What is an ISPO and how does it work?
An initial stake pool offering (ISPO) is a new and innovative way for crypto projects to raise capital without affecting the decentralised operation of the existing blockchain network.
This type of funding option is extremely new in the industry and has been gaining immense popularity among the community due to the benefits that it provides over other capital fundraising methods.
This type of fundraising was first introduced by the Cardano ecosystem and involves the use of Cardano stake pools in order to work.
Stake pools work by having ADA holders stake their tokens into a pool, and in exchange for supporting the blockchain, get paid ADA tokens every five days
At the same time, a certain percentage of the staked ADA tokens will go towards funding the specific Cardano project that the stake pool supports.
With such a model, the way to fundraise for specific projects that ADA holders want to support becomes extremely easy.
In the article we will cover the following:
- What is the role of ADA tokens in an ISPO?
- How is an ISPO different from an ICO?
- What are some examples of an ISPO?
- How do you participate in an ISPO?
- Will ISPOs become the future of funding in the crypto industry?
What is the role of ADA tokens in an ISPO?
Initial stake pool offerings are primarily done with the use of Cardano’s native token, ADA, since ISPOs have mainly been used on the Cardano blockchain which is where this fundraising method was first introduced.
The ADA token essentially functions as a stake with the stake size being directly affected by how much ADA a user has in his or her wallet. A user having a larger amount of ADA means that the user’s stake in a stake pool can also be bigger.
Cardano’s built-in functionalities will then allow the user to delegate the stake to any pool within the blockchain ecosystem.
There are multiple types of pools within Cardano which includes both public and private pools.
Public means that the pool has a public address which will allow anybody who holds ADA tokens to delegate a stake into that pool.
On the other hand, private pools will not have a public address and will be restricted to only those who know what the private address of the pool is.
The ADA token finally acts as the capital or “currency” of funding as the rewards will be distributed in the form of ADA and the project also raises its funding with the collection of ADA tokens.
This helps with both the growth of the Cardano blockchain due to the increased utility of its native token and provides an innovative funding technique to promote Cardano projects.
How is an ISPO different from an ICO?
An ISPO is a recent fundraising technique that is not available on all blockchains, it was introduced on the Cardano blockchain first. Users who delegate their ADA to a stake pool will still have control of their ADA funds and can withdraw their stake at any time.
Essentially, there is no risk for the user because the user’s funds are still held in their own wallet, even after delegating to a staking pool.
On the other hand, initial coin offerings (ICO) is a very different type of funding model which many different blockchain projects have used throughout the past few years.
In an ICO, a new blockchain startup will create its own native token that it believes will have future utility and offer it to early-stage investors.
The result is that early-stage investors will be able to accumulate a sizable amount of the tokens and the startup will be able to raise capital which it will use to build out its vision and company.
Those investors would later be able to sell their tokens at a later date in the hopes that the value of the token would have increased by then due to the success of the blockchain project.
ICOs were very unique when they were first introduced in the crypto community because they allowed for the funding of blockchain projects without the company giving up equity or ownership.
The key difference here between ICOs and ISPOs is that there is a financial risk for ICO participants.
When you take part in an ICO, your contributed funds will be exchanged for the token and this contribution could end up being lost if the project does not succeed. The funds will also typically be locked up until the tokens are listed on an exchange where there are buyers.
As a result, ISPOs are increasingly catching up to ICOs as a popular fundraising method due to its decreased financial risk.
How do you Participate in an ISPO?
Participating in an ISPO is relatively straightforward and is extremely easy for new users to understand.
The first step to participating is for the user to own ADA tokens.
The easiest way to acquire ADA is to just buy it on a centralised crypto exchange such as Coinbase or Binance. Once you have bought ADA, you need to transfer your ADA to a Cardano wallet.
There are many available options for Cardano wallets, but some popular options that are recommended include Nami Wallet, Yoroi, and Daedalus.
Once the ADA is in the wallet, there will be a staking option within the wallet that you can select.
After clicking that staking centre option, there will be a search bar that will allow you to search for the particular Cardano pool that a user may want to stake in.
Once the pool is confirmed, all that is needed is to click the delegate button and you have officially participated in an ISPO!