In 2017, the word ICO, short for Initial Coin Offering, was hyped and attracted many people from traders to experts in cryptocurrencies. The Initial Coin Offering is similar to the Initial Public Offering (IPO) on the stocks market.
ICO are aiming to raise money through crowdfunding, with the creation and sale of digital tokens. The funds raised will be spent on the project’s development.
Most of the ICO issues were ERC-20 tokens, running and funded on the ETH blockchain, explaining why there was a significant demand for ETH, which caused its value to climb to more than $1,000. During this period, ICO were considered safe heaven, where you could invest your money in a project and wait for it to be released on an exchange, with almost 200% profits guaranteed.
ICO allowed projects to avoid the traditional method of asking Banks and Venture to fund their project. Anyone was allowed to invest in an ICO.
The profit generated from any ICO could be incredible, many people in this space were euphoric at the idea of ICO, and the demand was increasing every day. Some ICO went with incredible profits up from « just » 200% to 50,000% at their ATH (All-Time High).
Now that you are hyped as well with ICO and maybe even curious to invest in the next one, we will talk about the downsides, and why this might not be a good idea anymore.
The main issue with ICO was the absence of any regulation. Many people will tell you that rules are boring and avoid retail investors from earning money. However, they are also protecting people from non-secure markets. The ICO market was unfortunately unregulated and attracted a lot of bad actors, introducing many scams.
Also, concerning bad actors, most projects did not have any working products. However, just a conceptual whitepaper and those projects were quickly abandoned if they were not profitable for the team.
Eventually, the ICO market crashed, and ICO were not profitable anymore during the 2018 – 2019 bear market. Biggest exchanges came with the idea of offering ICO through their platform, thus creating Initial Exchange Offering (IEO).
In contrast to the ICO, where the project team themselves conduct the fundraising, an Initial Exchange Offering means that the fundraising will be conducted on an exchange, where users can purchase tokens with funds directly from their exchange wallet.
Binance was leading the IEO market at the end of 2019 by offering promising projects such as FET, MATIC, ERD, KAVA, TROY etc.