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Could New 'Reversible ICO' Concept Solve the Traditional ICO's Issues?

Nov 01, 2018


  • While speaking at Devcon4, Ethereum’s (ETH) annual developer conference, Fabian Vogelstellar, a notable Ethereum developer and co-author of the ERC-20 token standard, proposed a new concept called the “reversible initial coin offering.” 
  • While introducing his new concept, Vogelstellar discussed issues with initial coin offerings (ICOs) that have arisen since they gained popularity in 2017 -- most notably, Vogelstellar highlighted issues of scams and fraudulent ICOs.
  • As described by Vogelstellar, a reversible ICO would serve as a fundraising model that enables investors to return their tokens, and receive reimbursement, at any stage of the project through the use of a special purpose smart contract.  
  • While the concept of a reversible ICO is similar to that of a traditional ICO, there are some very important differentiators: 
  • If an investor wants to sell their tokens under a reversible ICO framework, the special purpose smart contract ensures that the tokens are reimbursed by the project the investor was initially funding, instead of relying on a market for the tokens. 
  • Once an investor reverses their funding commitment and reimburses their tokens, the special-purpose smart contract allows other investors to support the project and purchase the tokens.  
  • In the case of reversible ICOs, special-purpose smart contracts act as middlemen to facilitate investors buying and selling tokens.  
  • In theory, reversible ICOs should do a better job than tradition ICOs of aligning a project’s goals with those of the investor. Because investors can simply reverse their funding commitment at any stage of the project, projects are more likely to follow through on the promises that caused an individual to invest in the first place!
  • One potential problem with reversible ICOs is that it does not fix all the issues that surround traditional ICOs. One major issue associated with traditional ICOs is whether or not financial regulators considers them as securities. Regulators across the globe have begun to apply securities laws to traditional ICOs, which has led to a large grey area surrounding traditional ICOs -- investors across the globe are unsure whether or not it is legal to buy and sell ICOs in their country, exacerbating the uncertainty already associated with cryptocurrencies.  
  •  Vogelstellar discussed while speaking at Devcon4 that the next stage for reversible ICOs is to test the code in the wild. It is likely that Vogelstellar will test the concept in Lukso, his own startup that aims to build a fashion-and-design industry blockchain. Until reversible ICOs are tested in real work applications, however, we will be unsure of the concept’s true feasibility.