The future of IPOs is blockchain

Is it possible to improve the traditional ICO by adding best parts of IPO? Let's figure it out
03 November 2017   3235

Nowadays, ICOs became very popular fundraising method. In 2017 amount of funds, raised via Initial Coin Offering is already more than $3B.

Bigger part of modern ICOs has little in common with Initial Public Offerings, or IPOs. Nevertheless, one company believes that ICOs with their innovative use of blockchain technology can replace IPOs, that have unchanged for decades.

The pioneer of online trading, Binary.com decided to perform and ICO instead of IPO as a  more advanced substitute. Binary.com ICO is scheduled for the end of 2017 and it will issue  securities-backed smart tokens tied to the company’s shares.

Binary.com
Binary.com

Let's take a better look at main parts of every traditional IPO an compare them to what  Binary.com is hoping to create through its “IPO on the blockchain.”

Company development stage

The bigger part of tokensales are considered as high-risk investment due to the people running them - young startup projects that need money to put their idea into practice or even individuals with questionable business plans. But an IPO is typically being held by the more mature company with business model, that works for decades and generate profits.

Binary.com is a firm latter camp member. It is a profitable and debt-free company that's been working since 2000. Its financial history and key financial milestones are fully available in the Information Memorandum for its ICO. In the near future, we may see more companies with similar track records to consider ICOs of their own.

Binary.com gross and net profit
Binary.com gross and net profit

Regulations and investor profile

Almost all ICOs are not regulated by a governmental regulator. They rely on self-regulation,  and the onus falls on the company conducting the ICO to decide on the extent of transparency and protection it wishes to provide to prospective investors.

Binary.com ICO advantages
Binary.com ICO advantages

Binary.com has designed its ICO to protect investors by adhering to best practices in corporate governance, investor disclosure, and transparency.

Listing requirements

The IPO performing companies must list its shares on a traditional stock exchanges after the IPO to sell them and provide liquidity to its shareholders.

Ordinary tokensales are not required to list on any exchange to provide liquidity to its shareholders. Nevertheless, Binary.com made an agreement with Lykke.com cryptoasset exchange to list its tokens after the end of ICO. This will allow investors to buy and sell Binary.com tokens, and, as a result, to increase their value. Lykke is a fintech company that’s building a global blockchain-powered marketplace for securities-linked tokens.

Lykke exchange
Lykke exchange

Beneficiaries and transaction costs

ICO gives no fees to beneficiaries, presented in any IPO, such as underwriter and the stock exchange itself. Additionally, when participating in traditional IPO, you will have the trading costs. Even buying a share is not cheap. Typical broker fee is $10 - $50 or a % of the purchase price. If you want to buy a share listed on the oversea exchange, local broker service is very expensive

No middleman
No middleman

And let's compare it to a cost of cryptocurrency transactions –– practically free when you’re trading directly with another person. If you are using the centralized cryptocurrency exchange,  you can expect to 0.1% - 0.3% fees.

Are ICOs are better for investors?

A blockchain-based IPO offers many more advantages, including round-the-clock trading, faster settlement times, international reach, plus an immutable and public audit trail. These cannot be replicated by traditional stock exchanges easily and we may see that Binary.com’s “IPO on the blockchain” is a new wave of financial market development on the blockchain.

Tezos Co-Founder penaltied by Wall Street Regulator

Tezos co-founder Arthur Breitman is punished with a fine and a trading veto for two years by The Financial Industry Regulatory Authority (FINRA)
20 April 2018   93

The Wall Street regulatory institution has come to a adjudgement with Breitman after he was indicted of producing false statements about his side venture (Tezos) while he was actually employed at Morgan Stanley. All registered FINRA securities specialists are demanded to report any for-profit activity outside of their stated employment if there is “reasonable expectation of compensation.”

The regulatory activity started from a Reuters article published in October that discovered Breitman, who is filed with FINRA as a French citizen, never disclosed hise work for Tezos while still employed at Morgan Stanley within the years of 2014-2015.

Together with the other proofs published in Reuters` article is a business plan written in 2015 that lists Brietmen as chief executive and makes projections on the potential for the company to be worth as much as 20 billion dollars over 15 years.  They also cited two papers Breitman penned under the pseudonym L.M. Goodman about Tezos, showing that he purposely hid his connection with the firm.

FINRA enclosed that “Breitman did not notify Morgan Stanley at any time that he was engaging in these outside business activities.” The adjudgement conditions of April 18 are that Breitman shun any broker-deals for 2 years and pay a $20,000 fine. Breitman neither accept nor disclaim the indictments.

The settlement with FINRA is unrelated to and has no impact on the launch of the Tezos network. Arthur cooperated fully with FINRA at all times and Arthur is pleased to put this personal matter behind him.
Sarah Lightdale, lawyer of Arthur Breitman

Last July the Tezos foundation increased for $232 million from their initial coin offering to found the blockchain network for smart contracts but still haven’t delivered any of the cryptocurrency to supporters because of infighting and legal problems in and outside of the boardroom.