Initial Coin Offering

The mechanics

A project publishes a description of what it intends to build, creates a supply of tokens, and sells a portion to the public in exchange for bitcoin, ether or ordinary currency.

Unlike an IPO, buyers usually receive no equity, no dividend and no vote. What they get is a token that may be useful on the platform, if the platform ships.

The 2017 boom

ICOs raised billions in 2017 and early 2018, frequently on nothing more than a whitepaper and a website. Barriers were near zero: writing a token contract on Ethereum took very little effort.

A substantial share of those projects failed, and a meaningful share were outright fraud. The episode is worth understanding precisely because the pattern recurs under new names.

The regulatory answer

Regulators concluded that many tokens were securities regardless of what they were called. In the United States the SEC applied the Howey test: an investment of money in a common enterprise with profit expected from the efforts of others.

In the EU, the Markets in Crypto-Assets regulation (MiCA) now sets the framework, with obligations covering whitepaper disclosure, issuer authorisation and marketing rules.

What replaced it

Token fundraising did not disappear. It became more structured: exchange-run sales, airdrops to users, and issuance to holders under clearer legal frameworks.

The core lesson survives. A token sale funds a promise. Whether the promise is kept is a separate matter, and buyers rank last if it is not.

This page is general information, not investment advice.