ICTO: The safest token offering model ever?
FinNexus, a nascent DeFi project focused on building interoperable blockchain protocol clusters, has recently been attracting increased…
FinNexus, a nascent DeFi project focused on building interoperable blockchain protocol clusters, has recently been attracting increased attention from the industry for its innovative ICTO (Initial Convertible Token Offering) model.
The ICO craze of 2017–2018 receded almost as quickly as it emerged, partly due to dramatic market changes, but more importantly because of scammers and wild speculation. The market has been craving for a decent model that provides for more moderate risk investments and more choices for investors with varied risk preferences.
The FinNexus ICTO model involves two tokens, ‘FNX’, the FinNexus native token, and ‘UM1S’, a FinNexus tokenized product with a fixed return of 10% APR for 3 months. The return of UM1S is backed by a real-world asset with details disclosed in a detailed offering circular provided by the project team.
The essence of the ICTO model is that the holders of the FNX token are entitled to conversion rights, a second choice even after subscription. One may either choose to convert to the asset-backed token UM1S to enjoy lower risk and a fixed return for 3 months or may hold FNX to be involved with the benefits from future FinNexus development. Investors may choose whether or not and when to convert according to their risk preferences.
Let’s take a look at an example to see how this new innovative token distribution model works better for a wider variety of token investors. Suppose Bob is an investor with a balanced strategy. After subscribing to FNX tokens in the ICTO, he may choose to convert half of FNX into UM1S and keep his investment portfolio balanced. As a risk-averse investor, Alice could elect to immediately convert most of her FNX tokens into UM1S, thus preserving her initial capital and getting upside exposure essentially for free by keeping 10% of her subscribed FNX tokens. Finally, Mike is an aggressive investor and elects not to convert any of his FNX tokens to UM1S. This hypothetical scenario is presented in graphic form below.
It is of interest to note that the conversion ratio is always fixed. At issuance, one FNX is set at 0.10 USDT and one UM1S is 1 USDT. 10 FNX can be converted to 1 UM1S, no matter how the market price of FNX fluctuates. Due to UM1S’s fixed return, one can get the principal and interest back at maturity. It provides an effective mechanism for safeguarding the FNX price during the conversion period. If FNX drops below 0.10 USDT, arbitrageurs will step in.
The ICTO model may be the safest token offering model ever, as the FNX price will be unlikely to drop below the issuance price, thus preserving only upside potential. (It should be noted that there is an upper 80% limit of conversion.)
Moreover, the conversion will act as a market adjusting mechanism to balance the issuance of FNX in circulation. The converted FNX will be burnt, leading to a decrease in the circulating supply, which benefits the remaining FNX token holders. The market decides how many FNX tokens are left on the market.
It’s good to see that the FinNexus team is doing something totally different from a typical ICO or IEO. Giving investors choice and a safety mechanism is quite a progressive idea. The ICTO combines FinNexus’ project fundraising with the launch of its first product and lets its users actually feel what the platform is doing, rather than merely selling an empty dream.
It’s worth digging a bit more into this new-born Defi platform and checking out their new groundbreaking token offering model — the ICTO.
Please note that: This is not financial advice. The content in the article is only for educational purpose and has to be treated the same.