governing bodies that control the operations of the ICOs.
In addition to that, the companies that issue the tokens do not usually need any legal documents to be created for it to go public such as the prospectus.
However, in order to protect the rights of the participants in an ICO, the SEC or the Securities and Exchange Commission of the United States are contemplating on building a specific regulatory framework for the ICOs.
On the regulation aspect, the ISOs are generally regulated liberally. Though there are not any extremely strict guidelines laid down for it to follow like that of the SEC, the ISOs are not completely unregulated as the ICOs.
In spite of being a tokenized offering similar to the ICOs, the ISOs typically need to abide by the precise regulatory guidelines.
When it comes to transparency of matters, the ISOs are more transparent in comparison to the ICOs.
Though the objective of it is just the same as ICOs, which is to raise funds for the business, the ISOs typically provide more details and information to the public so that they can make a well informed and educated investment decision.
In comparison, the ICOs come with fewer details and information about the company issuing the tokens.
Therefore, users need to be careful about investing in these tokens which should be made ideally depending on the prospects of the token in particular rather than the company on the whole.
5. The Risk Factor
Since there are no regulatory bodies in an ICO, it can be offered without caring for the market listings.
It can go to the public directly with its offers and there is no need for the users to go through a broker or an intermediary to participate in the proceedings and make the transactions online.
Though it does away with a lot of problems, it also comes with some element of uncertainties in it. There is a potential for fraud as well which may threaten the entities involved in the specific ICO.
The ICOs also come with additional risks of manipulation and loss through hacking which will have little or no recourse.
On the other hand, when you compare an ISO with an ICO, the risk factors in the ISO are somewhat reduced. The primary reason behind this is that the ISOs are typically empowered by the blockchain.
In addition to that, it has more inflexible requirements in comparison to the ICOs. It informs the participants about the details of the securities to help them make a better investment decision, as said earlier.
All these also help the entities issuing the ISOs as well because they ensure easier acceptance by the regulators as and when specific regulations are enforced.
6. Disclosure Requirements
When it comes to the ISOs, there are a few specific requirements in terms of the disclosure. The companies need to provide a typical set of information to the participants.
It includes a summary, the mission, and information about the business, the principal metrics, market opportunities, dilution, strengths, exchange rate, strategies, challenges, partnership, corporate information, risk factors, and offerings.
It must also include industry data, capitalization, and use of proceeds, financial data, major milestones, non-IFRS measures, operating data, civil liabilities and its enforcement, future statements, effects on the marketplaces, and business history and structure.
In comparison, there is no such stringent requirement for disclosure or the ICOs. The disclosure, if any, includes all those that are too common and too obvious assumptions.
However, the Securities Act Registration and Disclosure Requirements intend to offer sufficient remedies for the progressive and obvious shortcomings of the ICOs.
Even then, in spite of the full array of disclosures operative, the ICO promoters may not necessarily disclose all the vital information and data that may help in evaluating the prices of the tokens issued.
And, even if they do, they will surely not make it in a way that will be easy for the participants to understand.
Most importantly, when it comes to the technical disclosures, these may be very difficult to comprehend by the investors since these will not be in accordance with or subject to the financial statement audits that are common in traditional securities offerings.
7. Few Other Differences
As for the earning potential of the two offerings, participants can make an earning from the ICO holdings through market sale and purchase.
On the other hand, the earning potential of the ISOs is from the market as well as in the form of dividends. However, this does not necessarily equate that the earning potential of one offer is more than the other.
Also, the chances of surviving the regulations as and when imposed are very slim in the case of the ICOs but the ISOs have a high chance to be accepted by the regulatory bodies and survive the brunt.
When you consider the accessibility factor, it is easy to access the ICO platforms for all since it is open in nature but, in comparison, the ISO platforms are not that easy to access since these are restricted.
Which is Better – Crypto ICO or ISO?
Both ICOs and ISOs are typically risk intensive investments, albeit with a varying degree.
Therefore, it calls for a thorough research by the participants about the particular project and its feasibility before investing in it.
