ICO 101: What goes into an offering

This article is part of Tech in Asia’s partnership with Asia Law Network where we publish articles written by lawyers on their advice for startup founders. For more articles in this series, go here.

In the second part of this series, we looked at the various regulations governing ICOs around the world.

In this final part, we shall move from the legal aspect to the technical aspect of ICOs. We’ll take a look at an ICO’s structures, objectives, elements, and stakeholders.

Structures of ICOs

An ICO may be structured in a variety of ways.

STRUCTURE	DESCRIPTION
1) Capped first-come-first-served (CFCFS) offering	A CFCFS offering is perhaps the most common structure. Here, the amount that may be raised is capped. A fixed number of tokens are also sold at a fixed price on a first-come-first-served basis until the token supply sells out.
2) Uncapped offering	As the name suggests, there is no limit placed on the offering. That means investors may purchase as many tokens as they desire, the token supply is practically unlimited, and there is no cap on the amount that may be raised.
3) Capped auction offering	In a capped auction, investors bid on the token price and the total amount they want to spend. The number of tokens sold varies and goes to the lowest bidder, proportional to the total amount pledged by each investor.
4) Uncapped auction offering	This is similar to the capped auction offering in that investors bid for tokens. The difference is that in an uncapped auction offering, a fixed number of tokens are sold to investors in descending order (beginning with the investor who placed the highest bid). The offering goes on until the available tokens are sold. Therefore, the cap here is on the tokens available for sale and not on the amount that may be raised. The amount depends on the bids.
5) Capped with redistribution offering	Here, investors bid on the total amount they want to spend. A fixed amount of tokens are sold at a fixed price proportional to the total amount pledged by the investors. Refunds are made for excess payments.
6) Capped with parcel limit offering	This structure is fundamentally the same as the CFCFS offering. However, in a capped with parcel limit offering, the total amount of tokens that may be purchased by an investor is limited. A ceiling is placed on every transaction, making it difficult for investors to make multiple transactions.

Objectives of ICOs

An ICO’s objective helps determine the right structure an issuer should work with.

Raise capital               

Elements of ICOs

Stakeholders in ICOs