DEFINITION of Reverse ICO
Reverse initial coin offering (ICO) is a method used by existing, established real-world businesses to raise funds and get into cryptocurrency. These enterprises have existing products and/or services, and they cater to real world customers. Essentially, reverse ICO acts as an initial public offering (IPO) allowing an existing enterprise to launch cryptocurrency tokens and seek funds through crowdsourcing.
BREAKING DOWN Reverse ICO
Whenever one hears about an ICO, the default thought that comes to mind is that a new business is taking shape, offering products or services in the cryptocurrency space. It needs funding for which it is offering the crypto tokens for sale through the ICO.
In contrast, a reverse ICO is used by real-world enterprises. The process for a reverse ICO works exactly the same way as for a standard ICO, though it is said that their valuations are easier and more transparent. When people pour their money into a standard ICO, the track record of real-world, established businesses offer a better and more trustworthy proposition for valuing reverse ICOs.
Reverse ICOs are a Form of Crowdsourcing
Taking the ICO route offers a couple of advantages.
While an existing, real-world business can source funds through the standard IPO route by listing its shares on a regular stock market, the process is complicated and requires adherence to lots of regulations. An ICO, operating in the self-regulated virtual world of cryptocurrencies, offers an easy and low-cost medium for raising funds, sans the hassles of following the real world regulatory norms that may be comparatively stricter in nature.
Like a standard IPO, companies using reverse ICOs are the ones which need funds for standard requirements like business expansion or payment of debt.
As ICOs have gained traction over the last few years as an easy mode to garner public funds, established businesses are also attempting to benefit from them through reverse ICOs.
The popular social media and messaging app called Kik that claims to have 300 million users raised around $100 million through its reverse ICO last year. (For more, see Kik Initial Coin Offering (ICO) Aims for $125 Million.)
There are talks that even the tech giants like Twitter, Uber, Amazon and Facebook can benefit from “tokenizing” based on their large user base.