Estonia-based startup Blockhive has just introduced the concept of the Initial loan Procurement (ILP).
According to Forbes, it is estimated that over 3 billion USD was raised from ICOs last year. The fundraising method has its roots in crowdfunding and the meteoric rise of crypto has filled up company war chests with capital that its founders could have never fathomed through conventional methods. However, they are not without flaws.
Blockhive recently introduced the concept of the ILP; an initial loan procurement. Think of this as a crypto loan, where the creditors get an interest for their investment. With the ILP, the creditors who provide the loan to Blockhive will get 20% of their annual operational profits. Check a quick video above of how it actually works.
This method has many advantages over conventional ICOs and here are 5 reasons why ILPs might just prove to be better than ICOs.
The ability to raise funds from ICOs is driving everyone towards working on a blockchain project. But issuing a new token for every blockchain project isn’t sustainable. This will make the market extremely crowded, and in some cases, it would result in poor usability for cryptocurrencies as whole. The ILP works like a loan and what you can transfer is a contract, instead of a token. This brings us to our second point.
The cryptocurrency market’s volatility has a lot to do with speculation and even if a company is doing well, the token could perform badly, putting your investments in temporary or permanent loss. With ILP, your investment is contractually bound with the performance of the company with no room for speculation. As long as the company makes a profit, you get your returns annually.
For the past few years, the tax man has been after cryptocurrencies in an effort to find a way to tax them. In some countries, capital gains from cryptocurrency growth is taxed. In some countries they couldn’t find a tax framework for cryptos, so they banned them entirely. Seeing this, the Blockhive team use the loan-based approach to remove this threat entirely. As ILPs are actual debts, they are not subject to tax in most countries.
For a company to be able to run an ICO, you will need to have a blockchain use case. Companies without a tokenized blockchain system cannot run an ICO.
However, in their own words, the “ILP is an innovative way to raise capital, for not only startups like us, but also for businesses and government entities to get the funding needed to grow or to fund projects on a global scale.”
Anyone in the cryptocurrency space will remember what China’s ban of ICOs did to the market. The unregulated nature of ICOs puts it under the scanner of many regulatory bodies that aren’t comfortable with this form of fundraising.
However, an ILP is essentially a loan, which is allowed in almost every part of the world. It has taken the ease of raising funds of an ICO and coupled that with the traditional loaning system with a little blockchain magic to make it more secure.
Estonia is known for innovation in the blockchain space and the Blockhive’s ILP has the support of the Estonian government. We believe that this is an alternative to ICOs that the crypto space has been looking for, as only serious companies will want to use this kind of fundraising tool. It will be interesting to see how this method is adopted by other companies.