Do you know all the acronyms that are part of the cryptocurrency universe? The numerous terminologies can cause much confusion for those who are joining now in this business. In order to help you have a better understanding of each one of them, the portal Fintech News provided a glossary on the main acronyms that are used. Check it out:
Types of Token
Currency Tokens
It´s the original token type found in blockchain. It works as a form of payment for goods and services and can be widely used across multiple platforms.
Utility Tokens
It´s similar to currency tokens, except for the value it loads. Instead of being used for payments, it is usually employed as a form of exchange. The users use utility tokens to negotiate services provided by the platform which directly issues the mentioned token.
Assets tokens
This is the profit machine for many companies that implement the blockchain. The idea is to link each token to an asset (known as tokenization) – it can be physical goods, data or anything of value. These tokens are mainly used as an investment, and the users generally don’t negotiate them directly, but instead, they are promised to make specific return on investment awarded by the tokens´ issuing company. It works out a little bit as the digital actions.
ICO – Initial Coin Offering
It is the original and most commonly known type of token. These tokens are generally used for crowdfunding and offered in a first symbolic sale, something similar to the purchase of shares. These ones are easily accessible and publicly available. Some tokens are purchased in exchange for currency, such as the bitcoin. However, in some cases the ICO may have a higher level of risk, because many token issuers collect resources without a cost-effective product. Moreover, ICO has been used as channels for fraud, failed projects and a general distrust and loss of investor confidence.
IEO – Initial Exchange Offering
That’s when a token, usually supported by a project, is listed directly in cryptocurrency exchanges, without an initial sale. Whereas the ICOs are prone to unstable prices, the IEOs limit the number of people who own these tokens. Therefore, the investors interested in buying the IEOs need to be included in some sort of friend´s list.
IFO – Initial Fork Offering
Forks happen when the data in a blockchain is divided into two, especially when many people are accessing the same network. Sometimes the blocks overlap, creating an old version and a new one. The IFO happens when a fork gains momentum, but it´s not part of the main chain. Consequently, with a reasonable boost, the fork itself can have value, resulting in IFO tokens which differ from the original token of the ICO. This is the reason why we have Bitcoin and Bitcoin Cash.
STO – Security Token Offering
Although conceptually it is similar to the ICO, the STO are backed up by assets and comply with the regulatory governance. The token represents a contract of investment in an underlying investment asset, such as stocks, bonds, funds and real estate investment funds.
IAO – Initial Airdrop Offering
These are the tokens that the companies distribute free of charge to their investors or interested people. This allows the company to control the number of tokens held by a single person. Moreover, it ensures much more stability in the price of the tokens.
SAFT – Simple Agreement for Future Tokens
It is a way of addressing the risk of utility tokens pre-sales, in order to avoid that the tokens issuers undertake too much risk and don’t deliver the deal. SAFT is a contract used to sell tokens to accredited investors. At the same time, token issuers cannot sell or release pre-functional tokens. The SAFT serves as an agreement to exchange tokens when the platform is released.
IICO – Interactive Initial Coin Offering
Usually in ICO, there are limited and unlimited sales. The limited ones are the fixed number of tokens at a fixed price and the shareholders know exactly what percentage of their engagement with the company. In the latter case, if a token is popular and more people buy it, the interested parties may end up with a smaller portion than expected. Thus, individuals who have a significant amount of tokens have the power to influence the markets in their favored direction.
The IICO tries to prevent that from happening, primarily allowing users to set a personal limit: the maximum amount that someone is willing to invest in the project. Theoretically, the aim is to obtain a fair assessment of the token, because users can set the style of auction for a particular token; investors can also withdraw an offer at any time.
Initial Supply Auction
That’s the moment when the price of a token begins relatively high, and then declines slowly when the auction is opened for bidding. The idea is that investors should pay for the token when they believe that the price is correct. On paper, this means providing a fair chance for everyone to buy an IICO of their choice. In a real life situation, this can help increasing the investors’ portfolio.
