ICOs, STOs, ETOs and all that jazz…


Healthbank in Switzerland is about to launch one of the most highly-rated ICOs of 2018/2019. But what is an ICO? And what is the difference between an ICO, an STO, an ETO? And what makes one better than another?

I long for a time when things where simpler…

Historically, businesses have basically been either margin-driven businesses or percentage-driven businesses.

So what is a margin-driven business?
A margin-driven business is quite simple. You make a product and it costs a specific amount to make. You sell it for a different amount. One minus the other is called Gross Margin, then you subtract what is spent to run the company, and that is Net Margin. Duhhhh!!! It’s basically a relatively simple process. The more products you make and sell, the more money you make. And then you can do the magic IPO (Initial Public Offering) and put your business on the stock exchange. Yeah!!! Big Success!!!

And a percentage-driven business?
A percentage-driven business is when you are selling a low margin product to as many people as possible. For a percentage-driven business to be truly successful, you should aim to touch 3% of the global market that you are addressing. Past 3% you become a threat to others in that field, and they will either have to buy you (the magical merger) or have to give away more and more of their market share. The biggest businesses in the world have historically been percentage businesses that touch 100% of the population. Businesses like Gillette (everybody shaves) or Colgate (everybody (apart from French people I’m told) brushes their teeth at least twice a day), or Coca-Cola. I don’t believe that there is a single person in the world that does not know the brand Coca-Cola. And I’m even betting that anyone reading this article can close their eyes and immediately visualize the red color and cursive font of the Coca-Cola logo. The advantage of a percentage-driven business is that you not only make money from selling products, but also develop a particularly strong brand identity that helps you in the future to sell other products.

Over the last few years a bewildering plethora of new financial tools has appeared, confusing finance for the layman. Financial terms and acronyms are bandied around with reckless abandon in a world that really needs to understand the basics. So what do these terms actually mean? What is the difference between an ICO, STO or an ETO? Are they all magical golden keys that open the doors to everlasting wealth?

Life is really simple, but we insist on making it complicated.

So What is an ICO?
An ICO stands for Initial Coin Offering and is basically a simpler and less complicated way to do an IPO (Initial Public Offering (when you put your company on a stock exchange)). An ICO is the cryptocurrency space’s rough equivalent to an IPO in the mainstream investment world. Companies use ICOs to raise funds. The company looking to create a new coin, app, or service launches an ICO. Next, interested investors buy in to the offering, either with flat currency or with preexisting digital tokens like ether or bitcoin. In exchange for their support, investors receive a new cryptocurrency token specific to the ICO. Investors hope that the token will perform exceptionally well into the future, providing them with a stellar return on investment. The company holding the ICO uses the investor funds as a means of furthering its goals, launching its product, or starting its digital currency. ICOs are used by startups to bypass the rigorous and regulated capital-raising process required by venture capitalists or banks.

And an STO?
STO stands for Security Token Offering. Because there was such an abundance of completely silly and risky ICOs, and because ICOs were basically designed to run around the stringent laws and regulations attached to an IPO to make investments easier, ICOs used a thing called a “Utility token”. But utility tokens are fundamentally flawed because they were designed as a run-around to securities laws and are unlikely to hold up in the long term. Because of this, the ICO is now slowly being replaced by an STO (Security Token Offering), where the investor rights are protected much more strongly than in an ICO. There are some great ICOs out there that are using utility tokens, but the good ones are easy to differentiate from the shaft, as they are built on the same value proposals as an IPO, just with cryptocurrency.

And an ETO?
An ETO stands for Equity Token Offering. An Equity Token Offering is the latest iteration of these new generations of fundraising, which allows any kind of company to issue Equity Tokens on Blockchain, in a public or private placement. Equity Tokens guarantee crucial equity-like rights for the investors and the issuers. Equity Token Offerings align both worlds, ensuring real-life benefits for all parties. Both investors and companies are equally incentivized. Symmetry of information provided by the transparency of the Blockchain technology makes it easier for all parties to achieve success.

And an UWE?
Actually, Uwe is just my first name and means nothing at all… just wanted to check if you would read this to the end.

Over the last two years we have seen ICOs for Japanese cats, for Christmas Coins, and for Jesus Coins. There is a Pot Coin designed to provide a decentralized banking infrastructure for the cannabis industry. Burger King Russia has announced the Whoppercoin initiative (customers rack up one Whoppercoin for each ruble they spend, and those who accrue 1,700 Whoppercoins get a free burger). Do the maths…

Praise be to Cthulhu, Oh great Lovecraftian cosmic sea beast…

Cthulhu Offerings is probably the strangest cryptocurrencies today, and seems to be an ICO based around a fabled giant octopus where the coins are part of a ritual sacrifice. Sex Coin and Tit Coin are both designed for product purchases and transactions on porn sites and SpankChain provides a delightful blockchain infrastructure platform for building secure, anonymous pornography apps. The world is a beautiful place…

In reality, there are a few simple pointers to differentiate a great ICO from a scam. But the most important one is often overlooked, and that is What does the ICO actually stand for. What is it trying to achieve? There are of course all the standard analytics tools to look at, such as team, timeline, media, code samples, regulations, distribution, white papers, global potential and circulating supply, but the aspect that is most often overlooked is Purpose.

You really just have to ask yourself “Would I buy that?”

A true and valuable ICO should score highly on all the above matrix, but should also have a mission and a mission to make the world a better place, and such an ICO is healthbank.

Discover the healthbank ICO here


ICOs, STOs, ETOs and all that jazz… was originally published in Data Driven Investor on Medium, where people are continuing the conversation by highlighting and responding to this story.