What Is an Initial Coin Offering (ICO)?
In this video, you’ll learn all about initial coin offering or ICO. Initial coin offerings are a popular way to raise funds for products and services usually related to cryptocurrency. Watch as we explain how ICOs are similar to initial public offerings and are used for software services or products. Some ICOs have yielded massive returns for investors. In this video guide, we cover static supply and static price. You’ll also learn about dynamic token supplies and how that affects ICO.
Fact checked by Katrina MunichielloReviewed by Erika Rasure
In the trendy world of cryptocurrencies, the greatest levels of hype and anticipation have often been reserved for initial coin offerings (ICOs), the crowdsourced fundraising sales used to launch new tokens, coins, and services. ICOs have come to be seen as a significant risk for the everyday investor.
They are highly speculative since few ICOs go on to see the tokens they launch meet with real success—and many ICOs are actually fraudulent and are scrutinized heavily by regulators. Nonetheless, investors continue to watch the ICO space closely for the next big opportunity, and some ICO projects materialize. Below, you’ll read about some of the biggest ICO events in history according to the amount fundraised or the return on investment (ROI).
What You Need to Know
- An initial coin offering (ICO) is a fundraising method used by cryptocurrency and blockchain startups.
- The startup develops a new cryptocurrency token with specific functions or utilities within its planned ecosystem. These tokens might provide access to a platform, voting rights in governance decisions, or a stake in the project’s future value.
- The success of an ICO is most commonly measured by the amount of money raised during the token sale, regardless of the cryptocurrency’s price.
- Other investors measure the success of an ICO by the cryptocurrency token’s return on investment (ROI) since it was purchased during the sale, taking into account the price.
ICOs By Amount Raised
EOS
Block.one is a private Hong Kong-based blockchain company founded in 2017 by Brendan Blumer and Dan Larimer. Block.one conducted an ICO from June 26, 2017, to June 1, 2018, that raised $4.1 billion to create EOS, a blockchain platform with a native cryptocurrency of the same name, EOS. Block.one marketed EOS as a solution to some of the limitations of earlier blockchains, such as high transaction fees, slow processing speed, and a lack of network scalability.
The EOS ICO holds the record for the largest ICO ever and represented nearly a quarter of the entire ICO boom of the era in which it launched. Over 1 billion EOS tokens were sold, purchased using Ethereum’s ether cryptocurrency (ETH), and distributed over 350 weekly periods, each lasting five days. The EOS ICO was conducted through a smart contract on the Ethereum blockchain.
The EOS blockchain was launched on June 14, 2018, shortly after the ICO was completed. The EOS cryptocurrency can be used for paying EOS transaction fees, staking for block producer elections, and participating in decentralized applications (dApps) built on the EOS blockchain.
Telegram
The Telegram Open Network (TON) ICO raised over $1.7 billion in 2018. The ICO sought to build a fast, scalable, and user-friendly blockchain specifically for a decentralized application associated with the Telegram messaging app. Although it faced legal hurdles and technical delays, the launch of the TON mainnet in early 2020 sparked renewed interest in the project and its potential impact on the future of messaging and communication. However, the effort was terminated in mid-2020 after the SEC filed charges and won a lawsuit against Telegram for selling non-registered securities.
Tezos
The Tezos Foundation conducted the Tezos ICO from July 1 to 13, 2017. The ICO raised $232 million, primarily in Bitcoin and Ethereum. The funds raised were to be used to develop the Tezos blockchain platform and XTZ cryptocurrency, a project aiming to achieve high scalability, security, and self-governance through an on-chain amendment process. The fundraising structure was unique, employing “non-refundable donations” instead of traditional token sales. This led to some controversy, with some participants seeing them as investments rather than donations.
Filecoin
Filecoin, a non-profit organization, secured a staggering $233 million in 2017 when it sold its cryptocurrency token FIL through an ICO. The Filecoin project introduced decentralized storage solutions, a critical infrastructure component for Web3, and offered token holders the potential to earn from providing storage space under a sustainable economic model.
