Rethinking IPOs in the age of the blockchain

The first modern Initial Public Offering (IPO) was held by the Dutch East India Company over 400 years ago. Today, an IPO remains a tantalising prospect for companies around the world that have reached a certain size and maturity.

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Popular as it may be, the IPO has remained relatively stagnant for decades and poses several limitations to companies and potential investors alike –– even long after the IPO is over. Some of its disadvantages include a tedious and time-consuming process; large fees; limited reach; slow settlement times; and limited trading hours.

But a solution might just be around the corner, thanks to a peer-to-peer electronic cash system called Bitcoin based on blockchain technology that gave rise to the Initial Coin Offering (ICO). In an ICO, investors purchase digital coins or tokens that give them access to a decentralised network (‘utility’ tokens) or shares in traditional financial assets (‘securities’ tokens).

Taking the lead

Online trading pioneer, Binary.com is leading the charge for an “IPO on the blockchain” –– essentially an ICO that gives investors the financial benefits of a traditional IPO and more by leveraging on the advantages of blockchain technology.

Binary.com already fits the profile of an ideal IPO candidate. Founded in 1999, the company is profitable and debt-free. To date, it’s recorded over USD 3 billion in turnover and distributed close to USD 12 million in total dividend payments to its shareholders last year.

More importantly, it believes that traditional IPOs and stock exchanges will gradually be replaced by ICOs and cryptocurrency exchanges in the coming decade.

For this reason, Binary.com has launched an ICO with securities-backed tokens that give investors tangible economic benefits, starting with dividend rights. Investors can also convert the tokens into ordinary shares. Post-ICO, they can trade their tokens on the Lykke.com cryptoasset exchange where the tokens may potentially rise in value, just like shares that are listed on a stock exchange.

Advantages of an IPO on the blockchain

Companies that wish to perform an ICO as a substitute for an IPO can look forward to several benefits.

For a start, they can dispense with the underwriters and their hefty fees. They can also raise funds from a global pool of investors as opposed to a traditional IPO that typically raises funds from investors in the same jurisdiction as the stock exchange. By issuing digital tokens based on a standard protocol, they can also choose to list their tokens on more than one exchange –– wherever the tokens are supported.

It is a similarly favourable proposition for investors. They can look forward to 24/7 trading on a crypto exchange, faster settlement times, lower trading costs, as well as an immutable and public audit trail of each transaction they’ve performed.

How the Binary.com ICO works

Binary.com is one of the first companies in the world to perform an ICO as a substitute for an IPO. To achieve its aim, it is implementing best practices in corporate governance, investor disclosure, and transparency. These include mandatory Know Your Client (KYC) checks for investors.

In accordance with applicable securities laws, the Binary.com ICO is only available to residents of selected countries. In a number of those selected countries, prospective investors will need to verify their status as qualified or professional investors before they can participate.

Up to 10 million tokens based on the Ethereum ‘ERC20’ protocol are available via an auction process on its website where the final price of each token will be determined by the auction participants.

Investors need to open a Binary.com account to bid on the tokens. They can fund their account using a wide range of currencies –– both fiat and crypto –– and place as many bids as they wish. To place a bid, investors just need to deposit 5% of the total bid price upfront, so they won’t have to tie up important funds in order to keep their bids active.

After the auction is over and the final price is determined, bidders will have two weeks to deposit the balance owed.
The Binary.com ICO is ongoing until 25 December 2017.