Initial coin offering

• 1. The First Token Sale

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  July 2013 marked the birth of a new financial instrument when Mastercoin held its first token sale. This event laid the groundwork for what would become known as an initial coin offering. The process involved selling cryptocurrency tokens to speculators and investors in exchange for legal tender or other established cryptocurrencies like Bitcoin. These tokens were promoted as future functional units of currency if the project successfully launched. Early adopters saw this as a way to fund startup companies without traditional intermediaries such as venture capitalists or banks. The structure allowed startups to avoid regulations that typically prevent them from seeking public investment directly. However, the lack of oversight also meant that ICOs could fall outside existing securities laws entirely.

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• 2. Explosive Growth And Collapse

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  By May 2017, the ICO for Brave web browser generated about $35 million in under 30 seconds. Messaging app developer Kik raised nearly $100 million through their September 2017 token sale. At the start of October 2017, ICO coin sales worth $2.3 billion had been conducted during the year alone. This figure was more than ten times as much as all of 2016 combined. Filecoin became the highest-grossing ICO by January 2018, raising $257 million with $200 million coming within the first hour. Despite these numbers, fewer than half of all ICOs survived four months after the offering. Almost half of ICOs sold in 2017 failed by February 2018. A record $7 billion was still raised via ICO from January to June 2018 despite falling cryptocurrency prices and a high failure rate.

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• 3. Scams And Speculative Bubbles

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  The Securities and Exchange Commission warned investors to beware of scammers using ICOs to execute pump-and-dump schemes. In this scheme, a scammer talks up the value of an ICO to generate interest and drive up coin values before quickly dumping them for profit. Jimmy Wales, founder of Wikipedia, stated in 2017 that many initial coin offerings were absolute scams requiring extreme caution. The SEC charged Maksim Zaslavskiy for fraud in September 2017 regarding RECoin and DRC World ICOs. Zaslavskiy pleaded guilty in November 2018 to charges carrying up to five years imprisonment. Block.one agreed to settle charges related to its $4 billion unregistered EOS.IO ICO for a $24 million penalty in September 2019. Centra Tech Inc. co-founders were charged in April 2018 with running a fraudulent ICO raising over $32 million in 2017. Celebrities including Floyd Mayweather Jr. and DJ Khaled had drawn endorsements for the failed project.

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• 4. Global Regulatory Responses

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  On the 4th of September 2017, seven Chinese financial regulators officially banned all ICOs within China. They demanded proceeds from past ICOs be refunded to investors or face severe legal punishment. This action resulted in large sell-offs for most cryptocurrencies globally. Prior to the ban, ICOs had raised nearly $400 million from about 100,000 Chinese investors. South Korea prohibited ICOs in September 2017 promising stern penalties for violations. Switzerland announced an investigation of unspecified coin offerings in September 2017 to examine compliance with regulations. The United States Securities and Exchange Commission indicated in July 2017 that it could apply federal securities law to ICOs on a case-by-case basis. France introduced a new legal regime in September 2018 offering a voluntary visa delivered by the Autorité des marchés financiers providing some financial guarantees.

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• 5. Platform Bans And Enforcement

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  the 30th of January 2018 saw Facebook ban advertisements for ICOs as well as for cryptocurrencies and binary options. By April 2018, Twitter, Google, and MailChimp also joined the ban on ICO advertising. Facebook reversed course on the 26th of June 2018 announcing they would reopen for approved advertisers only. Snapchat, LinkedIn, and MailChimp all limited companies from marketing ICOs via their platforms. Chinese internet platforms Baidu, Tencent, and Weibo prohibited ICO advertisements. The Japanese platform Line and Russian platform Yandex implemented similar prohibitions. These restrictions reflected growing concerns over fraud and investor protection across major technology sectors globally.

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• 6. Transition To Regulated Models

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  Amy Wan described tokens in an ICO as symbols of ownership interest resembling digital stock certificates likely subject to regulation under U.S. Howey test standards. Efforts emerged to deploy ICO technology to represent regulated securities known as Security Token Offerings or STOs. Digital Security Offerings and tokenized IPOs listed on regulated exchanges followed this trend. An initial stake-pool offering launched the 1st of July 2021 became the first formal ISPO. Over 35,000 participants contributed more than 600 million ADA worth over $1 billion USD by October 2021. Participants received 0.065 MELD per ADA staked while keeping full ownership of their holdings. Ethereum remained the leading blockchain platform for ICOs with over 80% market share as of February 2018. Tokens generally based on the Ethereum ERC-20 standard continued to dominate early fundraising efforts.

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