Everything You Need to Know About ICOs

Initial coin offerings (ICOs) are a way to crowdfund a new cryptocurrency project. Through an ICO, investors purchase tokens that will be used inside the project’s ecosystem. At their peak in 2017 and 2018, ICOs briefly surpassed traditional venture money as the primary funding source for blockchain firms. The mechanism has since cooled down significantly and now sits alongside several newer formats, but understanding how ICOs work is still essential for anyone evaluating early-stage token projects today. Incubator and VC companies are also heavily involved in financing crypto projects.

Here is everything you need to know about ICOs.

What is an ICO?

An ICO (Initial Coin Offering) is the crypto industry’s equivalent of an initial public offering (IPO). It can be launched by a team that needs funding to build a new cryptocurrency, application, or service.

Investors who participate in an ICO receive a newly issued token from the project. That token may grant access to a product or service, function as the network’s gas, or represent a stake in the project’s future revenue model.

Unlike an IPO, where government agencies require detailed disclosures and approval before sale, traditional ICOs were largely unregulated. A team could launch one with little more than an idea and a white paper. That openness fueled rapid innovation, but it also made the format ripe for scams and low-quality projects.

How an ICO works

At a high level, an ICO follows a predictable arc. The team publishes a white paper describing the product, tokenomics, and roadmap, sets a soft cap and hard cap for the amount they want to raise, schedules one or more sale rounds, and accepts funds in fiat or established cryptocurrencies in exchange for the new token.

Once the sale closes, tokens are distributed to investors, listed on exchanges, and the team uses the raised capital to build out the project according to the published roadmap.

The funding stages of an ICO

ICOs are not for the faint of heart. The crypto market is fiercely competitive, and any serious project will be scrutinised by regulators, exchanges, and the wider community. Most ICOs progress through a sequence of funding rounds rather than a single public sale.

Pre-seed

The earliest round of investment is sometimes called the pre-seed stage and may not even appear in the official funding documentation. Founders, close friends, family, and a few early supporters provide the very first capital to validate the concept. Depending on the nature of the firm, this stage can move quickly or stretch out for many months as the founders refine the idea. Investors at this point are not always receiving equity or tokens, they might be funding the legal and product groundwork that makes a token sale possible.

Private sale

Private sales are typically reserved for close project backers, staff, and institutional investors, although some teams open them to a curated public list. Participants are usually required to complete KYC checks and commit to a minimum investment.

Private sale tokens are often the cheapest available, but allocations are capped and they normally come with a vesting or lock-up schedule. Private rounds are also frequently used to attract venture capital, which can bring valuable expertise, network access, and marketing support alongside the cash.

Pre-sale

A pre-sale is held before the public auction and is completely optional. Pre-sales are usually open to family, friends, and members of the founders’ wider network, with whitelisting required to participate.

Projects often use this stage to run marketing challenges and contests, and they may bundle perks with the investment such as beta-testing access, bonus tokens, or priority access to later rounds.

Public sale

The public sale is the final and most visible part of an ICO. It is usually time-limited and run in collaboration with a launchpad on a first-come-first-served or oversubscription basis. Any tokens left over from earlier rounds are sold here, and pricing is normally less favourable than the private and pre-sale rounds to reward early backers.

Soft cap vs hard cap

Before participating in an ICO, investors should understand the soft cap and hard cap. The hard cap is the maximum amount of money the team aims to raise in exchange for its tokens. When a project reaches its hard cap, the round for that allocation is fully sold out.

The soft cap is the opposite. It is the minimum amount the team needs to raise for the project to be considered viable. If a team fails to reach its soft cap, the funds are usually returned to investors, although some projects choose to continue with whatever capital they did manage to secure.

Famous ICOs in history

A handful of ICOs from the 2014 to 2018 era went on to define the format and shaped how regulators view token sales today.

• Ethereum (2014): Often considered the original successful ICO, Ethereum raised around $18 million in BTC by selling Ether ahead of mainnet launch. The project went on to become the second-largest blockchain by market capitalisation and the foundation for most later token sales.
• EOS (2017-2018): EOS ran a year-long token sale and raised roughly $4 billion, the largest ICO ever recorded. It also resulted in a $24 million SEC settlement in 2019 over the unregistered offering.
• Tezos (2017): Tezos raised about $232 million but spent years tied up in lawsuits and governance disputes before its protocol launched.
• Filecoin (2017): Filecoin raised more than $250 million from accredited investors under a SAFT (Simple Agreement for Future Tokens) structure, an early attempt to bring ICOs in line with US securities law.

