A startup named Bancor has raised about $153 million in less than three hours from anonymous investors in what is now the biggest example of a new form of blockchain-based funding—the initial coin offering.
And it all happened on Ethereum, the blockchain platform that has exploded in popularity over the past few months. Ethereum, often described as another Bitcoin competitor, is more than a currency; it allows decentralized, blockchain-based projects to be built on top of it.
SEE ALSO: Bye, Bitcoin. Hello, Ethereum.
While most startups raise money from investors or through selling stock on public markets, Bancor found investors through an ICO—an Initial Coin Offering.
An ICO is a new way to raise funding that has gained momentum in recent months; the new company issues tokens—a sort of mini-cryptocurrency that, besides being tradable, might also give you other benefits (though this differs from project to project). In an Ethereum-based ICO, tokens can be purchased in a limited window of time by anyone willing to trade their ETH (the commonly used acronym for Ethereum's cryptocurrency, Ether) for them; during Bancor's ICO on Monday, a little over 10,000 people bought the company's tokens.
All in all, Bancor raised 396,720 ETH, which at the current ETH prices are worth $149.5 million (you'll see different numbers around the net because ETH has been very volatile lately, but it's the same ballpark).
So what does Bancor offer that makes it so special? The company seeks to simplify creation of new tokens in a way that allows literally anyone to create a cryptocurrency "in a matter of seconds," according to a Bancor spokesperson. It's backed by some high-profile investors, including venture capitalist Tim Draper. The "architect of the euro" Bernard Lietaer is a part of the team.
But Bancor also benefited from good timing. The price of ETH has been surging lately and currently sits at $379.21, up several thousand percent compared to last year. Also, the interest in ICOs has never been higher; basically every project that employed this method of funding has been funded within hours.
Priro to the ICO, the company published a post on their website detailing how it plans to use the funding. Forty percent of the money, Bancor claims, will be used for software development; some of it will be used for operational and legal expenses as well as marketing. And twenty percent will be used as an ETH reserve. With ETH prices surging, merely holding on to ETH might be the best course of action, though with the cryptocurrency's volatility, it's also quite risky.
Another side-effect of ICOs is that they effectively remove large amounts of ETH from the market, which pushes the price higher. Some think the situation has all the makings of a bubble that will at some point burst, but for now, startups such as Bancor are making bank.
Both Bitcoin and Ethereum have experienced immense growth in the last couple of months, though foundations on which this growth is based are debated. In May, the total market cap value of all cryptocurrencies exceeded $80 billion; right now, this number stands at over $110 billion, and the price of ETH has doubled.
Disclosure: The author of this text owns, or has recently owned, a number of cryptocurrencies, including BTC and ETH.