An initial coin offering (ICO) is a means of crowdfunding, through the release of a new cryptocurrency or token to fund project development. Just how the ICO intends to collect its funds also contributes to its attractiveness.

There are three main types of auction methods that ICOs employ to raise capital:

CAPPED SALES — In this case, ICOs sell a fixed number of coins at a predetermined fixed price. The ICO team sets a maximum amount of tokens available and cuts off token sales once a particular amount have been sold and the desired market cap has been reached. The advantage of this is that it gives a fixed valuation for your network which makes the process very transparent for investors. If investors believe your network is worth more than the valuation implied by the token price, they can feel confident in purchasing your coins. The downside to this model is that if you are launching a particularly hot product, often it becomes a race to buy up as many tokens as possible. UNCAPPED SALES — This means that the ICO team sells its coins at a predetermined price but does not cap the total number of coins it will give out. So the more people that invest, the more total tokens ICO will mint. An uncapped ICO will still limit the percentage of tokens available, however, the real percentage of the given token supply is not known until the token sale has ended. Investors also cannot know the value of each token until the sale has ended and all the capital has been raised. DUTCH AUCTION — Participants get tokens for the same final price, which is set by the auction, irrespective of the time of their bid. A Dutch auction normally entails the auction beginning with a high asking price, which is lowered until participants are willing to accept either the auctioneer’s price, or a predetermined reserve price. The main goals of the auction are to enable everyone to participate while offering certainty about the maximum total value of all tokens at the time of the bid. There is also a reverse Dutch auction system where tokens grow less expensive over time, encouraging investors to hesitate and take more time in purchasing tokens.

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ICOs are also incorporating tiered multiple investment rounds and pre-sales in order to generate more desirable outcomes. We can conclude that ICOs are very much still in the process of innovating.

Dear readers, hope you enjoyed learning about different types of ICO auctions. Next week, we will teach you how to actually participate in ICO’s and their token sales. Stay tuned :)