07 Jul 2021 · 2 min read

Tokenization: Crowdfunding in the Era of Cryptocurrency and Blockchain

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ExMarkets

Since blockchain and cryptocurrency entered the scene, we’ve witnessed a complete revolution in the world of fundraising. The use of tokenization and blockchain has seen enhanced fundraising activities, commonly referred to as crowdfunding, because of the efficiency and transparency it guarantees the process. Furthermore, the process has been facilitated by the rise of Launchpad platforms, such as ExMarkets, which enables both established and startup projects to raise money to facilitate their development agendas.

When the wisdom of crowds manifested in the financial world some years back, crowdfunding was born. Crowdfunding could be used to raise money for various activities, mostly related to social welfare and startup capital for new businesses. Crowdfunding transformed the entrepreneurial landscape by ensuring more people participated in new projects that were initially a preserve of a few ‘sophisticated investors.’

Today, the fundraising revolution in the name of crowdfunding is moving into a new chapter with more efficiency and transparency with the help of tokenization and blockchain technology. To understand the process and the meeting point between crowdfunding and cryptocurrency/Blockchain, it’s important we learn the meaning of crowdfunding.

What is crowdfunding?

Crowdfunding, in the context of commercial project development, is a mechanism to raise funds from a large number of people, with the help of small ticket size, for a specific project. The process is often facilitated by a digital intermediary, which can help raise funds for a project that seeks to produce a product or a service to be sold commercially. The most common crowdfunding mechanism for commercial projects is equity-based, where people who invest in the project become the shareholders.

The crowdfunding market size was about 14 billion USD in 2019, and it was projected to increase to 124.35 billion USD by 2024. Crowdfunding offers many opportunities, including providing alternative financing, interaction with potential customers, and ensuring a high level of transparency.

Tokenization meets crowds

Tokenization is defined as the representation of any asset or rights to an asset into a digital status, commonly referred to as a token. Although tokenization pre-dates blockchain, it’s the latter that has provided the needed infrastructure to make it relevant for crowdfunding. The distributed ledger technology ensures tokens are programmed, stored, transferred, or recorded transparently and securely. There are three main types of tokens: security tokens, utility tokens, and currency/payment tokens.

Until 2019, many startups or businesses raised projects crowdfunded through Initial Coin Offerings (ICOs) and Security Token Offerings (STOs). However, the death of ICO and STOs has seen the rise of Initial Exchange Offerings (IEOs) as the preferred means of raising funds for new projects or products.

The wide adoption of tokenization to crowdfund can be attributed to its far-reaching benefits, which are the increased access to liquidity, more efficiency, ability to raise funds faster, more secure and transparent, automated compliance, and versatility.

Conclusion

Crowdfunding through tokenization supported by the distributed ledger technology (Blockchain) has changed the fundraising equation. Any new project or product developers looking to fundraise may look at this option with fundraising Launchpad ExMarkets, a leading crowdfunding platform that can help you to list your tokenized assets to raise funds for a project or product development.