What Is An ICO: Decoding The Fundamentals

Are you planning to invest in an initial coin offering (ICO)? If so, you’ve arrived at the right spot. ICOs have emerged as a popular fundraising model for early-stage blockchain projects to raise capital from public investors. It also helps investors acquire new cryptocurrencies at low prices, and potentially profit from a project’s future growth.

In this article, we’ll explain what ICOs mean, including their pros, cons, prospects, and how they function. We’ll also walk you through the key differences between ICOs and IPOs.

What Is An Initial Coin Offering (ICO)? 

Initial coin offerings (ICOs) in the crypto industry are akin to IPOs offering stocks in the traditional securities market. Any company seeking to raise funds for launching a new blockchain project, application, product, or service can organize an ICO. You can also consider ICOs as a new type of cryptocurrency that businesses create and utilize to raise money.

When you buy into an ICO by making a financial contribution, you’ll receive new tokens issued by the company. These newly minted coins may have some utility related to the product/service in development. Or, they may represent a stake in the company. New cryptocurrencies may even grant governance rights, enabling you to vote on protocol upgrades/initiatives in the future.

Advantages of ICOs

• For cryptocurrency startup firms, an ICO is the fastest and most efficient way to raise money.
• From an investor’s standpoint, ICO investments can generate high returns in the future. Early investors also get the virtual tokens at lower rates compared to those who purchase later. 
• Anybody can participate in an ICO, as there are no restrictions or specific eligibility conditions that investors need to fulfil.

Disadvantages of ICOs

• The lack of regulation makes it more challenging to identify high-quality and legitimate ICOs. Many ICOs tend to be scams or mediocre projects, which fail to deliver on their promises, leaving investors with worthless coins.
• Since ICOs require in-depth knowledge of crypto wallets, digital asset trading, and blockchain mechanics, they’re more suitable for seasoned investors. 
• New cryptocurrencies are usually intensely volatile, resulting in significant losses for investors.

How Does an ICO Work?

The ICO issuer sells new tokens to investors in exchange for other cryptocurrencies such as Bitcoin and Ethereum. The tokens are minted on a blockchain, which is an immutable distributed ledger. 

If a company manages to raise the minimum amount of funds required to develop the project, it’ll continue with its plan. If not, the project will be shelved, and the company will refund the money to investors.

Before issuing tokens, the issuer curates a white paper, explaining the A-Z of the project in detail. Ideally, it should contain the necessary information to help potential investors make a well-thought-out decision. 

In the US, ICOs also need to comply with Securities and Exchange Commission (SEC) regulations if they’re issuing security tokens. These tokens derive their value from external reference assets that are tradeable or grow in value based on others’ efforts. Usually, tokenized real-world assets fall in this category. 

Conversely, ICOs offering utility tokens need not adhere to SEC-issued securities laws. However, this exemption is applicable only if the tokens are structured properly and aren’t designed to grant ownership stake to investors. 

In general, utility tokens have specific use cases. Investors can utilize them in the future to access an upcoming project’s product/service in development. Businesses can also sell them as promotional coupons for their offerings, which are likely to be released a few months later. 

TZero and RealToken are examples of security tokens, while BAT and LINK are examples of utility tokens.

Initial Coin Offering (ICO) Vs. Initial Public Offering (IPO)

Examples of Successful ICOs

1. Ethereum (2014)

The Ethereum ICO took place between July 22 and September 4, 2014, enabling the founding team to raise money for developing the Ethereum blockchain. Vitalik Buterin and his co-founders successfully raised $18.66 million against a pre-valuation of $22.39 million. 

By the time the ICO ended, the founders had sold 60 million ETH, approximately 80% of the token supply. Of the remaining 20%, 10% was allocated to the non-profit Ethereum Foundation, and 10% was set aside for the founders. 

As the first blockchain network to support smart contracts for deploying decentralized applications and non-fungible tokens, Ethereum registered phenomenal growth. Since its official launch in 2015, Ethereum has reached a market capitalization of over $355B, as of December 2025. 

2. Binance Coin (2017)

The Binance Coin ICO was a three-week auction that culminated on July 3, 2017. It was deemed a “huge success” by Chengpeng Zhao, the founder and then CEO of Binance. Within 16 days, the platform had sold 100M BNB tokens, each costing 15 cents, and raised $15M. It also amassed 20,000 registered seed users. The money raised was predominantly used for building and marketing the Binance brand. 

However, according to Forbes, the company had sold only 10.78M BNB tokens. It had raised less than $5M. Despite the ICO’s failure, BNB’s overall price has crossed $850 as of December 30, 2025. 

3. Filecoin (2017)

Filecoin’s ICO started on August 10, 2017, and ended in the second week of September, garnering an investment of $205.8 million. The ICO was preceded by a pre-sales event, where Filecoin managed to collect approximately $52 million. With a combined raise of $257 million, the Filecoin ICO ranks among the top 10 cryptocurrency funding events to date. During the ICO period, the decentralized data storage project recorded large-scale purchases of Simple Agreements for Future Tokens (SAFTs). 

4. EOS (2017-2018)

Touted as the largest ICO event, Block One’s EOS raised a jawdropping $4.1 billion by selling one billion EOS tokens. The campaign ran for a year, enabling EOS to collect colossal capital for enhancing the EOSIO tech stack. The company also promised to use the funds to establish a $1B developer fund.

However, despite the ICO’s resounding success, the EOS project failed to deliver the promise made to the developer community. Of the $4.1B raised, only $675M was used for expanding the EOS ecosystem. Consequently, EOS witnessed an exodus of developers and was recently acquired by World Liberty Fi and rebranded to Vaulta.

