Do you keep hearing about ICO, IEO, IDO in your crypto group or from your friend that just made a bunch of money? Now you are wondering how you can do the same and what is ICO in crypto?
Here the easy and fast answer:
When a company goes public, it has an initial public offering or IPO. Similarly, when a crypto project launches, it has an initial coin offering or ICO.
Sounds simple, right? Well, there are a few details we should discuss. Let’s get into it.
So What is an ICO in Crypto
An ICO is actually exactly what it sounds like. It is the first or initial public offering of a specific new cryptocurrency to the public.
One of the first major ICOs was almost a decade ago, Ethereum, in 2014. Since then, ICOs have been on a rollercoaster of bad press, and justifiably so. We will talk about that in a minute, but first, let’s briefly go over the whole point of an ICO.
What is the point of an ICO?
An ICO is supposed to do the same thing an IPO is supposed to do; raise funding. While an IPO does this by giving away ownership of a company, an ICO does it by giving away tokens for a blockchain platform.
Coins sometimes give the owners something like shares of ownership in the blockchain project. But they are usually supposed to serve some function on the platform they belong to. This is why the exchange of the new cryptocurrency with money makes sense.
How does an initial coin offering work
When blockchain projects want to raise funds through an ICO, they usually do it alongside a couple of things. The first is a marketing campaign and the second is a very important document called a whitepaper.
A whitepaper lays out all of the details an investor might want when they are looking to invest in a crypto project. This includes the mission or purpose of the platform, the use case of the token, its supply and vesting schedule, and so on.
Suffice to say, it can be a very detailed and technical document. Here is EOS’s whitepaper, for example, a platform with one of the biggest ICOs in crypto history.
But ICOs, especially big ones, don’t happen all at once; they go through a couple of phases.
The stages of an ICO
Most ICOs follow pretty much the same pattern. There are usually 3 stages that may or may not have multiple stage themself.
The earliest you start your research, the better your chances to get a good price for the token.
Let’s see what those 3 stages consist of…
Remember the marketing campaign? That happens before the ICO. The goal is to create as much awareness or hype around the project as possible. The more people know about it, the more likely they are to invest.
Some ICOs also involve a private sale of the token before the public sale. You can think of it like this. The project has a bunch of coins they want to sell. But before walking out to the open crowd, they first offer it to a small group of wealthy individuals.
The private sale (or presale) price is often a lot cheaper than the public offering. Sometime in the range of 40-50% cheaper.
White papers will usually lay out the portion of the total supply reserved for each round of token sale. Due diligence are essential before investing in ICO.
The ICO itself can be anywhere from a few weeks to a few months long. The efforts to raise awareness should still usually be underway during this phase as well.
During the launch stage, it is not rare to have 2-3 sub-stages. Each sub-stage is usually mark by an increase in price for the token.
The sub-stage will often switch from one to another once a certain amount of token is sold or at specific predetermined dates.
Some IEO (Initial Exchange Offering) sold out within few minutes if not seconds.
After an ICO is completed, users are allocated the tokens and coins they paid for. The development of the still-under-progress entity continues according to their roadmap.
Hopefully, that clears up what an ICO is and how it works. There are a couple of more things we should clear up about ICOs. But before we do that, let’s clarify what ICOs are NOT.
IEO vs. IDO vs. ICO: Understanding the differences
IEOs and IDOs are not the same as ICOs. However, they are similar in a few ways. They are all Initial Offering, but their process differs.
What does IEO mean in crypto?
The crypto world involves platforms called exchanges. This is where people can come and trade cryptocurrencies.
An IEO or Initial Exchange Offering serves the same function as an ICO; raising funds. But instead of the platform doing it all itself with no overhead scrutiny, an IEO does things differently. It usually involves established exchanges overseeing and hosting the whole investment process.
Polygon is one of the most popular projects launched using an IEO.
IDO (Initial DEX Offering)
There are two types of exchanges; centralized, and decentralized. Binance is a popular example of a centralized exchange while Uniswap or Pancakeswap are a couple of popular decentralized exchanges.
They are different in that there is a central entity in charge of everything in centralized exchanges or CEXs. That is not the case with decentralized exchanges or DEXs.
