Trough Equity Crowdfunding Evolution and Involution: Initial Coin Offering and Initial Exchange Offering
Authors: Furnari S. L. 
Published: January 2021

This article analyzes two of the last innovative financing instruments of the crowdfunding family: Initial Coin Offering (ICO) and Initial Exchange Offering (IEO). Having both a potential financial nature, they will be addressed as «sons» of Equity-based Crowdfunding (EBCF). The main scope of this paper is to show opportunities and dangers of ICO and IEO through a comparison with EBCF. Indeed, at the end of the analysis it will be possible to understand if ICO and IEO can be considered as positive evolution of EBCF or — at least one of them — can be considered so dangerous to appear as a sort of «involution».In order to answer our question, the discussion firstly focuses on EBCF, the innovative financing instrument being one of the most important figures of the «crowdfunding family». Its importance lies in its financial nature that makes this instrument different from the other models (meaning the donation, reward and lending). Participating in an EBCF-campaign, indeed, lets participants become shareholders of the company they are giving money to. So, the main pros and cons of the participation in an EBCF campaign will be disclosed. In particular, granting easier access to capitals together with the possibility to benefit from the so-called «wisdom of the crowd» allowed EBCF to become one of the most innovative financing tools of our age. However, these advantages need to be mitigated with the main risks occurring during a crowdfunding campaign. These are: moral hazard and frauds, arbitrary exclusion during pre-emptive screening by platform and, last but not least, illiquidity.Therefore, the discussion moves to the technological advanced new entry of the crowdfunding family, meaning ICO and IEO. In order to understand why ICO and IEO are so similar to EBCF, both the main characteristic of these instruments will be described. With reference to ICO, first of all this article provides a brief description of the technology that makes this innovative financing tool the advanced «son» of EBCF. Indeed, through the launch of an ICO, a company asks the crowd a precise amount of money in exchange of a «token»: an informatic instrument through which the participant may exercise also some financial rights towards the company. From this point of view, an ICO-campaign is very similar to an EBCF one, lying the main difference in the technological solutions used, the queen on those is blockchain. Furthermore, ICO characteristic will be outlined in order to disclose its functioning — meaning the relation with blockchain and smart contracts — and the different models of tokens.After that, also IEO will be described. IEO could be considered one of the last variants of ICO. The main difference, indeed, lies in the fact that IEO campaigns are not conducted in the website owned by the company but in a specific platform, that is a crypto-asset exchange.The exam of ICO and IEO potentialities (i.e. programmability, disintermediation and tokenization) will highlight how ICO and IEO may solve most of the mentioned EBCF cons. This will lead to the potential consideration of ICO and IEO as evolution of EBCF. However, also ICO and IEO cons will be highlighted (meaning lack of transparency, not clear regulatory regime and, for IEO in particular, dangerous proximity with investors and potential conflict of interest). From the comparison between ICO and IEO pros and cons it will be possible to discuss on if we are really in front of two evolution of EBCF or nearer to an «involution» of this instrument, considering regulatory solutions in order to avoid this second scenario.