5. Tezos (2017)

Tezos is a proof-of-stake blockchain network that hosted its ICO in 2017. It successfully raised $232M in Bitcoin and Ethereum by selling over 607M XTZ, priced at $0.38 per token. Using the money raised through the ICO, the Tezos Foundation co-invested in a $50M fund along with other VCs to minimize risks. Moreover, the fundraising structure was distinct, comprising non-refundable donations rather than token sales. 

6. Cardano (2017)

Cardano had a modest 16-month initial coin offering campaign. Between September 2015 and January 2017, the Cardano team raised nearly $62M worth of Bitcoin in exchange for ADA tokens. Nearly 57% of the total ADA supply was reserved for the ICO. Since launch, ADA has scaled quickly, rewarding early adopters with more than 14,000% gains as of December 2025. 

How to Identify a Legitimate ICO?

Check the Whitepaper

A white paper serves as a charter for cryptocurrency projects, covering details of a project’s vision, mission, founders, products, services, and roadmap. It is prepared by the founding team and uploaded to the project’s official website. Based on the white paper draft, prospective investors decide whether to invest in an ICO. Usually, you’ll find the following information in a white paper:

• Project’s goal.
• An estimate of the initial investment required to undertake the venture.
• Percentage of new cryptocurrencies the founders/promoters will retain.
• The ICO campaign’s duration.
• Details of the founders.
• The types of virtual currencies that would be accepted as payment.
• ICO terms and conditions.
• Storage of ICO funds.
• Purposes for which the funds will be utilized.

Review the Team and Advisors

If you find the white paper convincing, the next step is to review the team behind it. Research the founders’ and advisors’ education and professional backgrounds on platforms like LinkedIn. Check their track record, including relevant experience, testimonials, and past companies they’ve worked for. For developers, assess their GitHub activity to understand what kinds of applications they’ve built. Watch out for red flags like anonymous identities, a history of failed startups, or exaggerated claims.

Examine Tokenomics and Use Case

Tokenomics, a portmanteau of tokens and economics, refers to the fundamental attributes and economic framework of a crypto token. It addresses the following aspects of a token:

• Total and circulating supply.
• Token burning frequency and mechanism to manage inflation/deflation.
• Distribution system (Fair launch, pre-mining, or pre-sales).
• Lock-up and release schedules.
• Consensus mechanism (e.g., proof-of-work, proof-of-stake, proof-of-history) and reward structure.
• Token utility

While analyzing a new token’s utility, it is imperative to understand every use case. You must comprehend the different roles a token will play inside the project’s ecosystem. For example, a platform’s native token is predominantly used for paying network/gas/trading fees, staking, yield farming, or voting. However, certain platforms like the Sky Protocol have two distinct tokens, a utility token DAI and a governance token SKY. 

Analyze Community and Social Proof

High-potential projects typically have burgeoning communities backing them. Evaluate their official social media handles and community pages, including Twitter, Instagram, Discord, Telegram, and Discord. Active and organic community discussions are a positive sign. Moreover, assess the promptness and quality of responses posted by the founding team to resolve community queries. 

Inflated follower counts, bot-like conversations, low engagement rates, and pages filled with promotional content are major red flags. Lastly, check whether renowned publications, platforms, or crypto mavericks have mentioned/reviewed the project. 

How to Launch Your Own ICO?

• Generate an idea: The first step toward launching an ICO is to come up with an idea that solves a problem using blockchain technology. 
• Do the groundwork: Once you’ve a clear idea, define your project’s use cases, target audience, and tokenomics. Build a dedicated team, draft a white paper, mint a token, create an official website, and define ICO rules. Additionally, research ICOs of similar blockchain projects, develop a marketing campaign, and ramp up your social media presence. 
• Create a structure: Choose a suitable ICO structure based on your goals and preferences. Some ways to structure your ICO are as follows:
  • Fixed supply and price: The token’s total supply is static. Also, each coin has a preset price. 
  • Static supply and variable price: You can price your token based on the total funds raised through the ICO, while keeping the total token supply fixed.
  • Static price and dynamic token supply: Some projects specify a fixed price per token but alter the supply based on the ICO funding received. 

• Market the ICO: Promote the ICO on your project’s official website and social media. You can also advertise the campaign through print media, chat apps, strategic partners, or affiliate sites. 

The Future of ICOs in Web3

Despite the emergence of other forms of fundraising like IEOs and IDOs, ICOs are here to stay. They’ll continue to serve as a viable, cost-effective, and decentralized method for Web3 startups to raise funds directly from the public. They eliminate the need for intermediaries, such as traditional banks and VCs.

Additionally, ICOs are gradually evolving into automated on-chain campaigns powered by smart contracts. From payment collection to token distribution, smart contracts automate every step of the ICO process. Thus, ICOs are likely to become more secure, decentralized, and transparent in the future. 

As blockchain infrastructure continues to scale, ICOs will become more inclusive and accessible. They’ll democratize investment opportunities by enabling investors to participate in ICO campaigns with just a crypto wallet and an internet connection. 

Many cryptocurrency exchanges list new tokens even before the project is fully developed. Therefore, you can easily buy, sell, trade, or swap these tokens for other cryptocurrencies. 

Since ICOs have made it easier for businesses to raise capital, they foster creativity in the Web3 space. From decentralized storage spaces to music streaming platforms, ICOs have brought many innovative ideas to life. 

Conclusion: Are ICOs Still Worth It in 2026?

While ICOs enable startups to secure finances for their ventures easily, they are being increasingly scrutinized by regulators. For investors, ICOs can be highly rewarding. However, fewer than half of ICOs survive and grow phenomenally. They also carry high risks and have been used as vehicles for fraud and scams. Hence, you should do thorough research before investing your hard-earned money. 

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