ICOs Are Getting Compliant and Airdrops Will Have to Follow Suit
We’re approaching the halfway point of 2018 and so far over 340 ICOs have raised almost $9 billion between them. Even amidst concerns over regulation, scams, and hackers, those numbers are not to be sniffed at. In fact, while most people think of last year as the non-stop party for ICOs, 2017 saw just 210 of them raising under $4 billion in funds.
What gives? It seems that even with bearish market sentiment and the US SEC breathing fear into the hearts of blockchain startups, ICOs are still going strong. Of course, what happens after they raise the funds remains to be seen–as well as what direction legislation will take. So while many blockchain companies are still bullish on ICOs, others are finding themselves erring on the side of caution and evaluating their options. And as with everything surrounding this decidedly gray area, there’s some confusion as to what those options are.
What Are Compliant ICOs?
A compliant ICO, or STO (Security Token Offering), is regulated by the SEC from the start. There are four major paths open to a US blockchain company that wants to hold a regulated offering and they each have their pros and cons. One of the alternatives, for example, is a using an existing securities exemption called a Reg A+. You can raise up to $50 million and open your offer to anyone over the age of 18. The catch? You need two years of audited financials and significant time and money.
A Reg CF is an easier and cheaper way of raising funds, but you’re significantly limited to how much you can raise (less than $2 million). Fintech Merchant Accounts helps blockchain companies to hold compliant ICOs. CEO Edward Corona says, “keep in mind that they [compliant ICOs] still do not provide business owners the freedom and control of an unregulated ICO.” Right. But then, of course, they also don’t provide business owners with the possibility of ending up behind bars.
Another major advantage of holding a compliant ICO is that you can solicit your deal and advertise it anywhere, making it far easier to raise awareness for your token sale. With Facebook, Twitter, Google and Bing all banning ICO adverts, taking the regulated route will allow you to use these channels for greater exposure. You’ll also ease the troubled minds of many would-be investors rattled by the recent bad press.
What Does This Mean for Airdrops?
Several ingenious ICO teams have taken to creative ways of marketing their projects by using airdrops. Effectively, distributing free tokens to interested parties and creating buzz for their sale. We’ve even seen some incredible physical airdrops, with tokens falling out of balloons.
In this herculean effort to circumvent securities laws, airdrops have gained momentum. Who doesn’t love free money, right? You can even sign up to be alerted to up-and-coming airdrops and revel in all the free cash. But if your Mom ever told you nothing in life comes for free, sorry to say she was right.
Websites alerting people to airdrops
Just as there’s no such thing as a free lunch, there’s no such thing as free stock. That’s not just Momma talking, that’s the Securities and Exchange Commission, as well. So, if you thought that airdrops were an excellent way of getting around the ad ban, or marketing your ICO, you should probably shelve that idea too.
Airdrops are not compliant either.
And they will likely be regarded as security transactions, which presents quite a problematic scenario. Darren Marble, CEO of CrowdfundX, a marketing firm for STOs, points out, “You can’t just send shares of stock to people. The problem with an airdrop is that it’s generally incongruent with US security laws.” So, that great marketing tactic for creating awareness and even escalating FOMO? Not such a good idea after all. “My general advice for STO issuers,” he continues, “I would put that airdrop concept on hold. I would advise anyone in the US not to do it. I get it, it’s a good marketing tactic, but there’s too much risk and uncertainty.”
This Isn’t Fun Anymore
Regulation seems to paint a gloomy picture. Just utter the word and it sends the crypto markets quivering. But the purpose of regulation seems to be two-fold. To give blockchain companies a legal framework from which to work, and to protect investors from ICO scams. According to Marble, blockchain companies shouldn’t get too downhearted. Even though it feels as if their wings are being clipped, there are still plenty of ways of getting funding. He says: “I don’t think real teams should be that concerned. If you have a real blockchain concept or team and you’ve got some skill or differentiation or an incredible vision, the fact that you can’t advertise on Twitter should not deter you or stop you from raising money.”
Hedge Fund Funds
So, you can’t (or don’t want to) hold an ICO, you can’t drop free stock into investors’ wallets and you can’t wow users on social media. But there are still other ways to raise money and they may sort the wheat from the chaff. “If you look at what’s happening in the space, there was obviously a huge rush of retail investors into the market in 2017 and now that’s largely subsided. The Google searches for Bitcoin have dramatically decreased. The conversation about Bitcoin at the dinner table was last Thanksgiving. Now there’s a rush of crypto hedge funds.”
We’re talking about small hedge funds that have anywhere between $5 million to $500 million to invest. And they’re waiting to hear about your project. “Innovative companies,” says Marble, “even if you’re a small team, you can go out and find a page that lists all these funds and then contact these people. The best deals in the space are being funded by a small group of passionate crypto hedge funds that aren’t necessarily impossible to reach.”
The future of fundraising may look a lot different, but it doesn’t have to be gloomy. As ICOs and airdrops start to subside, so too, should the deluge of shitcoins and hollow white papers selling nothing but air.
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