Launch a token, raise cash. Does that still work?


In a podcast with Patrick O’Shaughnessy, Coinbase’s CEO Brian Armstrong confirmed that the cryptocurrency exchange is developing a platform to help startups launch their own tokens. Talking about the planned product, Armstrong said: “We’re working on a product; we’ll probably call it Coinbase Launch or something like that. It’s a way for anybody who wants to do a crypto startup to come in and say, ‘All right, I want to issue a token. Maybe I want to raise money. Maybe I just want to use it to build my community.” But unlike token sales in 2017, today the norm is for token sales to be conducted through an exchange. As the price of Bitcoin is going up, it looks like token sales are picking up steam once again. For better or for worse, it looks like 2017 is back.

Ilias Louis Hatzis is the Founder and CEO at Mercato Blockchain AG.

Coinbase first revealed this product last fall, during the Invest Asia forum. Kayvon Pirestani, Coinbase’s head of institutional sales, had described that Coinbase was carefully exploring the IEO and STO options for support on their platform.

Armstrong described the product as a combination between Stripe Atlas, a platform to form a company, and AngelList, a website for startups, angel investors and job seekers looking to work in startups.

However, IEOs are nothing new.

Today’s IEOs are very similar to the original ETH token sale in 2015, and the 2017 ICOs, but they are also very different. IEOs are an evolution of Initial Coin Offerings (ICOs), with an immediate exchange listing and cooperation with the exchange. Also, the know-your-customer (KYC) and anti-money-laundering procedures take place at a higher security level.

We can find several large exchanges that already support IEOs, like Binance, OKEx, Bitfinex and KuCoin. In 2019, IEOs performed quite well raising $1.7 billion.

While Coinbase is almost two years behind other exchanges, Coinbase Launch could be a destination for serious projects,  potentially tapping into the huge crypto economy and powering thousands of new startups. A token sale with a  stamp of approval from Coinbase could ease the minds of investors, compared to launching on a lesser-known platform.

It already looks like 2017 is right around the corner. As the prices of Bitcoin and other cryptos are rising, IEOs are heating up again. But this time around, it’s not just because of rising prices. DeFi has also been important for token sales. With the rate at which DeFi tokens are making waves, more tokens are getting into the market. During August alone, over 500 coins have made their entrance into the DeFi space.

In late July, Polkadot, a challenger to Ethereum, raised $43.3 million in a private token sale. The $43 million sale comes in addition to Polkadot’s two previous token sales. Another similar blockchain project, Avalanche, spearheaded by Cornell computer science professor Emin Gün Sirer, raised $42 million in a public token sale.

But not every token sale has the success of Polkadot or Ava Labs, which attracted a lot of attention in part, because of their celebrity founders. Smaller sales also abound despite, or perhaps due to, the COVID-19 economic crisis.

Unlike ICOs, the common strategy for many IEOs is ongoing sales with controlled distribution, both for regulatory reasons and to inspire a sense of exclusivity. Despite some cases of poor performance, IEOs have proven to be an easy and low-risk way for projects to raise capital without offering up a large portion of the total token supply, with the typical IEO bringing in around $3-8 million.

As everyone is jumping in the booming DeFi market, several token generators are now let anyone easily create an ERC20 token by filling out a simple form. Coinbase will simplify the token creation process far beyond what generators offer. The exchange will take a hands-on approach with every step of the process and streamline everything from custody to smart contract creation, to governance and distribution.

The last few years have shown us that institutional investors are still wary of investing capital into utility token sales due to perceived market risk. While IEOs are a step in the right direction, more work is necessary to institutionalize the token-led fundraising process. Coinbase Launch, might be exactly what the doctor ordered, to expand the cryptocurrency market and become more attractive for an increasing number of investors.

Image Source

Subscribe by email to join the other Fintech leaders who read our research daily to stay ahead of the curve. Check out our advisory services (how we pay for this free original research) 

Start the conversation at Daily Fintech Conversations