For every successful raise, there were also high-profile failures and outright frauds (BitConnect, Centra Tech, Pincoin), which is part of why regulators tightened the rules so quickly after 2018.

How to evaluate an ICO

The quality of the team is the first and most important thing to look at. A solid project will usually have experienced founders who are more likely to avoid common pitfalls. Check each ICO team member’s LinkedIn profile, GitHub history, and social accounts for as much background as possible.

While most projects prominently display their team and partners, it is worth double-checking everything. A number of ICOs have been caught exaggerating their team’s qualifications or fabricating partnerships that never existed.

A few questions worth asking before committing capital:

• Are the founders and stakeholders capable of building this product and delivering the promised results?
• Do their previous track records support the claims in the white paper?
• Is the tokenomics design sustainable, or does it rely on continuous new buyer inflow?
• Is the smart contract code audited by a reputable firm?

The white paper itself is the next thing to study. A well-documented and thorough white paper is the most reliable resource for judging a project’s legitimacy. It should explain the product, the commercial model, the revenue logic, the token distribution, and the planned exchange listings, along with the project’s objectives and tactics.

Regulation around ICOs

The regulatory picture for ICOs has changed dramatically since the original 2017 boom. The DAO Report, published by the SEC in July 2017, set the tone for US enforcement by stating that most tokens offered in ICOs qualify as securities under the Howey Test. The SEC subsequently took action against EOS, Telegram (TON), Kik, and many smaller projects, recovering hundreds of millions of dollars in settlements.

Outside the US, the rules vary widely:

• European Union: The Markets in Crypto-Assets Regulation (MiCA) entered into full application in 2024 and requires issuers of crypto-assets that are not security tokens to publish a regulator-reviewed white paper, meet capital and conduct rules, and comply with marketing standards. Security tokens fall under existing prospectus rules.
• United Kingdom: The FCA brings most token sales under its financial promotions regime, and the broader crypto framework moving through Parliament will fold many ICO-style offerings into regulated activity.
• Singapore: MAS treats most utility tokens as outside its securities perimeter but will pull a token into regulated territory if it has investment-contract characteristics. Service providers around the sale need a Payment Services Act licence.
• Switzerland: FINMA classifies tokens as payment, utility, or asset tokens, with very different rules for each, and Switzerland remains one of the more issuer-friendly jurisdictions.
• UAE (Dubai/Abu Dhabi): VARA in Dubai and the FSRA in Abu Dhabi run dedicated crypto licensing regimes that increasingly accommodate compliant token issuance.
• China: Has banned ICOs and most retail crypto activity since 2017, with no signs of relaxation.

The rules around ICOs and IDOs differ for every jurisdiction, and the same token sale can be perfectly legal in one country and a prosecutable offence in another. For a country-by-country breakdown of how regulators treat crypto more broadly, see our crypto regulation by country overview.

Before raising or investing in an ICO, do thorough research into the laws of every relevant jurisdiction. There are several firms with deep blockchain expertise in compliance and law that can help structure a sale correctly.

ICOs vs IEOs, IDOs, and STOs

The original ICO format has been largely replaced by three alternative models that try to address its weaknesses around trust, regulation, and access.

• IEO (Initial Exchange Offering): The token sale runs on a centralised exchange. The exchange handles KYC, due diligence on the project, and the token listing in one package, which gives investors more confidence at the cost of higher fees and stricter approval criteria for issuers.
• IDO (Initial DEX Offering): The token launches directly on a decentralised exchange or launchpad, with liquidity often seeded into an automated market maker pool from day one. IDOs are faster and more open than IEOs but offer less curation, so the quality bar varies wildly.
• STO (Security Token Offering): The team explicitly registers the token as a security. STOs are slower and more expensive to set up, but they provide a clean legal status for both issuer and investor and unlock institutional capital that cannot touch unregistered token sales.

Each format trades off speed, cost, regulatory clarity, and reach in a different way, and most modern token launches pick the one that best fits the project’s geography and target investor base.

Are ICOs still relevant?

Pure ICOs are far less common in 2026 than they were in 2017 and 2018. Most teams now choose an IEO, IDO, or STO instead, partly because exchanges and launchpads have matured into trusted distribution channels, and partly because regulators have made it riskier to run an unsupervised public sale.

That said, the underlying idea of an ICO, a project selling its native token directly to early supporters in order to fund development, is alive and well. It just usually arrives wrapped in a more compliant structure today. Understanding how the original ICO model works is still the best foundation for evaluating any modern token sale, no matter what acronym is used to describe it.