Polkadot
The open-source blockchain project Polkadot successfully raised $145 million in 2017 to focus on building a blockchain that could provide interoperability between different blockchains. The Polkadot protocol and its cryptocurrency token DOT, which was eventually launched, allow seamless communication and data transfer across independent blockchains. Polkadot is seen as a key solution for blockchain fragmentation and fostering a diverse ecosystem.
ICOs By Return on Investment
Ether (ETH)
Ether, the native token for Ethereum, remains the second-largest digital currency by market cap as of March 2024. While Bitcoin is a blockchain and cryptocurrency, Ethereum is a blockchain designed to be a platform for decentralized applications to be built on. Its native token, ether, is used on the blockchain to pay for transactions and as collateral for honest blockchain work. Ether can also be used as a payment method, similar to Bitcoin.
At the ICO, ether sold for 2,000 ETH per 1 BTC, and the token’s market value was $3,496 on March 21, 2024, providing a hefty ROI for the lucky investors who bought in during the ICO.
NEO (NEO)
NEO (NEO) is a Chinese open-source blockchain project that has gone by several different names in its short history. One of the most common is not an official name, however, but rather a nickname—China’s Ethereum. NEO gained this distinction by utilizing smart contract applications and decentralized commerce.
The company had a massive ICO thanks in no small part to support from the Chinese government, Microsoft Corp. (MSFT), and other major companies. From an initial token price of just over $0.03 to an all-time high price of roughly $180, NEO investors who timed their investments right stood to make an incredible amount of money. On March 21, 2024, NEO traded about $14.83.
Alias (ALIAS)
Alias (ALIAS), formerly known as Spectrecoin, launched in November 2016 as a purported privacy-focused cryptocurrency. One of the touted features of the coin is that it can be sent and received around the world with complete anonymity.
Alias seeks to push the boundaries of what governments around the world are willing to tolerate from digital currencies, but it has not yet broken through to the mainstream. Nonetheless, an investment of $0.001 per token in late 2016 during the ICO would have been worth close to $0.15 in September 2021, making it one of the highest returning ICO tokens at one time. On March 21, 2024, ALIAS had a market price of $0.01341.
Ark (ARK)
Ark (ARK) is designed to be as efficient as possible. The digital currency platform allows for the quick integration of other cryptocurrencies into its own blockchain. With a global focus and a commitment to decentralization, Ark seems to have been destined for success.
The initial token price was $0.04 during the ICO. At its highest levels, one Ark token climbed to nearly $11, but traded at $1.12, on March 21, 2024.
Stratis (STRAX)
Stratis is another cryptocurrency that has not yet made it big into the world of leading digital currencies. The company, based in the U.K., prides itself on having a platform that is compatible with various programming languages, allowing businesses the ability to create and design custom applications easily.
Microsoft (MSFT) was a prominent supporter of the Stratis ICO, and that led to major success. The project raised nearly 1,000 BTC over a period of five weeks, and individuals paid just $0.01 per token. On March 21, 2024, the cryptocurrency traded for $1.50.
Are ICOs and IPOs the Same Thing?
An IPO, or initial public offering, is when a company’s stocks are first offered to the public for trading. It is a long and regulated process for a company to “go public” through an IPO. In the past, ICOs were not as regulated, but the Securities and Exchange Commission cracked down on the practice and began requiring that ICOs that meet the criteria to be securities must be registered and approved.
Are ICOs Subject to Investor Regulations and Protections?
If an ICO token satisfies all four criteria of the Howey Test, it is likely considered a security and subject to securities regulations. This means the ICO must comply with relevant registration and disclosure requirements, offering significant investor protection.
How Does the Amount Raised by an ICO Differ From the Token’s Market Cap and ROI?
Unlike return on investment (ROI), measuring how much money an ICO raised alone doesn’t account for inflation or changes in market value over time. A cryptocurrency token’s market capitalization measures the total value of all outstanding tokens issued by the project at the quoted open market price, often at the current timeframe. Cryptocurrency tokens can be sold during ICOs at variable prices to different investors at the discretion of the token issuer.
The Bottom Line
While success is subjective, it is largely agreed upon that the most impactful ICOs have launched an actual cryptocurrency and raised billions of dollars in capital to fund the ecosystem development of some of the most widely used blockchains.
Read the original article on Investopedia.