How to invest on the blockchain. Top-3 ways
Technological projects somehow related to the blockchain are becoming increasingly popular every day. More and more people are interested in how to invest on the blockchain in promising projects. This is backed by the fact that we are in the midst of a period when baby boomers give away more than $30 trillion to the younger generation. It’s no secret that zoomers are more prone to risky investments and are happy to invest in blockchain projects. If you are just starting to master the area, this article will tell you what options for blockchain investments are out there.
Things to consider
Before exploring how to invest in blockchain, it is worth understanding a vital thing. One should only invest in projects with a worthy idea or new technology behind them. The reason is simple: only those projects that bring something new survive and develop in the long run. At the same time, there are many startups whose primary goal is to raise funding but not continue to grow after that.
Therefore, before making blockchain investments, you should make sure that an experienced team stands behind the project with straightforward plans for the future and detailed tokenomics, not to mention the legal component and investor protection.
Below are the five most popular blockchain investment methods.
This type of blockchain investment peaked in the first half of 2018. In 2018, projects were able to raise $11.4 billion with the help of initial coin offerings, after which a collapse came. In 2019, the total amount of successful ICOs was only $3.3 billion. In subsequent years, ICO platforms stopped providing complete statistics. Still, according to ICObench, if there were 30 ICOs in December 2019, then a year later, there were only two.
Why did it happen? Because at first, ICOs were practically not regulated, which is why many scam projects were created that disappeared with investors’ money. Even without knowing a lot about blockchain investments, everybody could participate in the ICO. Then the SEC began to actively intervene in blockchain investments and consider ICOs as security offerings. As a result, a situation arose when a project launching an ICO could fall under the close attention of the SEC and face fines. Potential investors, in turn, became afraid of risks and scam projects.
However, there are still ambitious blockchain companies to invest in. If you happen to see one launching an ICO, you can invest in them, but first, evaluate the risks.
IEO stands for Initial Exchange Offering. IEOs were an attempt to rehabilitate ICOs after the increasing problems with fraud. The essence of IEO is that the offering takes place under the supervision of the exchange. This type of blockchain investing reduces the risk of fraud as the exchange does an initial check. On the other hand, issuers are forced to pay a listing fee and interest for sold tokens.
Crypto exchanges conduct IEOs not on the main site but specially created platforms. One of the first was the Binance Launchpad. In January 2019, BitTorrent launched a token sale on Binance Launchpad and raised $7.2 million in less than 15 minutes. After that, some other exchanges also joined the trend: Bittrex IEO, OK Jumpstart (OKEx), KuCoin Spotlight, Huobi Prime, and others.
Non-fungible tokens blew up the market about a year ago. At first, no one understood how to invest in blockchain with NFTs and why digital pictures are sold for millions of dollars. Then many entered this market, someone as an investor and someone as a seller. A feature of the NFT is that the ownership right is issued on the blockchain for a unique object. Today, it can be anything from digital art to vintage wine bottles.
One of the advantages of NFT is that almost anyone can create such a token by following a simple algorithm. Buyers can also invest in NFTs freely on specialized platforms.
Those who remember the DAO hack in 2016 have negative associations with this word. But DAOs worldwide have learned from that situation and gone far from the original concept. In simple terms, decentralized autonomous organizations are effective crypto communities with a joint bank account. Most DAOs fall into one of two categories: communities where members co-manage open-source blockchain projects and communities where people come together to invest on the blockchain. The latter may function as LLCs, venture capital firms, or investment firms. The original DAO concept of blockchain investing is already being called by many investors the “next breakthrough” in investments.
Decisions in the DAO are made by voting of token holders. Investors who want to participate in a DAO generally need to buy governance tokens. By owning tokens, they gain rights similar to those of LLC shareholders and can influence the organization’s future.
DAOs can have different focuses. They can invest in NFTs, early-stage startups, creative projects, women-led businesses, and so on.
Security token offerings have become analogous to traditional IPOs. During the STO, the company offers investors to buy security tokens, which regulators consider securities. Various ownership rights, bonds, shares, and other financial instruments can be tokenized. STOs have become one of the best blockchain investment methods because they primarily concern companies from the “gray zone.” We are talking about companies that are considered not big enough to launch an IPO but need funding rounds. Previously, such companies tried to find interested large investors and investment funds, but this path is very long and not consistently successful.
STO allows you to get the necessary funding from investors without becoming a public company. Since STOs are regulated by the SEC, investors are protected from fraud and are guaranteed to receive their payments or can get their money back if the project fails.
This article has covered five of the most popular blockchain investment methods right now. Some, such as ICOs, are already fading away, while others, such as STOs and NFTs, are becoming more popular. If you are looking for blockchain companies to invest in, we recommend doing your due diligence before purchasing tokens. In the case of STOs, companies are audited by the SEC and are fully compliant with all regulatory requirements. Another advantage of STOs is that only licensed investors can participate, that is, those who understand the market at least at an average level, know how to invest in blockchain, and are interested in crypto projects. Due to the presence of government regulation, investors are completely protected, which is another reason to invest in STO.
If you are running a business and need funding, we suggest considering blockchain fundraising through STO. Stobox has over four years of experience conducting STOs for its clients and will be happy to advise you. Contact us for a free 30-minute consultation!