At the end of last year, the market was flooded with a wave of IDOs, which are held on decentralized exchanges and projects’ own sites. Under the guise of promising projects, scammers raise millions, and then simply disappear. An alternative to cryptocurrency crowdfunding could be AIO (Auction Based Initial Offering).
About the main trends of cryptocurrency crowdfunding
At the end of 2020, a new crowdfunding system IDO (initial offering DEX) took shape in the crypto market. This method allows fundraising in a decentralized way.
“In this case, projects do not need platforms with strict compliance for crowdfunding. Startups can raise funds and sell tokens directly on their website,” explains Yana Gushchina.
This brings the market back to the trends of 2016-2017, that is, in the days of ICOs, when investors invested in startups, and projects could disappear immediately after raising the necessary amount. And this is definitely a bad indicator for the cryptocurrency and blockchain technology sector.
“I personally witnessed how literally at the beginning of the month one of the projects was selling its tokens for $600 apiece, and then just disappeared with all the investments raised,” says Yana.
KickICO experts took a different path and pay great attention to the choice of projects to be listed on the site, to prevent fraud. Scam projects simply will not pass compliance, assures Yana Gushchina.
“We also give preference to a more perfect form of crowdfunding, which is designed just to protect investor’s assets from scam projects – AIO, that is fundraising on the basis of an auction. I am sure that the future belongs to AIO, which offers a civilized and safe approach to attracting investments,” says Yana Gushchina.
The difference between ICO and AIO
According to Yana Gushchyna, the choice between ICO and AIO depends directly on the goals of the project and its plans in the market.
“For one-day projects, which for some reason still exist on the market, ICO is much more profitable. There is less control, less guarantees, and most importantly, quick profits. For serious projects that came to the market for a long time, AIO is ideal,” the expert explains.
AIO is a type of crypto crowdfunding based on fair pricing. It stands for auction based initial offering. In this type of crowdfunding, there is a backer (backer) who bids and supports the project. The more bids made by backers, the higher the price of the project’s token at the end of the crowdfunding. That is, the project can no longer put forward the price of its token on its own. The value of the token will depend on people’s interest. The main advantage is that the higher the interest in the project, the higher the price of the token.
Also, the main difference is that backers receive a number of tokens equal to the amount of investment. An important nuance: backers do not know exactly how many tokens they will receive, as the price changes during the crowdfunding process depending on the interest in the project.
AIO allows projects to show themselves as a reliable business for investments, which will exist for many years. As Yana Gushchina explains, startups should obligatory pass the KYC/AML procedures, which are just to identify those projects that are ready to grow and develop in the market.
KYC is a plus for projects and for backers. For the former, because they get a quality expertise of their project, including all the necessary documentation for investors. For the latter it is a plus because the investor sees the jurisdiction of the company, all the documents about it, and not only the usual White Paper description.
If we talk about the process of raising funds, there are significant differences. In an ICO, a project issues a certain number of tokens at a fixed price and raises funds from investors by selling them. For an ICO you do not need a special platform. It is quite enough to have its own website. Hence, a lot of scams and problems arise.
In the case of AIO, the value of a token rises as interest in the project increases. AIO requires a specialized platform, which is an intermediary between the startup and the investor and regulates the process of raising funds.
About the choice of projects by investors
If a project really wants to raise money from investors to implement its product, it is worth adhering to the basic rules that are key in the market.
“My recommendations for startups are very simple. First, you need to create not just a good website, backed up by a good idea, but also properly and understandably pitch it. So far, probably 70% of the market is projects that don’t know what it’s about. Secondly, you need to prepare a quality proposal for investors, present your project at AIO,” recommends Yana Gushchina.
About choosing a crowdfunding platform
Choosing a crowdfunding platform is as difficult as choosing a coin listing exchange. Therefore, the rules for selecting a platform are approximately the same.
“To start with, you should study the history of the platform and see how many funds were raised by other projects, and also see what stage these projects are at now,” recommends Yana Gushchina.