Reverse ICO

1. Definition

Reverse ICO refers to companies that already offer a platform or service that is commercially available. Reverse ICO is an alternative form of ICO in which tokens are offering on the back of an existing business/intellectual property rights etc. This contrasts with the typical form of ICO where the business is often in the planning stage and the project has yet to make any profit. Funding raising is easier than traditional ICOs. The best known example of reverse ICO is that of Telegram.

2. Advantage of Reverse ICO

The advantage of reverse ICO is clear- it opens new frontier of crypto currency innovation to the existing business. One expert explains the advantage of ICO- “With the help of the so-called ‘reverse’ ICO, one can decentralize and provide a new market source apart from IPOs, risk capital investments and such. One can do so with complete, large-sized corporations with centralized operations that have working, trusted business models, or a concrete, already introduced product.”

Reverse ICO has some legal issues unique to it that could hamper its success- namely the relationship with the existing shareholders, the company, and new established company if a new company is formed after a reverse ICO.

We must have a clear relationship between the shareholders and existing company when establishing a new company for reverse ICO. Because many legal awards are needed more than normal ICO when proceeding with reverse ICO.

In the case of reverse ICO, the existing corporation may be subject to breach of trust and fraud civil claims. Therefore, if an existing corporation’s employees participate in the ICO team, it is necessary to clearly determine the proportion of employees handling the work of the existing corporation and the extent to which they handle the ICO business. Good contractual relationships regarding the use of existing corporate business models and intellectual property rights are also important.

(1) Reverse ICO shall not focus solely on funding and financing. This section should be prepared in advance because it is likely that if the project fails, it will be accepted as fraud regardless of the team’s intention.

(2) ICO is part of the project, not the final goal. Since the project does not end after the ICO has been concluded, it is important to design such funds without problems with the flow of such funds.

Another issue that raised by the blockchain community is that Reverse ICO is contrary to the spirit of decentralization because an existing company controls and dominates the ICO process.


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