- An Initial Coin Offering (ICO) started essentially as the cryptocurrency equivalent to an Initial Public Offering (IPO). A startup company looking to secure funding for a new project endeavor can launch an ICO to raise money from investors to further their business.
- The company issues cryptocurrency tokens to investors in exchange for fiat currency or another well known cryptocurrency. However for their investment, one doesn’t receive equity in the operating company like when buying a stock. Instead, the investor receives a portion of the future money supply of the future project. The value of the token is correlated with the success of the project.
- In theory and at their core, ICO’s are decentralized (not governed by a single authority) and also largely unregulated (no oversight from government organizations such as the SEC), making it easier for companies to bypass the difficult process required by venture capitalists and banks to secure funding. This model makes them inherently risky and susceptible to fraud and manipulation.
- The SEC has recently been cracking down on a number of ICO’s, levying fines and penalties that has forced many into bankruptcy. They have declared that many of these coins or tokens are in fact securities, stating that “market participants must still adhere to our well-established and well-functioning federal securities law framework when dealing with technological innovations, regardless of whether the securities are issued in certificated form or using new technologies, such as blockchain.”
- In January 2019, ICO’s raised roughly $127 million, the lowest total since April 2017 ($81.8 million). In 2018, ICO’s raised more than $21.5 billion.
- The state of ICO’s is in flux. The SEC and other financial regulators around the world are stepping in. The number of ICO’s and dollar amounts raised have fallen drastically from their peak levels in mid-2018. As regulators step in, new laws will be made and the clarity and usability of ICO’s should become more transparent.
Current state of ICO market
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