What Is a Reverse ICO?

Initial coin offers (ICOs) are one of the most popular and crucial aspects of the cryptocurrency boom, despite the fact that they are highly charged due to difficulties with frauds and fraud. In most cases, a company will launch an ICO when it is ready to launch. The company generates crowdsourced funding by selling tokens to interested investors in a manner similar to an initial public offering, allowing it to finish its launch process and aim to break into a larger market. Many blockchain-related businesses have raised funds through initial coin offerings (ICOs), with some achieving great success. However, there are now options for current businesses to employ a similar strategy as well. This approach, which has become known as a “reverse ICO,” involves a traditional firm taking efforts to enter the decentralized world of digital currency.

Raising Money for Decentralization

A reverse ICO may resemble a standard ICO in appearance in some situations. The company that is launching the initiative is the most significant difference. According to a Coin Insider study, established organizations can offer tokens to interested investors as a way to decentralize, raise additional capital, or assist build a new, blockchain-focused division.

Reverse ICOs have a lot of potential advantages. According to the paper, reverse ICOs are sometimes regarded as “more easily valued” for existing companies that are already regulated or have already undertaken an IPO. Furthermore, due to the fact that a reverse ICO requires less regulatory adherence than an IPO, reverse ICOs can “operate with greater legal and fiscal openness and reliability.” Many initial public offerings (IPOs) are only limited to accredited investors, limiting the pool of possible buyers. Reverse ICOs enable businesses to raise funding from a much larger pool of investors all over the world. In most circumstances, meeting regulatory standards does not necessitate a lengthy legal process.

What Can Reverse ICOs Do?

While raising funds is a big advantage of a reverse ICO, it is not the only reason a company could want to do so. Some established businesses may decide to launch a reverse ICO to create their own economies within their product offerings. Take, for example, the messaging service Kik, which just debuted its own digital currency, Kin, which customers can use within the app.

For some businesses, a reverse ICO can help with distribution by decentralizing operations or even ownership of the business via a blockchain in a more efficient way than an IPO.

Established digital currency exchanges are among the companies that have already embraced the reverse ICO trend. To be fair, many organizations are already deeply involved in the blockchain realm, but many of them still operate substantially outside of it in terms of business operations. An exchange can become more self-reliant and independent if it launches its own cryptocurrency asset via a reverse ICO. It may also provide clients with an additional incentive to use that exchange rather than a competitor to execute their digital currency transactions.

To be sure, reverse ICOs are still a rather uncommon occurrence. In general, many conventional corporations have been hesitant to go into the bitcoin sector headfirst. However, if ICOs are perceived as having the ability to provide enterprises with substantial rewards, it may only be a matter of time until the reverse ICO as a trend takes off.

Investing in cryptocurrencies and Initial Coin Offerings (“ICOs”) is extremely dangerous and speculative, and this article is not an endorsement of cryptocurrencies or ICOs by Investopedia or the author. Because each person’s circumstance is different, you should always get advice from a knowledgeable specialist before making any financial decisions. Investopedia makes no guarantees or representations about the accuracy or timeliness of the information provided. The author owns bitcoin and ripple as of the day this post was written.