dAfter the launch of Bitcoin in 2009, the next major innovation in blockchain was the Initial Coin Offering (ICO). ICOs were largely responsible for the bull market of 2017 and 2018 and the dominance of Ethereum in the 2nd generation blockchain market. We are three years removed from those events, but they are still very important.
Many of the significant projects alive in Ethereum today did ICOs in 217. Yet, many more projects never made anything with their ICO funding. In this article, we'll look at what an ICO is, review some successful ICO, and introduce ICOs going on right now.
What is an Initial Coin Offering?
An Initial Coin Offering is a form of crowdfunding done through the blockchain. In it, people exchange cryptocurrencies or other tokens in exchange for a token created by a new project. The people behind the ICO intend to use the money to develop a product, service, or even whole blockchains using the funds accumulated by selling their tokens.
The first type of ICO is one that is launched to fund the development of a blockchain. People are sold either in a public sale or a private one, crypto coins for the future network. Once the project has gotten enough money and has developed the blockchain, people are able to use their coins. We'll see some examples later in this article.
Now, most of the time, the token has a purpose for the future project. One popular option is a Utility token, which means to access the service or product, users need to have the token on their crypto wallet. Another option is a Governance token; people need to have the token in order to vote on future changes for the project.
Regardless of what type of token the project uses, the hope is that if the service gets popular, the value of these tokens will increase. That is why people buy during the ICO, and they are speculating that in the future, the value of the tokens they get will be much greater than at present.
Finally, ICOs are not regulated by financial institutions. They are not considered securities, and they exist -for now- in a legal grey zone. So, people can freely participate in these sales without having to do KYC/AML to prove that they are accredited investors.
How do ICOs work?
An Initial Coin Offering tends to have two main modes of operation. They are different if the sale is to develop a new blockchain or if it is to create a new DApp on an existing one. There are some crucial differences so let us look at each example.
ICO for a Blockchain
If the ICO is for a blockchain, then the coin cannot exist before the blockchain is launched. In this case, many projects launch a token on a different network, and then once they have their own project, they exchange the tokens for coins to a 1 to 1 ratio. If the ICO is public, hence this is the only way to do it, and it is only possible to enter with other crypto tokens or coins.
Now, if the sale is private, then vetted investors are only able to participate. The sale is made through legal contracts that promise delivery of a certain amount of coins once the network is live. Here the ICO is in Fiat money, and only people that have done KYC/AML can enter.
ICO for a token
In this case, the sale is wholly made through a blockchain network, and it is only public. The team creates the tokens and sells them to the public only in exchange for crypto coins or tokens. Most of the ICOs of 2017 were conducted using this method and happened on the Ethereum blockchain. They were mostly responsible for the crypto boom of that year that continued to 2018. Also, when many of these projects failed, they were also responsible for the subsequent crypto crash.
ICO examples
We are going to see four examples of ICOs. Two for blockchain projects and two for token platforms.
The Tron ICO
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The Tron blockchain is one of the biggest around. It has a market cap of $4,309,989,081 and remains one of the most actively developed in the world. It had its Initial Coin Offering in September 2017, where 100,000,000,000 Tron tokens were sold. Since there was no Tron blockchain back then, the tokens were created on Ethereum using the ERC-20 standard.
The ICO was conducted through the Binance exchange. It was possible to purchase the tokens using BTC and ETH only, and the sale lasted for a day, from September 7th to the 8th. At the end of the sale, Tron managed to raise 58,097,999 USD. The return from that ICO to now has been 32x the original price in US dollars.
Cardano ICO
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Another ICO for a blockchain was conducted by Cardano, but with the difference that it was a private sale. Only accredited investors from Japan or registered in that country were able to buy ADA ahead of the launch of the network. The private sale lasted for a long time, from January 9th, 2015, until December 31st of 2016.
In total, 45,000,000,000 ADA tokens were sold to private investors. The price was 0.0024 USD per ADA token, and right now, that would be a return of 380x from the original price. The total amount of money Cardano was able to accumulate was 62,240,000 US dollars.
Compound ICO
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One of the most successful projects on Ethereum, the lending market Compound, also had an ICO. The sale was conducted on June 15, 2020, for a Governance token called COMP under the ERC-20 standard. The sale consisted of 10,000,000 tokens sold on the Ethereum blockchain in exchange for Ether or other cryptocurrencies hosted on Ethereum. There are no official numbers regarding how much Compound made from its ICO.
The original price for each COMP token was 34 US dollars. At this time, that would mean a 12x rate of return on the token. Compound is one of the biggest DApps on Ethereum, and their token is very popular among traders.
Aave ICO
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Aave had an ICO with a token called LEND. It was an ERC-20 token issued on the Ethereum network. The ICO took place on November 29, 2017, and 1,300,000,000 units were on sale. The sale was only possible using ETH, and the price was 1 ETH = 1 LEND. The project managed to raise 17,860,000 US dollars in this ICO.
Aave has stopped using the LEND token. They have a new token for their platform called AAVE token, which is also an ERC-20 on the Ethereum network. It is impossible to get LEND anymore, but before it was exchanged for the AAVE token, it had a 240x return from its original price.
ICOs in 2021
The ICOs of 2017 and 2018 were mostly failures. The vast majority of the projects that raised money did not deliver any product. Despite this bad record, ICOs are happening even today. Let us look at two promising ICOs in 2021.
Litentry
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Litentry is an identity management system built on the Binance Smart Chain. They are doing an ICO at the moment with a total amount of 100,000,000 LIT tokens. There is no price per token yet, but soon all the ICO details are going to become available.
Curate
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Curate is a fashion discovery and marketplace built on top of Ethereum. They are selling 60,000,000 tokens with an aim to raise 10 million US dollars. The project has received some attention for its original target audience and looks on track to raise the targeted amount. The ICO for the project ends on May 30th of this year.
Conclusion
Despite the high rate of failure among ICO, the market is still hot for them. A handful of them do become the giants of the future, such as Compound or Aave. Additionally, ICO helped create some of the biggest blockchains of today, like Tron or Cardano.
Finally, the crypto economy keeps growing in size. To be up to date is important to know where to get curated information. So, read Top 10 Crypto research blogs for a list of the best sources in crypto. Never stop learning.