When an initial coin offering is held on a DEX, it’s called an Initial DEX offering.
Comparing IEOs and IDOs to ICOs
|Mediated/Hosted by||Project itself||Centralized Exchange||Decentralized Exchange|
|Cut given to exchange||None||Considerable||None|
|Trust||The least||The most||Considerable|
ICOs were the first tool cryptocurrency projects used for raising investments in a way similar to traditional IPOs.
However, they were quickly riddled with scams and black sheep because of a lack of scrutiny and regulation.
IEOs were the next generation of ICOs. Rather than the project doing everything itself, an exchange takes over scrutinizing the project.
An IEO also guarantees that a coin will indeed be listed rather than the founders running off with the money. This makes IEOs more trustworthy than ICOs, especially if a reputable exchange oversees the IEO.
The exchange also plays a major role in marketing the coin, so it’s no longer an effort by the project alone.
IDOs were the next version of IEOs. They required a smaller cut of the funds raised than centralized exchanges. This makes them more economical than IEOs. As for vetting the project, prominent figures on the DEX network can verify that the project to be listed checks out.
How to Invest in and get Crypto ICO tokens
Investing in an ICO should not be that hard. That is unless you have never dabbled in the world of crypto wallets and exchanges before.
Generally speaking, all you should need is the following:
- Sign up for a popular wallet like MetaMask.
- Buy the currency you are going to use to invest in the project.
- Deposit your crypto in the project’s listed wallet address.
But the actual investment isn’t the tricky part. The hard part is finding the right ICO to invest in.
Because here is what happens when you invest in the wrong one.
Risks associated with investing in ICOs
There is a reason why ICOs have been painted black. There is no shortage of ICOs that have ended with people losing their funds.
The project turns out to be a front for malicious actors to abscond with the investor’s money.
The most popular example of this is actually one you may have seen some memes about already; Bit Connect. With the promise of stellar returns (up to 40%), its ICO raised billions of USD. That is billions of dollars lost to a scam. At its peak Bit Connect had a market cap of $3.4B.
The reason ICO scams were such a big problem was the lack of regulatory authorities in the space.
Crypto is relatively novel and does not fit traditional legal definitions readily. This is why it falls through the cracks in the system.
This gives scammers an opportunity. Cryptocurrencies are also often designed to let the user stay anonymous. Tracking down the culprits and recovering funds may not be as easy as it might seem.
This and many other similar examples are why regulatory bodies have generally clamped down on ICOs and cryptocurrencies.
China, for example, banned ICOs all the way back in 2017. Similarly, the SEC has clamped down on unregistered ICOs that involve security-like token distribution.
All that being said, not all ICOs are absolutely bad.
So now you know all about ICOs. But if you want to invest in them, where do you find out about them?
How and where to find crypto ICOs
The 2 main places to find upcoming and ongoing ICOs are on social media and specialized ICO platform. You can view our list of best ICO and IEO platforms to find great listing sites. These will usually provide you with many upcoming and ongoing ICOs to invest in.
Platforms like Twitter, Telegram, and Discord are big mediums for new cryptocurrency projects.
There are accounts and groups on these platforms dedicated to shedding light on upcoming ICOs.
When you find a project, you can join their Discord or Telegram to get the latest updates and get in contact with fellow potential investors.
As for initially finding the right ICOs, some of the platforms you can use are
- Coin Market Cap’s ICO Calendar: It lists some of the upcoming ICOs and IDOs from the next few days to the next few months.
- Similarly, ICO Drops lists active, upcoming, and ended ICOs as well.
- You can also use ICO Hot List for the same purposes.
So to recap, ICOs are a way for new cryptocurrency projects to raise funds by issuing new tokens.
ICOs are different from IEOs in that an exchange does not host them. They are also more prone to scams. Similarly, ICOs differ from IDOs because the latter involves a Decentralized Exchanges (DEX).
Although ICOs have gotten some bad press because of a scam-ridden history, they are still a thing in the crypto space. You can find the latest ICOs on social media and the platforms we have listed above.
Hope that I could help clarify what is an ICO in crypto for you!