Wondering what is ICO in crypto? An initial coin offering (ICO) is a crowdfunding method used by blockchain teams to raise capital and launch a new digital asset. Activity peaked in 2017 and 2018, but since then a mix of market shifts and other considerations has pushed many projects toward different token distribution approaches.
How an ICO Works
At a glance, ICOs resemble an initial public offering, where a company lists shares on an exchange. The key difference is oversight: initial public offerings are regulated by the United States Securities and Exchange Commission, while most token sales launch with far less regulatory scrutiny, which has led some offerings to run afoul of securities laws. There are also differences in what buyers receive and how they participate: stock buyers typically get defined shareholder rights and ownership claims, while token buyers often receive access, utility, or governance features with limited or no equity rights. Public offerings usually involve underwriters, standardized disclosures, and mature investor protections, whereas token sales are often run directly by project teams and can attract a broader mix of retail participants globally. Purchasing a token generally does not provide an ownership stake in the company or project.
For a legitimate sale, founders typically follow a few core steps.
| ICO Step | Description |
|---|---|
| Outline the business model | Explain what the project does and how blockchain technology supports the product or service. |
| Seek early feedback | Gather input from potential investors or venture capitalists to test assumptions and refine the plan. |
| Publish a white paper | Describe the purpose of the new cryptocurrency and, in some cases, how contributors might evaluate potential returns. |
Many crowdsales lose steam at this stage because credibility is lacking—2026 is far removed from the 2017 frenzy. A token can look like a solution searching for a problem, and without social momentum, fundraising may stall. According to Blockchain Simplified, about 53.3% of ICO initiatives did not close their token sales in 2018.
When launches do succeed, projects typically pursue listings on cryptocurrency exchanges so secondary trading can begin. Ethereum has been a popular platform for conducting an ICO thanks to its smart contract functionality.
Scam Risks in Token Sales
The 2017 surge in utility-token excitement created openings for fraud, and the absence of clear rules meant many sham offerings slipped by at the time.
Bad actors touted returns no legitimate virtual currency could deliver, and even celebrity-endorsed sales—such as those promoted by Floyd Mayweather—were later deemed fraudulent.
As with any fintech investment, due diligence is essential. Before you invest in an ICO, check the basics:
- Check if the white paper covers the essentials.
- Verify the credibility of the team.
- Look for transparent, regular updates on the token sale progress.
To further reduce scam risk, look for independent smart-contract audits, clear custody and treasury controls, and a realistic roadmap that matches the team’s track record. Common red flags include anonymous or unverifiable founders, vague token utility, pressure tactics around “limited-time” bonuses, unclear token supply mechanics, and marketing that focuses on price promises rather than product delivery.
The Securities and Exchange Commission Steps In
United States authorities have taken a skeptical view of initial coin offerings, whether or not a project claimed to be legitimate. Elsewhere, the legal treatment varies: some jurisdictions treat certain tokens as securities, others regulate them under specific crypto-asset rules, and many apply strict anti-money-laundering and know-your-customer requirements to platforms and intermediaries. For participants, the practical takeaway is that legality can depend on where you live, how the token is marketed, what rights it grants, and how funds are raised and handled.
Telegram, an encrypted messaging platform, raised $1.7 billion in an ICO in 2018 for the Telegram Open Network. The Securities and Exchange Commission later said the sale violated federal securities laws because it was not registered; Telegram agreed to pay an $18.5 million penalty and return $1.2 billion to investors.
Even so, some landmark projects funded themselves through an initial coin offering. Ethereum and Neo stand out as examples, and today ETH is the world’s second-largest cryptocurrency by market capitalization.
As an investment, token sales can offer high upside, but they are also among the most volatile and unpredictable areas of crypto. Profit or loss often hinges on factors like token design and supply, whether the token has real demand beyond speculation, the team’s ability to ship the product, exchange listing and liquidity conditions, and how widely the project is adopted after the sale.
Token-sale returns are highly path-dependent: small changes in execution, liquidity, or regulation can turn a promising launch into a total loss.
Advantages of ICOs can include:
- Early access to a new network or token ecosystem before broader market availability.
- Potential for rapid fundraising that can accelerate product development.
- Global participation that can help build an early user community.
- Flexible token distribution designs that can align incentives among users, builders, and validators.
Disadvantages of ICOs can include:
- Higher risk of fraud, misrepresentation, or failed execution compared with more established fundraising routes.
- Limited investor protections and fewer enforceable rights than traditional equity investments.
- Uncertain legal status that can affect trading access, custody options, and project viability.
- Extreme price swings and thin liquidity that can make entry and exit difficult.
When people ask about the “most successful” initial coin offering, success depends on the yardstick. By funds raised, EOS is often cited among the largest token sales. By long-term impact, Ethereum is frequently viewed as the standout because it helped popularize smart contracts and became core infrastructure for a large share of the broader crypto ecosystem.
If you are trying to choose a promising token sale, focus on specifics that are hard to fake: whether the token has a necessary role in the product, whether insider allocations and vesting schedules are clearly disclosed, whether the smart contracts have been independently reviewed, whether there is a realistic go-to-market plan, and whether the project’s communications stay consistent before and after funding. It also helps to confirm what participation restrictions apply in your jurisdiction and what practical path exists for custody and liquidity if the project does launch successfully.
