The emergence of bitcoin and blockchain technology gave birth to a new funding mechanism know as ICO (an acronym that stands for Initial Coin Offering). In summary, an ICO is a method of fundraising in which a startup (or an established company, or individuals, even) sell their native crypto coins or tokens in exchange for other digital currencies (such as bitcoin and Ethereum) or sometimes also fiat money. The name itself is derived from IPOs, or Initial Public Offerings, the traditional form of selling company stocks in the public market.

Startups and projects need funding to achieve their goals and build their projects. Before the advent of ICOs, startups used more traditional investment channels, such as seeding from VC (venture capital) firms, and IPOs (Initial Public Offerings, or when a company goes public and sells stock to raise capital and expand).

While traditional venture capital put a lot of money in some of these ICOs, the distinguishing feature between them and IPOs is that ICOs were also largely driven by retail, individual investors who are usually cut off from traditional seed stage investing. In this sense, ICOs work like crowdfunding on steroids, as regular people from across the world can invest in potentially lucrative ideas without being barred by the strict accredited investor-style restrictions put in place by current regulation. As we’ll see, this is a double-edged sword.

What’s remarkable about ICOs is that in an overwhelming majority of cases, these sales didn’t require an existing product, or even an MVP. Most often - and especially during the bubble years of 2016-2017 - all that was needed was a convincing enough whitepaper describing an idea, a slick website, the right kind of marketing, and the project might have gone on to raise millions (or even billions) in funding.

ICOs took the investment world by storm. Several renowned companies and organisations have ridden the ICO wave to raise billions of dollars - arguably due to the ease of putting together such an offering, because of its then-unregulated nature.

A brief history of ICOs

It all started in 2013. J.R Willett, the alleged creator of the first-ever ICO, called for funding in the Mastercoin project’s Whitepaper. A bitcoin address was created and 4740 bitcoins were raised.

In the same year, another notable ICO was successfully conducted: the NXT project. It was developed by an anonymous individual known as BCNext. NXT was the first project to take a shot at the Proof-of-Stake consensus algorithm. NXT raised 21 bitcoin in September 2013, and it is one of the oldest altcoins in existence today.

But the most significant project funded through an ICO so far was Ethereum. The project was created by the young Russian-Canadian programmer Vitalik Buterin, together with some of the biggest names in the blockchain industry today, like Gavin Wood and Joe Lubin.

The Ethereum ICO raised 3700 BTC in the first 12 hours of its presale, and a total of $ 18.4 million (in bitcoin’s then-value) from its 42 day-crowdsale. The platform was built to enable the creation of a world computer with a native, tradable digital token that could be used as a currency, a virtual share or to represent an asset. Basically, highly programmable money. It can be argued that the launch of Ethereum was responsible for the following boom in ICOs, as it basically enabled open, automated crowdfunding of other projects over its blockchain.

Since then, many other general-purpose blockchains were released, but so far none have been as successful. As of February 2019, Ethereum is the second largest cryptocurrency by market capitalisation, and by far the number one platform for decentralised applications and crypto funding via ICOs.

The ICO boom

In the cryptocurrency space, 2017 is known as “ the year of ICO”. This is because of the huge successes recorded by various ICO projects. Some ICOs reached their hard caps in minutes. According to, $6,226,689,449 were raised through ICO. This success was due to two main factors:

  • First, investor frenzy. People saw the huge ROI on previous ICO projects, and how easy it was to make big bucks over a short period of time. FOMO (fear of missing out) drove more and more people in. This led to a hype cycle that saw big and small investors around the world on a constant watch to find ICOs to invest in, often disregarding quality, in clear embodiment of the term “irrational exuberance.”
  • Second, it was quick, cheap and easy to raise funds through ICO. In the early days up until 2017, there was little to no regulation in the space, and all a developer or entrepreneur needed to raise funds were an Ethereum smart contract, a website and marketable whitepaper.

Entrepreneurs flocked into the space for funding and investors dumped money by the billions, leading to an untenable situation that was comparable to the Dotcom bubble. When this bubble burst, the crypto market lost nearly 90% of its capitalisation over the next 12 months.

The decline of ICOs

So, the ICO furore has seemingly passed. This wasn’t completely unexpected as the bubble was fuelled by hype and speculation. Most projects lacked real substance and value proposition. A good number of them just rode the wave while collecting huge amounts of funds from investors, making ambitious promises which they failed to deliver.

The 2018 bearish market didn’t help. Investors took their losses, stopped putting money into random projects, and the money flow halted. The irrational exuberance to invest in ICOs ceased to exist.

