Know your Tokens: Busting Crypto Jargons and Acronymsby Satoko Omata April 22, 2019
Since the early days of initial coin offerings (ICO), the world of cryptocurrencies have added myriad types of terminologies – IEO, IFO, IAO, STO, etc. – all of which seems to be designed to confuse anyone who isn’t in the cryptocurrency business.
Let us demystify the acronyms, to help you navigate the increasingly intricate network. Don’t let the I-something-O jargons turn into I-GiveUp-O.
Types of Token
Currency token – is the original token type you find in blockchain. It exists to serve as a form of payment for goods and services, and can be widely used across platforms.
Utility token – is similar to currency tokens, with the exception of the value it carries. Instead of payments, it’s generally used as a form of exchange. Users use utility tokens to trade for services provided by the platform that directly issues said token. Not unlike buying tokens in a game and using those tokens to exchange for a power upgrade.
Asset token – is the gold mine for many companies implementing blockchain. The idea is to link each token to an asset (known as tokenising) – it can be physical goods, or data, or anything of value. These tokens mostly serve as an investment, where users generally don’t trade it, but are promised with certain returns issued by the token issuing company. It’s works a bit like digital stocks.
ICO – Initial Coin Offering
The original and most commonly known type of token. These tokens are usually used for crowdfunding and offered in a first token sale, something akin to buying stocks. These are easily accessible and publically available. Some tokens are bought in exchange for legal tender, like Bitcoin. It’s highly risky as many token issuers raise way too much capital without a minimum viable product backing said token. Which leads to scams, failed projects, and a general distrust and loss of confidence from investors.
IEO – Initial Exchange Offering
This is when a token, usually backed by a project, is directly listed on crypto exchanges, without an initial sale. Where ICOs are prone to unstable pricing, IEOs by design limit the number of people holding on to said tokens. Investors interested in buying IEOs would need to be whitelisted by the company, it’s a bit of an exclusive club.
IFO – Initial Fork Offering
Forks happen when the data on a blockchain splits into two, especially when too many people are accessing the same chain, sometimes blocks overlap, creating an old and new version. IFO happens when one fork gains momentum but is not part of the main chain. Given enough momentum the fork itself can carry value, resulting in IFO tokens that differ from the original ICO token. This is the reason why we have Bitcoin and Bitcoin Cash.
STO – Security Token Offering
Although in concept it’s similar to ICO, STOs are backed with assets and comply with regulatory governance. The token represent an investment contract into an underlying investment asset, such as stocks, bonds, funds and real estate investment trusts (REIT).
IAO – Initial Airdrop Offering
These are tokens that the company distributes for free to their investors or people who are interested in getting involved. This allows the company to control the number of tokens held by a single person. This ensures much more stability in token pricing.
SAFT – Simple Agreement for Future Tokens
A way to address the risk of pre-sales of utility tokens, to prevent token issuers to overpromise and under deliver. SAFT is a contract used to sell tokens to accredited investors; at the same time, token issuers are not allowed to sell or release pre-functional tokens. SAFT serves as an agreement for token exchange once the platform is published.
DAO – Decentralized Autonomous Organisations
An attempt at making a more accountable ICO that ultimately failed. The idea is that instead of an organisation offering tokens, there is no single organisation that controls the tokens.
Anyone with an internet connection can buy a DAO and create rules that govern the DAO. Shareholders will have to reach a consensus on the rules, as well as submit proposals for projects. All the shareholders would then have to come to a consensus and vote on which projects they want to fund with the DAO.
(Note: ultimately it failed because if a bug was found in the code, all shareholders must still come to a consensus before changing the code. This leaves it vulnerable for attack.)
DAICO – word association between DAO and ICO
Supposedly the more improved version that takes the best of DAO and ICO. The sales starts off like any ICO. However, after the initial sales, instead of allowing developers to have full access to the funds, it triggers a TAP mechanism, where stakeholders can control the amount of capital that the project team has access to. Any changes in a project, such as expansion or increase in capital will require the team to request for TAPs. Stakeholders then vote on whether to release that request or not.
IICO – Interactive Initial Coin Offering
Generally in ICOs there are capped and uncapped sales. Capped are fixed number of tokens at a fixed price and shareholders are sure of the percentage of their involvement with the company. Uncapped means if it’s a popular token and more people buy, stakeholders might end up with a smaller chunk of pie than imagined. What this means is that individuals that holds a significant amount of token, has the power to sway the markets in their preferred direction.
IICO tries to prevent this by essentially allowing users to put a personal cap: the maximum amount that one is willing to invest on the project. Theoretically it’s meant to derive a fair valuation of the token as users can bid auction style for a particular token; investors can also withdraw a bid at any time. Basically you can choose to stick to your slice of pie, or stick it out and take the potential risk in fluctuations of the token. It treats big and small purchases equally and gives both big and small investors a chance to be involved in the dynamic pricing of the token. Although, this concept is still fairly young and a lot of the legal implications of this online auction style bid is unclear.
Initial Supply Auction
This is where the price of a token starts relatively high, then slowly declines when the auction opens. The idea is that investors can pay for the token when they believe the price is right. On paper, it’s meant to provide a fair chance for everyone to buy an IICO of their choice. In practice, this may be help boost the rich man’s wallet instead.
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