ICO 101

ICO stands for Initial Coin Offering, also called a token sale or initial token offering. An ICO is an event where a new blockchain project raises money by offering network tokens to potential buyers. Unlike IPOs, no equity is for sale. Buyers receive tokens on the network but do not own the underlying project intellectual property, legal ownership, or other traditional equity traits unless specifically promised as part of the sale. The expectation of profit (if there is one) comes from holding the token itself. If demand for use of the new network increases, then presumably so will the value of owning the token.

In this chapter, we are going to cover ICOs, how they came about, and the critical aspects that happen as part of executing one. ICOs continue to evolve, but many events and deliverables have become expected and even mandatory for success.

The first ICO was developed...

The current state of the ICO market

The difference between the early ICO market and the current state of the industry is stark. In the beginning, there were only a few ICOs and those were held by teams that were relatively well known inside the blockchain community that spent considerable time and effort bringing a project to life before running the ICO. After the launch of Ethereum, the barrier to entry for doing an ICO fell substantially and the number of new tokens swelled.

Increasing volume of ICOs

Before the Ethereum network, most ICOs were for a new blockchain. With Ethereum, tokens could now launch using smart contracts instead of creating the entire blockchain infrastructure from scratch. For more on how this is done...

Typical aspects of an ICO campaign

Most ICOs have a typical trajectory for their marketing activities. Each of these activities exists to attract interest and investment in the company and present the project to the world at large.

Whitepaper

For most projects, the most critical piece is the whitepaper. The project whitepaper introduces the purpose of the project, the problems it tries to solve, and how it goes about solving it.

A good white paper will discuss the utility of the token and the market. Key sections of most whitepapers include:

• An introduction to the project
• A history of the market and prior solutions
• An introduction to the new solution using blockchain
• The utility of the token and tokenomics
• Future applications...

Issues with ICOs and blockchain projects

The ICO market is going through growing pains. As a global, mostly unregulated market, there are numerous issues and challenges that do not exist with traditional fundraising. There have been a number of criticisms of ICO projects.

Proof of product-market fit and traction

In more traditional VC-backed or bootstrapped projects, it would be necessary for a project to show value through some form of traction. Typically, this would involve having customers, revenue, and growth, if not profitability. However, with ICOs, the money is raised before most projects launch or show an MVP. In many cases, there is no proof of the team's ability to deliver whatsoever. Because of this, it is...