The nail in the coffin for ICOs was hammered when the whole concept fell under serious scrutiny by SEC (Securities and Exchange Commission, the American regulator for securitised assets) and other regulatory bodies. Even though there is still a lack of certainty and clear definitions, any ICO that is deemed to fail the Howey test is regarded as a security, and thus must comply with certain regulatory requirements.

As a good deal of the ICOs failed this test, the SEC have cracked down on the ones that failed to register and comply with the strict securities laws. Good examples of such ICOs were Airfox and Paragon. According to SEC in a press release both sold securities through ICO and failed to register or comply with regulatory procedures.

Biggest ico ever conducted

Some projects have received an unprecedented amount of funds through ICOs. The following are three of the biggest fundraisers in the ICO market - and probably in the startup market, too.


EOS raised $4 billion through their one year-long funding process, the biggest known ICO conducted to date. Amazingly this mind-blowing figure was raised even before any product was actually released. EOS blockchain was developed to be a better alternative to Ethereum in terms of scalability. Since its launch the EOS blockchain has been said to have peaked at around 3000 TPS, but it’s been since heavily criticised for not delivering on its promises. As reference, Ethereum can only handle 15 transaction per second, and bitcoin peaks at seven.


The company behind the popular messaging app, Telegram raised $1.7billion during a private sale, conducted behind closed doors - perhaps not exactly the same type of ICO, as retail investors didn’t get to buy in and only institutional and high net worth individuals managed to enter the presale. The whole process was conducted through SAFT agreement. The funds raised during presale will be used to develop the Telegram open Network (TON), which when deployed will be supported by the digital token called GRAM.


The Dragon ICO raised $320 million out of a $500m target, and part of the plan was to use funds to build a floating Casino in Macau, which is known as Asia’s gambling capital. The Dragon Coin (DRG) aims to disintermediate money transfer agents who take exorbitant fees from international gamblers when they convert their money in their currency into currencies that can be used to gamble in Macau.

ICO scams

We couldn’t possibly talk about the decline of ICOs without elaborating on the many scams in the space. A study conducted by the Satis group concluded that “80% of 2017 ICOs were scams”, put together with the sole purpose of separating people from their money and never intending to deliver on their promises.

The SEC managed to halt some of these, like PlexCoin (who by this time had raised $15 million from investors) and Titanium Blockchain, who was cited for fundraising under false business relationship and partnership with Federal Reserve, Boeing, Paypal, and other firms.

The government body have also pressed charges against Maksim Zaslavskiy, founder of REcoin (Real Estate Coin) and DRC (Diamond Reserve Club), for defrauding investors via ICO. Zaslavskiy claimed to have the necessary staff and formed relationship with investors and retailers which later turned out to be lies. He also claimed in the bitcoin forum that members of DRC could easily exchange their tokens with real diamonds.

A paradigm shift in crowdfunding

Due to the many scams in the space and the subsequent regulatory crackdown, an updated ICO mechanism has started to emerge, known as STO, or Security Token Offerings. On the one hand they work just like ICOs, in which they still take place in the digital realm and without need for brokers and other intermediaries. But on the other, they are combined with IPOs in the sense that they must be registered with and approved by the relevant regulators prior to issuing tokens. This means that any project that aims to raise public funds needs to comply with strict laws, offer utmost transparency and clear, truthful information about the nature of the business and of the investment. However, unlike ICOs, investors that wish to put funds into STOs must also meet the criteria regulators set for accredited investment, which still leaves out a vast majority of individuals.

Thus, while STOs aim at combining the good qualities from both IPOs and ICOs, they still suffer from some of the problems of each particular approach, and as they stand, STOs still fail at securely democratising the access to potentially high-yielding assets to retail investors.

What will become of ICOs and STOs?

At this point, it’s still unclear if the STO approach will actually take off. Crypto is a global phenomenon. Even though the US regulators usually take the lead, with the rest of the world following when it comes to financial regulation, the transnational nature of crypto assets means it will be hard to enforce any single framework.

Regulators should strive to achieve balance, protecting investors while not stifling innovation. If laws tighten too much in the US, entrepreneurs will simply flock to greener pastures. It’s already happening - with the tighter grip of the SEC and the extremely complex and costly process of conducting an STO, many projects are simply choosing to take their business elsewhere, leaving American investors out.

It is still too early to tell what is going to happen, as the dynamics are only just starting to play. However, a couple of things are certain: ICOs have shed light over our current opaque and unfair funding and investment system (and will hopefully lead to changes for the better); and cryptocurrencies will keep pushing the boundaries towards a global, frictionless financial system.

Jan 13, 2020
Crypto 101

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