Presales and ICOs (Initial Coin Offerings) have become one of the most known practices to raise capital in the decentralized finance (DeFi) world. But what are these Presales and ICOs and what's the difference between the two?
The sale of a cryptocurrency, ahead of its going public, to investors.
Pre-selling is a practice performed by some crypto projects ahead of an initial coin offering (ICO, often before listing a token on a Dex (decentralized exchange). During a presale, the tokens of the project are sold usually at a lower price than the future ICO or listing price. A presale can be open to all or only to withe-listed addresses.
If the project was to go well and the digital currency was to be a success, while the project’s creators would receive much-needed funds to finalize or further develop the project, investors on the other hand have the potential to acquire a token that could bring a high return on investment.
Needless to say, investing in presales (like almost any other DeFi and traditional financial product) can come with risks. If a project fails, investors can find themselves owning worthless tokens, unable to make a profit, and eventually losing the investment.
While on the other hand, developers have to be wary of investors who might dump tokens acquired during the presale shortly after launch, making a decent profit. To avoid this often presales come with vesting rules for both the project team and the investors.
There are tools called Launchpad that allow to create, run and list a presale very easily, Expresso for example offers this kind of service, alongside other DeFi tools, like token creation.
ICO (Initial Coin Offering)
Short for Initial Coin Offering, an ICO is a type of crowdfunding, or crowdsale, using cryptocurrencies as a means of raising capital for early-stage companies.
Any cryptocurrency or blockchain company looking to raise funds to create an app, service, or a new cryptocurrency (like a token) can use an ICO to raise funds.
An ICO usually begins with a company launching a whitepaper detailing the project’s goals, how many tokens will be mined, their life cycle, and how they will be distributed (aka tokenomics). Then, often after a presale, the tokens will be made available to be purchased with other coins (like ETH or BNB), tokens (usually stable coins like Tether or BUSD), and in some cases even fiat.
In some cases tokens sold through an ICO may offer utility, meaning that the owner can exchange them for access to a certain product or service, in this case, the token will be a Utility Token. In more rare cases, they may represent an ownership stake in the project that launched the listing, in this case, the token is referenced as Security Token.
At the moment, most tokens use a Decentralized Exchange (Dex), like Uniswap, Panckakeswap, or Sushiswap, to be listed, allowing people to buy and sell the project token.