DEFINITION of Initial Community Offering

An initial community offering refers to a new initiative under which a financial security, like a municipal bond, is divided into smaller chunks, like micro-bonds, and then sold as tokens or cryptocoins whose transactions are recorded on a blockchain.

BREAKING DOWN Initial Community Offering

Fighting with the problem of reduced federal funding and low investments in the municipal bonds that come in high denominations, a Berkeley, California, city council has teamed up with investment startup Neighborly to launch an initial community offering.

Breaking up the high-value municipal bonds into lesser-value virtual tokens allows more participation from investors who otherwise stay away from directly purchasing the high-value bonds.

The whole transaction process is performed on the open, transparent blockchain that reduces the costs. The low denomination tokens will be backed by the bond and will carry the same risk profile. The interest will be paid out proportionally.

The first initial community offering is expected in May 2018. It will be initiated for smaller ventures, like buying an ambulance or a fire-engine, and will eventually aim at funding larger projects like affordable housing. (See also: Public vs Private Blockchains: Challenges and Gaps.)