Reverse Token Sales – An Upcoming Trend

November 14, 2018

Jacob K

Reverse Token Sales

Several thousand different tokens are available to buy or trade around the world on a moment’s notice. Some of these tokens are listed on premier exchanges, other have secured great relationships with crypto market makers and still others have acquired large communities or complex data sets. Some have even built clever workarounds or even foundational tech. However, despite partial accomplishments, many of these projects are plagued by low liquidity, problem with users not wanting what they made (lack of product-market fit), employee churn, co-founder disagreements, regulatory uncertainty and all of the other issues that plague cryptocurrency startups. Some of these teams have made several steps forward, managed some risk, but at the end have irreversibly stumbled.

The energy has dissipated and the teams are ready to move on. The tokens of these projects languish in a tradeless purgatory, with not enough money in the treasuries to deliver any meaningful product or solution. The funds that do remain are often barely enough to wind down the project and help the team transition to their next big thing.

 

Enter Reverse Token Sales

To others, there’s inherent value in some of these components and they are willing to deploy often great resources to acquire them. Thanks to reverse token sales new entrants are able to buy up all of the free-float and treasury tokens of a given project and instantly enter the market with their own team and strategy. Industry partners as well as financial investors can use this method to become cryptocurrency companies almost instantly, while cryptoprojects that have raised a lot of money through a token sale but are struggling with liquidity, another part of their business, or just want to scale up and expand, can pick up some technology, more whitelisted community members or memberships in key cryptocurrency associations. Thanks to reverse token sales, buyers are also able to radically reduce project risk, because they are buying things that already exist – instead of paying for someone to make them.

 

An M&A By Any Other Name

Reverse Token Sales were inspired, as was the initial coin offering (ICO) itself, by the public markets. The reverse initial public offering (IPO), also called a public takeover, is an instrument used by companies to get on an exchange much quicker than if they had to go through the whole regulatory, compliance and listing process themselves. The buyer might also be privy to some of the sellers tangible assets, including community relations, data and industry relationships. More importantly, they are able to gain crucial speed and peel away layers of project risk associated with building something, instead of buying something tangible. To the seller, the cash infusion might secure employee interests, pay off vendors or deliver on at least some of the promises made to the community.

 

Yet Another Step Toward Professionalization 

Reverse token sales, reverse ICOs or reverse listings – as the terminology goes – are a way to clean up after an existing projects, bring much needed cash to founding teams and reward those who have gone from zero to 1, but won’t get to 10. 

As more and more astute players enter the marketplace, expect this trend to grow among both savvy cryptocurrency players (those who have had successful offerings are are buying up resources, talent and market share) and those just entering the field, like members of industry and the financial services sector.

If you have a token project you are looking to sell or are interested in entering the blockchain world please contact MLG Blockchain to learn more.