The newest form of capital raising comes as initial coin offerings. This is essentially where companies offer tokens as opposed to stock, to be purchased by investors for investment sake or to be transferred into fiat currency. This method of fundraising has been quite popular over the course of the past year or so, but many initial coin offerings or ICOs as they are known, are being caught as fraudulent.
This ends up being quite sad, as many of these companies are completely legitimate, and get a bad name due to a few fraudulent ones. Joseph Lubin, co-founder of Ethereum stated that many of the sales are used to back “high-quality projects, but there have been a lot of copycat projects where people copy all the same materials and don’t intend to deliver any value to the people buying the tokens.”
Ethereum is a blockchain-based platform that developers can use to build applications. The currency has become the second largest cryptocurrency by market capitalization, and does not look like it’s slowing down anytime soon. The current market value sits at around $32 billion, according to the website coinmarketcap.com. Lubin has stated that many of the companies attempting to copy this model were based out of China. Given that the country recently banned initial coin offerings, they have moved elsewhere.
Lubin states that “With China’s political approach to things, and with the fraud that was rampant there, it made a lot of sense for them to pause things a little bit and get a better, deeper understanding of the ecosystem, and scare potential fraud perpetrators.” The hopes are high that the few companies that are fraudulent in this industry, don’t end up ruining the space for the legitimate companies trying to use this new method of fundraising to their benefit.