In a reverse ICO, an already-established company raises funds by selling tokens to shift its structure to decentralization.
What Is a Reverse ICO?
If successful, ICOs usually offer these benefits to early investors and projects:
Higher Profits
If a token is in great demand, investors get a chance to buy it at a lower price before its price surges on the day of the listing.
Higher Funding
An ICO has lower regulations than an IPO. Therefore, the number of investors able to participate in these ICOs is higher than in an IPO.
Access to Global Investors
An ICO helps companies receive investments from all across the world due to the ease of transacting in cryptocurrencies. This would not be possible in an IPO as bank transfers would not be an easy task for investors from different parts of the globe.
Reverse ICO vs Traditional ICO
The main difference between a reverse ICO and a traditional ICO is the company that is raising funds. An already-established company has more advantages than a new company.
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An ICO exposes a project to reduced legal challenges. This gives rise to numerous scams and frauds often occurring in ICOs. A reverse ICO requires a higher level of transparency that helps gain investors’ trust.
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The company raising funds in a reverse ICO usually has a pre-existing user base.
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A very important difference is that the established company has a successful business model and multiple years of experience, however, all of this is lacking in a new crypto startup.
There are not too many established companies that accept or use cryptocurrencies at the moment. This is mostly due to the volatility in the crypto market. Due to this reason, there are very few companies that use cryptocurrencies in their business, resulting in reverse ICO being a rare event.