Since starting in 1999, Binary.com has grown to become one of the world’s leading binary options platforms. Our growth led us to contemplate an Initial Public Offering (or IPO) to raise extra funds to leverage further growth, and let other investors share in our success.
But with the progress of blockchain technology, we are now in a position to hold an Initial Coin Offering (or ICO). In this blog, I’d like to run through the advantages of an ICO for prospective investors in our business.
But first, what is an ICO?
In an ICO, cryptocurrency – such as ERC20 – is issued to investors. In contrast, after an IPO, shares of a company are traded on a traditional stock exchange, like the London Stock Exchange, which use electronic trading systems that are built on pre-blockchain technologies.
Here are some big advantages of the new generation of ERC20 token trading systems, compared to traditional stock exchanges.
Lower transaction costs
When you transact in cryptocurrency, the cost is minimal – practically free when trading directly between individuals, and around 0.1-0.3% when trading on a centralized cryptocurrency exchange. In contrast, transacting in stocks can be expensive – brokers typically charge between $10 to $50, or a percentage of the purchase price which can be as high as 1%. And if you want to buy shares listed on an overseas exchange via your local broker, the cost is even higher.
Cryptocurrency exchanges are open 24/7. In contrast, stock exchanges have very limited opening hours. For example, the London Stock Exchange is only open 08:00 to 16:30 weekdays.
Cryptocurrency transfers settle in minutes. In contrast, stock exchanges typically settle in one or two business days.
Immutable and public audit trail
With blockchain technologies, the audit trail of transactions is public for anyone to see. This greatly reduces errors and potential for disputes. In contrast, when you purchase shares on a stock exchange, there is no public audit trail that you can easily query and check your transaction.
Faster and cheaper fund transfers
Funding a cryptocurrency exchange account – with Bitcoin or Ether, for example – costs very little, and settles in minutes, or at most hours. In contrast, funding your account with a traditional broker requires a bank transfer, which can be expensive and slow. International transfers using the SWIFT network can cost $40 for a single transfer, and can take days to arrive.
ICOs are international – subject to local regulatory restrictions, blockchain technologies are accessible to any investor, no matter where they live. In contrast, a company doing an IPO on, say, the London Stock Exchange, will typically raise funds mainly from UK investors.
Trading venue flexibility
ERC20 tokens are based on a standard protocol and can be easily listed on a number of cryptocurrency exchanges (and transferred between exchanges) without any complications or costs. In contrast, a company listed on one stock exchange will see its shares only traded on that exchange.
What are the downsides of an ICO?
Although there are many advantages of performing an ICO, there are also disadvantages. The big one is that cryptocurrency exchanges have not yet had the time to establish detailed rulebooks and codes of conduct for companies wishing to issue securities-backed tokens.
So, in a way, cryptocurrency exchanges are the 'wild west', where there are, as yet, practically no regulations. As a result, many ICOs (whether of securities-backed tokens or in-app tokens) are outright frauds that will, once the dust settles, degenerate into financial scandals (yes, it’s sad but true).
What are securities-backed tokens?
Under the ICO, Binary.com will offer securities-backed tokens. These are tokens that meet the definition of ‘securities’ under financial laws. The tokens will be subject to best practices designed to protect investors, such as requirements relating to risk and financial disclosures.
If Binary.com is so successful, why does it need to hold an ICO?
Companies that reach the size and maturity of Binary.com typically perform an IPO to provide liquidity to their shareholders, to incentivize management, to raise funds, to raise the profile and brand of the company, to improve corporate governance, to facilitate talent recruitment, to facilitate future mergers and acquisitions, and other such reasons – being a listed company can provide a host of growth opportunities. Binary.com wishes to perform an ICO for all these reasons, in addition to raising our profile within the cryptocurrency community and orienting the company towards those technologies.
Why invest in our ICO?
Binary.com is one of the first companies to perform an ICO as a substitute for an IPO.
We intend to perform our ICO while implementing best practices in corporate governance, investor disclosure, and transparency.
We hope our ICO will serve as a good example of how to perform securities-token issuance on the blockchain and usher in a new wave of financial market development on the blockchain.
If you’d like to know more, please view our ICO pre-announcement page.