Virtual currency enthusiasts could soon have a new way to trade their favorite digital tokens.
A U.S.-based start-up, AirSwap, is trying to create a decentralized exchange where users can do peer-to-peer trading of virtual tokens. It plans to use smart contracts on the Ethereum blockchain to pair up buyers and sellers automatically, eliminating the need for a central authority to match trades.
“We are creating a software, a platform, in which people can access that platform and trade in a peer-to-peer manner,” Sam Tabar, a strategist at AirSwap, told CNBC’s “Squawkbox” on Friday.
To get the funding to create the exchange, AirSwap is creating its own virtual currency and launching the AirSwap token on October 10. Users can purchase AirSwap tokens in exchange for virtual ethereum tokens, instead of fiat currencies, such as the dollar.
Creating a virtual currency to raise funds, called an initial coin offering, is part of a new trend for start-ups and one that’s led to a proliferation of digital tokens or cryptocurrencies.
This year, start-ups have raised more than a billion dollars in token sales and recently, a Macau gaming company said it was planning to raise half a billion dollars through an ICO.
To-date, more than a thousand cryptocurrencies have been created via ICOs, according to the website CryptoCompare. Globally, most of those tokens are traded in centralized cryptocurrency exchanges that are both at risk from regulatory scrutiny and from potential hacking.
The start-ups’ use of ICOs allows them to bypass traditional fund-raising methods.
AirSwap’s Tabar said ICOs are “challenging the business model” of venture capital funding, because fintech startups no longer need to chase those backers.
“You can now have a token sale, in which you are offering … a digital voucher as it were, and these people buy these digital vouchers,” he said. “And you take the capital, by selling these tokens, and we use that capital to build out the platform.”
Some investors believe that ICOs can become a major source of fundingonce the market has matured and is properly regulated. But others argue that digital token sales cannot bring the same kind of value as venture-backed fundraising, which includes due diligence of company founders and an access to a wide network of mentors and investors.
Regulators are also putting the screws on ICOs, which can be used to launder money. South Korea on Friday followed in China’s footsteps to ban new ICOs. Meanwhile, regulators in the United States, Japan and Singapore are also monitoring the space closely on concerns over some digital tokens being treated like securities or being used for fraudulent purposes.
Tabar said AirSwap was “constantly monitoring” every jurisdiction that is relevant to the company, “with respect to their developing rules and regulations.”
“We are just as tired of other people who are abusing these token sales without any real projects behind them,” Tabar added.
The company said Chinese citizens were not allowed to participate in its upcoming token sale, following China’s ban on ICOs.
But experts have previously told CNBC that people can easily bypass the restrictions by using virtual private networks to mask their location or by asking a third party in a different region to participate on their behalf.