Crypto entrepreneurship
3 financing ways you need to know to kickstart your new crypto project
Entrepreneurs are using these methods to source funding for your business idea
Tokenization is one of the most relevant features of cryptocurrency and blockchain technology.
The possibility to create a digital token in representation of any other type of asset or fraction of it has opened the door to countless opportunities for different on-chain investments.
That said, crypto founders have leveraged this possibility as a crowdfunding mechanism. Indeed, crypto innovators have created novel, easier ways to improve the experience for every stakeholder over the years, securing funding in the process.
Here are three funding systems that founders are financing their crypto projects through tokenization.
Initial coin offerings (ICOs)
Initial coin offerings were one of the pioneering funding models of the crypto industry. ICOs enable new projects to reach investors through the public sale of their token at launch.
Generally, the growth of the project leads to its token appreciating in value. As such, investors who participate in the ICO benefit when the project grows and becomes more popular, as it leads to their bags increasing in value.
As a variant of ICOs, there are also security token offerings (STOs), in which the tokens issued represent a fraction of the protocol’s ownership and revenue. This method mimics legacy finance’s initial public offerings (IPOs) in which companies offer their shares in the open market.
Initial DEX offerings (IDOs)
Initial DEX offerings happen when a project launches its token directly on a decentralized exchange by creating a liquidity pool against another crypto asset, such as BTC or USDC.
The main difference between IDOs and ICOs is that, in the latter, the project sells its token directly to the investors. On the contrary, in the former, all purchases happen on a decentralized platform.
After the increasing popularity of this type of offerings, decentralized exchanges created “launchpads” which are dedicated platforms for developers to launch their crypto projects through token sales on their DEX.
Similar to IDOs are initial exchange offerings (IEOs). These are virtually the same, but instead of listing in a DEX, the token is offered on a centralized exchange like Binance or KuCoin.
Developer grants
With the rise of crypto and decentralized finance specifically, several blockchain networks went live. We refer to these smart contract platforms as layer one (L1) chains.
The more dApps a blockchain offers, the more users it attracts. Therefore, focusing on user growth, these networks often offer grants and incentives to developers to build on them.
That said, it’s fairly common to see several contest-like events organized by L1 chains such as hackathons, challenges, and bounties offering sizable rewards in the blockchain’s native coin in return with aims to encourage builders to join their platform.
One of the most relevant examples of this is Cardano’s Project Catalyst — a decentralized governance experiment in which the network’s users vote on how to spend Cardano’s development grants treasury.
Interested in learning more about Project Catalyst? Then you can’t miss this article!
Closing thoughts
Cryptocurrency not only enables the tokenization of assets for peer-to-peer trading. It also grants developers with new resources to source funding directly from interested retail investors.
With all the advantages this offers, it’s also important to note the tremendous responsibility that such crowdfunding mechanisms entail.
Being a mostly unregulated sector, developers should be extremely careful in managing and investing the community’s funds to ensure the project’s long-term growth and sustainability.
Innovatio keeps that sense of responsibility in mind, which is why we offer builders and developers a space to exchange ideas, share their challenges, and seek guidance in their ventures.
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