ICO
An ICO is a sale of a project's tokens before the product exists, to raise money for development. The model boomed in 2017 and largely vanished after regulators judged most such sales to be securities offerings.
How it worked
A team published a whitepaper, opened a wallet and sold tokens for bitcoin or ether. No licence, no prospectus, no investor checks: a website and a smart contract were enough.
Billions were raised this way in 2017. A large share of the projects shipped nothing, and studies from the period found that more than half of ICOs ceased to exist within months of the raise.
Then regulators intervened. Selling a token on the promise of profit from a team's efforts falls under securities law in most jurisdictions, and the model shifted to sales through exchanges and launchpads.
What is left of the model
- IDOs and launchpadsThe sale runs through a DEX or an exchange platform that at least nominally vets the project.
- Early rounds are privateThe best terms go to funds before any public sale. Retail almost always enters last and highest.
- Airdrops instead of salesGiving tokens away for using a product is legally simpler than selling them. Hence the current fashion for airdrops.
- The warning signs have not changedA promised return, an anonymous team, no product, and a six-month unlock schedule are the same signs as in 2017.