What is ICO, STO, IPO? What are the Differences?

Check Today's Crypto Market:

Bittime - There are several ways for companies to raise funds from the public or investors. Three methods that are often discussed are ICO , STO, and IPO . While all three have the same goal in raising capital, there are fundamental differences between the three. What exactly are these three? Let's discuss it in this article in more detail.

What Are Initial Coin Offerings (ICOs)?

An Initial Coin Offering (ICO) is a way to raise funds in the form of cryptocurrency for a new blockchain project. In an ICO, companies or projects looking to raise funds will create their own crypto tokens and sell them to investors in exchange for an existing cryptocurrency such as Bitcoin or Ethereum .

ICOs have become a popular way for blockchain projects to raise funds without needing to go through traditional funding channels such as venture capital or public offerings (IPOs). However, they also carry certain risks, including legal uncertainty and potential fraud. Therefore, it is important for investors to conduct careful research before participating in an ICO.

The ICO process usually involves the following steps.

1. Funding

Companies or project teams determine how much funding they need for their project and set funding targets.

2. Token Issuance

They create crypto tokens that will be sold during the ICO. These tokens can have different functions depending on the project, for example as ownership rights, access to services, or voting rights in project decisions.

3. Marketing and Promotion

They promote their ICOs to the crypto community and potential investors through various marketing channels, including social media, crypto forums, and dedicated ICO websites.

4. Token Sale

During an ICO, investors can purchase tokens with cryptocurrencies such as Bitcoin or Ethereum. The token price is usually determined by the project team based on their assessment of the project's value.

5. Use of Funds

Funds raised from token sales are used to finance project development, including product development, marketing, and operations.

6. Token Distribution

After the ICO is completed, tokens are distributed to investors according to the amount they purchased. The token can usually be traded on crypto exchanges after the ICO is completed.

Also Read: Understanding the Presence of Initial Dex Offering (IDO) as an Alternative to ICO

What Are Security Token Offerings (STOs)?

Security Token Offerings (STOs) or Security Token Offerings are a way to raise funds in the form of crypto tokens which are regulated as securities or securities. In contrast to Initial Coin Offerings (ICOs) which tend to have a looser structure and are less regulated, STOs are subject to the same regulations and laws as traditional stock offerings.

STOs offer a more organized and regulated alternative to fundraising in the crypto ecosystem. They combine blockchain technology innovation with regulatory compliance, opening the door for institutional and individual investors to participate in this emerging new market. 

Although STOs provide a higher level of security for investors, it is important to conduct careful research before investing, as is done with other types of securities investments.

Following are some of the main characteristics of STOs.

1. Regulation

STOs are regulated by the financial authorities and capital market regulations of the country in which the offering is made. This means companies conducting STOs must comply with compliance requirements and report the necessary information to regulators.

2. Securities

Tokens offered in STOs are considered securities or securities. This means they give their holders ownership rights or claims to a company's assets or earnings, similar to shares or bonds.

3. Transparency

The STO process must be transparent and open to investors. Companies conducting an STO must provide adequate information about the project, fundraising objectives, financial structure and associated risks.

4. Investor Security

STOs provide a higher level of security for investors because they are subject to strict regulations and laws. This helps protect investors from potential fraud and questionable business practices.

5. Secondary Market

Once the STO is completed, token holders can trade their tokens on regulatory-compliant crypto trading platforms, also known as secondary markets. This provides liquidity for investors who want to sell or buy back their tokens.

What is an Initial Public Offering (IPO)?

Initial Public Offering (IPO) is the process in which a company first offers its shares to the public for purchase. In the context of securities shares, an IPO can be considered a change in company status from private to public. The IPO process is usually carried out by companies that want to raise additional capital for the growth, development or expansion of their business.

An IPO is an important step in the life of a company and can open the door to long-term growth and success. However, it is also important for investors to conduct careful research before investing in an IPO, understanding the risks and opportunities associated with such an investment.

Here are some important points to understand about IPOs.

1. Preparation

Before conducting an IPO, the company must make thorough preparations. This includes reviewing the company's financials, preparing a prospectus, undergoing an audit process, and meeting capital market regulatory requirements.

2. Registration

Companies wishing to conduct an IPO must register their shares on the relevant stock exchange, such as the Indonesian Stock Exchange (BEI). They must also submit IPO registration documents to the competent financial authority.

3. Share Offering

Once registration is complete, the company can begin the process of offering shares to investors. This can be done through a public offering or private sale to institutional investors.

4. Pricing

The share offering price is determined by the company and investment bank handling the IPO. The price usually reflects the company's valuation, market demand, and other factors.

5. Share Registration

After the share price is set, the company will list its shares for trading on the stock exchange. The shares will be available for purchase by public investors on the secondary market.

6. Funding

Funding obtained from the sale of shares in an IPO is used by the company for predetermined purposes, such as product development, business expansion, debt repayment, or acquisitions.

7. Regulation and Compliance

The IPO process is subject to strict capital market regulations and requirements. Companies must comply with applicable regulations and provide accurate and transparent information to potential investors.

Also Read: What is a Public Sale in Cryptocurrency?

Difference Between ICO, STO, and IPO

By understanding the differences between ICOs, STOs, and IPOs, investors and companies can choose the fundraising method that best suits their needs and goals. While each has its own benefits and challenges, it is important to comply with applicable regulations and conduct careful research before participating in any form of fundraising.

1. Regulation

ICOs are less regulated and more flexible, while STOs and IPOs are subject to strict capital market regulations.

2. Nature of Securities

ICOs are not usually considered securities, while STOs and IPOs are regulated securities.

3. Investor Participation

Investors in ICOs use cryptocurrency, while in STOs and IPOs they use fiat currency.

4. Main Objective

ICOs are often used by blockchain projects or technology startups, while STOs and IPOs are used by more established companies to raise additional capital or go public.

How to Buy Crypto from Bittime

You can buy and sell crypto assets in an easy and safe way via  Bittime . Bittime is one of the best crypto applications in Indonesia which is officially registered with Bappbeti. 

To be able to buy crypto assets on  Bittime , make sure you have registered and completed identity verification. Apart from that, also make sure that you have sufficient balance by depositing some funds into  your wallet . For your information, the minimum purchase of assets on Bittime is IDR 10,000. After that, you can purchase crypto assets in the application. 

Monitor price chart movements  of Bitcoin (BTC) ,  Ethereum (ETH ),  Solana (SOL)  and other cryptos to find out today's crypto market trends in real-time on Bittime.

Read Also: 

Unraveling ENS and DNS: An In-Depth Look at Web3 and Web2 Identities

What is Heroes of Mavia (MAVIA) - GameFi similar to Clash of Clans which is currently on the rise

Vesting Period dalam Cryptocurrency

DISCLAIMER : This article is informational in nature and is not an offer or invitation to sell or buy any crypto assets. Trading crypto assets is a high-risk activity. Crypto asset prices are volatile, where prices can change significantly from time to time and Bittime is not responsible for changes in fluctuations in crypto asset exchange rates.