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What is ICCO: a step forward or a circle run?

18 July 2018 08:05, UTC
Denis Goncharenko
Palladium is a Malta-based blockchain startup started the ICCO — Initial Convertible Coin Offering, the very first of its kind. Bitnewstoday.com investigates the case of this method of tokenizing: what is the fundamental distinction from ICO, and what are the benefits for the market participants.  

The project was launched at the Malta Stock Exchange, supported by Bittrex crypto exchange and Unikrn esports betting company. The pre-sale is ongoing; the offering period will start on July 25 and will end on September 30. The startup plans to collect €150 million. It is worth mentioning that the project has been initiated in several days after the adoption of the crypto law in Malta.

According to Paolo Catalfamo, founder and chairman of Palladium, “the project will create more than 100 job opportunities, to be a historic landmark and to bridge the gap between traditional financial services and cryptocurrencies.” He also added that the platform is a revolutionary solution to the most significant obstacles to widespread crypto adoption and this ICCO is one of the unique investment opportunities in the blockchain world. Following Catalfamo’s logic, the institutional investors recognize the scale of the opportunity, but the lack of regulation has kept them watching from the sidelines, and Palladium’s solution will change this.

Then what’s so peculiar and unique about this ICCO case?

The bold and promising abbreviature hides the very core of the project — the sale of convertible tokens. The investors can convert these into shares three years after the issue date.

Where will the funds of ICCO Palladium be directed to?

The half of the raised funds will go towards the acquisition of a controlling interest in a European bank; 35 % of the funds are aimed at the formation of a regulated crypto exchange and the development of a clearing and settlement blockchain platform; 15% of the funds will go towards strategic investments in financial services and blockchain projects of Palladium.

Criticism of ICCO. Is it as progressive as the founders claim?

ICCO has got some advantages in theory. It’s about higher reliability in comparison with standard ICO. The proposed idea of such method can guarantee the purchase of a legally protected asset. The presence of the shares of the company in this scheme means it’s the safe investment due to the strict regulation. It is considered that the Palladium tokens provide the rights for equity, so either the institutional or the private investors can be sure the funds are protected.

Nevertheless, some experts of finance market are critical to the Palladium initiative. Aleksey Prokofiev, the partner of Addventure.vc, the founder and partner of Open Street Capital and Open Perspective Privatstiftung fund mentioned that Palladium is notable for being so rapid in “packing” the so long-awaited instrument within the first established legislative framework.

“Certainly, the devil is in the details. This project will make the tokens look like they’re backed, as it was uneasy before, regarding the position of US and other regulators. Though, the risk still exists: they can keep their position on this model too,” the expert doubts. He is also critical on the financial targets of ICCO: “€150 million on the seed-stage — that’s a revaluation, no doubt. This will lead to speculations and “bubbling” of the project in the medium term. The company could have aimed at a 10-30 million target with the consequent additional deployment, depending on the results. They could have followed the way of VC investments.”  

Richard Shibi, a blockchain consultant and ICO advisor, doesn’t see a significant added value in ICCO, with its benefits over ICOs being insignificant. According to Mr. Shibi, ICOs selling tokens grand zero rights to the equity of the firm, while there are SCOs with security tokens which grand rights to equity just as shares do. Security tokens are already regulated in the USA. Therefore, the expert doesn’t see “how ICCOs can incentivize Institutional Investors more than security tokens.”

“The major difference is that institutional investors will be hanging on thin air for three years until they will be able to claim rights for equity. What is the incentive for an institutional investor to take such a huge risk for three years? While they can buy a security token and have rights to equity from day one?” — the expert expresses his surprise.

The conclusion is that ICCO can probably “boom” with proving its effectiveness and reliability to the market. But at this time, not everyone shares the optimism of the founders, considering other market instruments to be more reliable than the variant suggested by the Palladium project.