In order to successfully launch their own token, security, or distributed application (dApp), a blockchain startup conducting an initial coin offering (ICO) must try to maximize the funds raised. One often overlooked way to boost an ICO project’s crowdsale is to give investors the opportunity to pay in fiat currency. About 15 to 20 percent of ICOs already enable participants to purchase cryptocurrency with fiat, adding convenience and simplicity for potential investors.
However, ICO projects face numerous challenges in delivering solutions enabling investors to buy their tokens using fiat. The legal frameworks of Know-Your-Customer (KYC), securities law, and international financing restrictions overlap in complex ways for ICOs seeking to accept fiat, creating serious compliance risks. Non-compliance can result in millions of dollars in fines, so companies conducting ICOs must think twice before rolling out a fiat solution for ICO participants.
To make the challenge even more acute, oversight of the ICO space by regulators around the globe is far from uniform. Projects must comply with local legislation for every territory in which they are raising funds, while also ensuring that any payment solution they choose operates in compliance with the applicable local laws.
ICOs can work around some of these compliance challenges by partnering with a major cryptocurrency exchange. The world’s biggest exchanges hold vast reserves of crypto, so they can accept investor fiat, send crypto to project teams, and bear most of the compliance risks. Whilst this approach might work in theory, implementing it in practice presents a totally different set of challenges for ICO projects.
Coinbase CEO Brian Armstrong noted the importance of ICOs being able to accept fiat both for investors and for projects themselves, adding that fiat payments will be a “key transformation” for the market, enabling the average person to invest in cryptocurrency. As a result of a lack of platforms able to leverage fiat payments for ICO participants, many leading blockchain companies are racing to develop a simple and effective crypto-to-fiat payment solution to address this market demand.
For example, in May of this year, Pundi X and its Indonesia-based startup partner E2Pay were granted an e-money license by the Indonesian government, allowing them to begin accepting fiat payments from debit and credit cards through their new XPOS device.
Exchanges are also moving quickly to create their own solutions to address this market need. Bittrex, one of the top five largest cryptocurrency exchanges on the market, announced on June 3rd that they are working closely with US banking partners on implementing a new feature set to enable some users to trade crypto for fiat and vice versa. This news comes just a few weeks after Binance, the world’s largest cryptocurrency exchange, made a similar announcement.
Indacoin Ltd has also developed a debit and credit card payment tool for ICOs that has already been used by dozens of projects. An Indacoin spokesperson stated that despite the fact that there is demand in the market, risks for service providers remain high, due to excessive fraud risks and wary bank attitudes towards the crypto industry in general.
Due in no small part to the compliance challenges mentioned earlier, many companies have chosen not to accept fiat in the framework of their token offering. However, with a new wave of money flooding into the market since August of 2017, many projects like Grapevine (GVINE) Crypto Tickets (TKT), Genesis Vision (GVT) and Sphere (SPHR) provided participants in their ICOs with an ability to pay in fiat, opening doors to new types of investor.
As new and more effective solutions continue to appear on the market, more ICO projects will start to experiment with fiat payments. This development may become an additional growth factor for the industry as a whole.
Solutions that deliver fiat payments for ICOs while maintaining compliance with various legal frameworks around the world are currently in great demand. As more and more companies begin rolling out different solutions to address the market’s needs, this new development will continue to transform the ICO industry, making it safer and more convenient for institutional players whilst also more accessible to the average investor.