ICOs have rapidly grown to become the most popular form of crowdfunding especially with the rising popularity of cryptocurrencies. However, ICOs do not have a good reputation due to the lack of proper regulation and the fact that scammers have also been taking advantage of the industry.
Following the uncertain nature of ICOs, the market has led to the hunt for a better alternative. There is a potential game changer coming up called Initial Loan Procurements (ILPs) that is causing quite a buzz. It involves digital loan agreements between lenders and borrowers that are facilitated by smart contracts.
What Are ILP’s (Initial Loan Procurements)?
The creditors receive interest based on the performance of the company issuing the tokens. The tokenized tokens are transformed into Future Loan Access Tokens (FLAT) allowing them to give investors some flexibility and liquidity when traded on the market. In the event that a tokenized loan exchanges hands in a sale, the new investors become part of the agreement with the borrower.
All lenders and borrowers are also subjected to Know-Your-Customer (KYC) checks eliminate risks such as money laundering and fraud. The loan agreements are also recorded and signed on the blockchain. ILPs can thus be used as a secure debt-based option to IPOs which are currently dominating the cryptocurrency market. They could be used as an alternative that will allow decentralized crowdfunding to continue growing.
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The downsides of ICOs
Unfortunately for ILPs, there are a lot of regulatory issues surrounding ICOs especially the long-standing question of whether or not they should be considered as securities or remain unregulated. If regulators classify them as securities, a significant amount of cash raised by the startups will be used to cover legal expenses. Digital tokens also have to be subjected to tax regulations and this is a big problem for investors and the ICO companies.
ICOs also involve a certain degree of risk for investors since they do not offer protection to users. Crypto startups raising funds through ICOs can basically do whatever they want with the raised funds and often times they lack the motivation to continue with their projects. This limits the chances of the investors getting returns on their invested amount. So far a lot of investors have lost their money. Brad Garlinghouse, the CEO of Ripple at one point said that most ICOs are scams.
The cryptocurrency market is also highly volatile making it even more risky for investors, especially those with strict guidelines. This means that a lot of investors may be opting not to venture into the market, meaning ICOs might be missing out on far more than they can raise. All this means there is a need for ICOs to be improved or for a better alternative and this is where ILPs could come in.
ILPs could help overcome some of the roadblocks through Ethereum smart contracts. The fact that the parties pass through a KYC before they are allowed to partake in transactions also creates an instance where there can be more trust in the system.