Blockchain is an exciting technology that promises to change the way we live. In this article we discuss its 2 most promising use cases, which are already massively growing: cryptocurrencies and fundraising.
Source: BQ Intel
Money transfers & Payments
International money transfer using existing payment method can be very expensive both in terms of fees taken by middlemen, and in terms of delays. These facts are amplified in the developing world, where a considerable number of individuals do not have access to banking services.
Thanks to blockchain, the use of cryptocurrencies to transfer money is reliable and secured by design, without the need of an intermediary like a bank or money transfer operator.
Also, by enabling cryptocurrencies, blockchain has spawned the development of cryptocurrency wallets. In contrast to opening a bank account, they are easy and quick to open, give full control of one’s fund, and they don’t have maintenance fees. They represent an interesting opportunity to connect unbanked people with the global financial system.
As of today, there are more than 2000 cryptocurrencies in circulation, with a market cap of over $270 billion. Bitcoin, the most notorious cryptocurrencies with a dominance greater than 50% at the time of writing, has only about 25 million wallets recorded on its blockchain. Due to the continuous number of projects looking forward raising funds by issuing tokens, we can expect more cryptocurrencies to be created in the future.
Fundraising & Securities tokenization
Historically, investing in startup projects was reserved to VC funds, banks, high net worth individuals or other well connected people. Also, the traditional financial markets have several limitations for the average person, since IPOs are most often out of their reach given the cost of floatation and the delays of clearing and settlement.
Powered by blockchains, Initial Coin Offerings (ICO) have proven a track record in bringing investment opportunities to the masses. ICO funding event surpassed VC funding in 2017: $7.5 billion were raised through ICOs vs. $2.5 billion raised from VCs. Though tokens do not always represent equity, ICO investors can fairly expect to enjoy stock-like returns on investments. This is because crypto-assets prices are determined by the law of supply and demand. The benefits eventually depend on the extent to which the token economics are well designed to fit and foster the underlying business models.
However ICOs have been criticized because they bear disadvantages: crypto-assets don’t always represent equity, and the frontier with securities is blurred. ICOs are legally risky for both investor and project promoters. As a result of several negative positions adopted by regulators, the amounts of funds raised through ICOs have been consistently decreasing. Thus blockchain startups have come up with a new concept: Security Token Offerings (STO).
STOs are almost like ICOs, the major difference being that it is make very clear that the tokens actually represent equity. This implies token holders are entitled to receive dividends, and voting rights as actual shareholders. It also implies that the companies issuing them be 100% compliant with security laws, which takes out legal risks.
Security tokens could help alternative financial markets thrive for the benefits of startups, small and medium size companies and individual investors. However, dealing with STOs required both legal and technical assistance, which can be a barrier for many project promoters. Some well established crypto-assets exchanges have come up with an interesting concept to help projects raise funds on their platforms: Initial Exchange Offerings (IEO).
An Initial Exchange Offering, as suggested by its name, is a token offering conducted on the platform of a crypto-assets exchange. While ICOs are managed by issuing startup themselves, IEOs are administered by a crypto exchange on behalf of the startup that seeks to raise funds selling its newly issued tokens. Thus funds are not sent to a smart contract address as is the case for ICOs. Participants must create an account on the exchange platform, fund their wallets and send the funds to the account of the startup on the exchange. As the cryptocurrency exchange takes a percentage of the tokens sold by the startup, the exchange is incentivized to help with the token issuer’s marketing operations.
Examples of successful IEOs in 2019 are BitTorrent ($7.2 million raised in 15 minutes), Fetch.AI ($6 million in 22 seconds), or Harmony ($5million raised in 2 days). All where undertaken on the Binance Launchpad. Other IEO platforms from major crypto-assets exchanges are Bittrex International IEO, BitMax Launchpad and Huobi Prime.
Check the full version of Blockchain Quarterly (Q1 2019) report for more Insights.