What’s the difference between an ICO, IPO, IEO and STO?
The crypto industry is full of confusing acronyms that sound far too alike. So, we thought we’d break some of them down for you.
Let’s have a look at the difference between ICOs, IPOs, IEOs and STOs.
What is an ICO?
ICO stands for Initial Coin Offering and represents a form of crowdfunding for a crypto-related project in its pre-launch stage. In an ICO, a company is able to raise funds for a new product or service by selling a new crypto token to interested investors. The tokens often have some sort of utility within the future product.
ICOs reached peak popularity back in 2017, when investors saw an opportunity to get their hands on some cheap tokens. They were also extremely popular with scammers, however, who tried their luck raising funds for all sorts of suspicious (and sometimes non-existent) projects.
What is an IEO?
Let’s move onto a variant of the ICO, the IEO. IEO stands for Initial Exchange Offering and is a type of token sale which is supervised by a cryptocurrency exchange. Instead of a company selling its tokens directly to investors, it instead sends them to an exchange, which then sells them to individuals on behalf of the company.
IEOs are more convenient than ICOs, since funds are sent straight to buyers’ accounts, more regulated, since the exchange is responsible for mandatory investor checks, and more accessible, since they’re open to anyone.
What is an IPO?
Acronym number three is IPO, which stands for Initial Public Offering. This describes the process of a company selling shares of its business in exchange for funds.
An IPO is how a traditional company raises funds, unlike an ICO, which is the crypto industry equivalent. The difference between them is that in an IPO, an investor receives a share of a company, whereas in an ICO, they receive a token which doesn’t represent any equity in the company. IPOs are also more regulated than ICOs.
What is an STO?
Next up is the STO, or Security Token Offering. STOs feature aspects of both ICOs and IPOs. In fact, another name for them is tokenised IPOs.
An STO is essentially a public sale of tokenised securities (aka security tokens) on a crypto exchange. A security token represents an investment contract linked to a financial asset.
While STOs share a process with IPOs, STOs issue tokens on a blockchain while IPOs issue traditional share certificates. The STO process is arguably quicker than the IPO method though, thanks to the use of blockchain technology, as well as cheaper, due to the lack of intermediaries involved.
STOs are often described as legally-compliant ICOs. They make a significantly more secure investment than ICOs, and are much more difficult to launch, since they are subject to strict regulation.
There you have it - a brief introduction to ICOs, IPOs, IEOs and STOs. Which ones had you come across before, and can you now tell the difference between them?