ICO, typically, does not involve the issuance of shares, though the mechanism is somewhat similar to Initial Public Offering.
In this model the ICO participants receive digital tokens. These tokens can be liquidated into other crypto coins available in the market or even into fiat currencies.
If you are inclined to ICOs, there are a few other things that you should also know.
For example, the ICOs, based on particular facts, can also be securities offerings, and in that case those will fall under the jurisdiction of the SEC so that the federal securities laws can be enforced.
However, these may not be registered with the SEC or fall under the exemptions of it for registration.
ICOs come with a lot of benefits for the investors such as it gives them an opportunity to get new crypto tokens for a low cost.
In addition to that, these tokens may also offer other benefits such as privileged access to products and services of a project and revenue redistribution.
You can also support teams or projects according to your liking.
As for the issuers of the tokens, the benefits offered include quick access to funding with less regulations and restrictions as well as with no loss of equity.
They also get an opportunity to experiment with inventive and decentralized business models and create them.
Most importantly, they can expand their user base with the initial participants who are ready to try the service out.
Another good thing about the ICO products is that these can be traded or sold internationally.
However, if you want to enjoy all the benefits offered by the ICOs, you should research well with your financial professional so that you understand both the opportunities offered as well as the risks involved.
Check for the legality and licensing of the company making the offers and if anything seems to be too good to be true then be cautious, because these really are.
For example, if returns are guaranteed by the promoters or if it seems that you are being pressured, be very careful.
Also, know exactly the ways in which the tokens can be traded so that it is ensured that it is in accordance with the regulatory standards of the SEC.
At this point, it is important to remember that not all ICOs are scams but many of them are. According to a research report by Ernst & Young, nearly 10% of the total amount of funds raised through ICOs usually end up in the wallets of the scammers.
Therefore, you should also know the ways to pick those that are not legit so that you can protect your money and make a productive investment. Some of the most common signals of a fraudulent ICO are:
- An anonymous team
- A promise for guaranteed returns that are exceptionally high
- Lack of a clearly defined roadmap
- Not existing in major and popular forums
- No commitment about the code and
- Limited or no PR, community engagement or media activity.
The best thing that you can do is follow the ICO bulletin and updates to be confident about a specific offer.
It is only then you will know what is happening and may happen in the ICO environment and how exactly the SEC is trying to actively protect the participants in an ICO from fraudulent and unregistered ICOs.
On the other hand, ISO investments are also quite productive especially if you want to get into the action early and right from the ground level of a company that comes with a high growth potential.
You may make some quick profits in the short term as well as get higher returns on your investments in the long term.
It will be much easier for you in case you have any long term goals and want to meet them successfully, since these are more like equity investments.
Apart from their high potential to provide great returns, the disclosures of the ISO offers more transparency and reliability to the investors both in terms of price and prospects.
However, there is no reason to believe that ISOs cannot fail.
There are lots of reasons and factors that may lead to the failure of a particular ISO which include and is not limited to the greed of the issuing company, uncertain fundamentals, improper timing of issuance and valuation as well as lack of an X-factor.
Therefore, once again, doing your homework is necessary to invest in an ISO.
The factors that you should look for while researching include the risks involved and balancing them with your risk appetite. This should be based on your age, liabilities, financial situations, as well as other concerns.
Also, know the reasons for issuance of tokens by the company along with all of the other available information to know exactly where the company stands.
The information should include everything from the overall financial state of the assets of the company to its growth prospects.
Do not forget to go through several third-party reviews before investing. Also, know about the lock-up periods, if any.
No matter whichever you choose to invest in, an ICO or an ISO, you should find out whether it will provide a better return or not.
For that, you should make sure that you invest in one that is legit and comes with good reviews, preferably with a listing, instead of choosing the one that looks exciting.
Hope this article has helped you a lot in knowing the differences between ICOs and ISOs. Now, you can plan your next move to invest in one or both of them but make sure you do a detailed research before you go ahead with your endeavor.
I have special interest in crypto and intend to help common people to gain knowledge about the digital asset as well as its potential. Follow Me at Linkedin.