According to Forbes, more than $ 3 billion were raised through ICOs in 2017. Having risen to the level of interest in cryptocurrencies, ICO has become an effective and fast way to raise funds for the implementation of technology projects. However, any simplicity has a downside. In the case of the ICO, the shadow side became widespread opportunities for the application of this scheme not only by bona fide teams, but also by other scammers who simply misappropriated the collected money. The absence of any administrative control, the huge popularity of bitcoin and other cryptocurrencies, as well as the low technical literacy of the ICO operators in the space «Wild West». The likelihood of being deceived was off scale.
Sooner or later, it was necessary to turn the process of financing blockchain startups into a safe, or at least not so risky, space. There are two new directions for the development of primary financing in the field of cryptocurrencies — STO (Security Token Offering) and ILP (Initial Loan Acquisition).
Both methods involve:
- reducing the risk of introducing verification procedures usual for the traditional financial market;
- the opportunity to receive income from their investments not only in the relatively distant future, but much earlier, as well as to obtain the right to the property of the company itself, which collects part of its profits.
In addition to this, the ILP allows you to select potential investment objects in this way..
What is ILP
The ILP (Initial Placement Loan) concept was proposed by Tokenote, an international team from Estonia, Japan and Vietnam. The strategic partner of the company is the Estonian startup Agrello, providing the technology side — digital identification and signature when concluding smart contracts. To sign the credit world, the lender must pass identity verification, which is carried out by creating a digital identifier. Lending operations are carried out on the Blockhive platform, working with the HIVE token (HVN). By exchanging the token for the ETH, the lenders will provide loans to the company. The token itself has a character «access token», with the help you can exchange loan agreements which. ILP is positioned by the creators as a further stage of ICO development, which has the same advantages, but free from the disadvantages of the progenitor.
The idea of the developers is to fill the tokens sold to investors with great economic and legal meaning, presenting them as evidence of a loan issued to the company, for which interest is paid. Investors acting as lenders have the opportunity to receive a percentage of the profit.
- a combination of a democratic ICO with the legal obligation to execute a contract between a borrower and a lender. The contracts are signed with a legally binding electronic signature and are stored in the blockchain network’s distributed data registry;
- all procedures under the ILP comply with the requirements of international law in relation to the prevention of laundering of illegal traffic in illegal goods. ILP participants from both sides pass the authentication and authentication of the submitted documents;
- desire to quickly get affordable financing through the project. This situation oversaturated the market and may lead to a decrease in the usefulness of the cryptocurrency as a whole. In the ILP system, loans are circulated, not tokens, so those who do not need utility tokens may not spend on their mining and their own blockchain systems;
- since investments are legally formalized as loans, they are not taxable. This factor is becoming special today, since in many countries cryptocurrencies have begun to be taxed on capital gains and tax authorities applying new uses related to the cryptosphere;
- investments are linked to the operation of the company. The situation in the cryptocurrency market often does not reflect the real state of affairs in the company. The price of a particular token may rise not because a company or project has succeeded, but as a result of speculation. When completing a loan agreement through the ILP platform, the lender receives a part of the company’s profit as compensation;
- Unlike an ICO, a business project that raises money through an ILP does not have to be related to blockchain technology and be a startup. ILP — a more universal method of external financing that can be used by both private companies and public institutions;
- everyone remembers how the markets reacted to the ICO ban in China. The complexity of control annoys regulators in many countries, making them want to simply prohibit fundraising through ICOs. ILP, in turn, is a simple and straightforward loan that is allowed even in countries with the most stringent regulation. Raising money in the form of a loan relieves the tensions associated with ICO anarchy and builds ILP into traditional lending relationships. Technological details in the form of blockchain use in this case do not seem dangerous to the regulator.
- Potential investor (lender) registers on the platform.
- Provides the address of the ETH wallet. This wallet is used to work in the system, and its address is indicated in the smart contract..
- KYC investor verification (Know Your Client).
- Signing a contract.
- Purchase of HIVE system tokens for ETH. Tokens are the ability to receive and give loans. In addition, their owners can use them to trade credits on the Blockhive platform and make a profit when the token price changes..
- After receiving tokens in the Eesty wallet, their owner has the right to receive 20% of the financial platform. These conditions are legally binding and bring income to the investor regardless of the market price of the token..
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Profit is obliged to receive from investments in partner projects and the platform itself. Blockhive acts as an incubator, independently selecting promising projects and checking their reliability. The teams of the selected projects become members of the community, each member of which is interested in the success of each other’s work. An increase in the number of partners will make it possible to expand the range of sources of income and evenly distribute risks.
Main principles of work
According to the management, the main principles of the platform are:
Cooperation. The blockchain-based business model makes transactions transparent, inspiring the trust of the participants. In addition, the size of the distributed profit depends on the success of all participants…
Standardization. Company to extend traffic safety standards to all financing transactions, digital visualization.
Tokenization. Development and distribution of blockchain technologies for transactions with securities and property.
According to ICORating, Blockhive has no direct competitors yet. Their scheme of work is already used on three blockchain credit platforms. — Lendoit, Loanbit and SALT. However, none of these sites are engaged in lending projects…
Experts attribute the disadvantages of Blockhive to the long maturity of loans (2028), the lack of clarity of the selection procedures and the conditions for exchanging loan obligations of partners on the platform’s trading platform..
The proposed ILP business model is another step towards transforming the legal chaos of ICOs into a regulated and therefore safe space for conducting financial transactions..