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What are IPOs?

Photo of: Nathan VDH
by Nathan VDH

Back in 2017, it used to be a bit of an Initial Coin Offerings (ICO) jungle: millions of dollars raised, many investors victims of scams. Today, fundraising is more secure, allowing cryptos projects to raise large amounts of money. For example, Atari (ATRI) will launch the ICO of its token in November 2020. For projects that are more reluctant to ICOs, they may find their happiness with Polkadot (DOT) and its Initial Parachain Offer (IPO).

In the early days of participatory financing cryptos, most of the financing mechanisms that existed on the blockchain were based on traditional market concepts. In the cryptosphere we find the classic mechanisms of participatory financing.

Initial Coin Offerings were one of the forms of crowdfunding that appeared in the cryptos markets. Unfortunately, a large majority of ICOs were fraudulent, resulting in the loss of several million dollars for investors.

Initial Exchange Offerings (IEOs) then developed, allowing an exchange to raise funds on behalf of a project: Binance was one of the pioneers of this type of financing.

Polkadot has recently designed a third funding mechanism for cryptos projects: the Initial Parachain Offer.

The head of Parity Technologies, Peter Mauric, explains that an IPO allows projects to obtain a place or a “parachain slot” on the Polkadot network.

The concept of a parachain slot is the basis of Polkadot’s architecture, which aims to have 100 slots on the network.

According to Mauric, this funding model offers a high degree of transparency and flexibility: stakeholders are guaranteed to get their tokens back and the funds are kept in a dedicated channel account.

Mauric says one of the main obstacles is the availability of funds: investors’ funds will likely be spread over several projects, which may slow down the launch of some.

Will parachain slots attract cryptos projects? Will new similar initiatives on other blockchains emerge? In any case, cryptos projects cannot complain about a lack of funding. Can projects that use Polkadot’s IPOs system do without any registration with a regulatory authority such as the SEC? One is never safe from unpleasant surprises with these sort of legal frameworks and more information will be needed from Polkadot.