The controversial ICO is back. Pundits promise this time is different

Brace for the return of one of the crypto industry’s most contentious fundraising tools.

They’re called community rounds — a new take on initial coin offerings — and they’re poised to surge in 2025, say pundits.

During their heyday in 2017 and 2018, ICOs raked in roughly $13 billion across more than 2,000 crypto projects, according to data from ICObench.

Given their speed, heady sums, and low barrier to entry, ICOs also became popular tools for fraud. Projects marketed their wares via technical documents, urging punters to send crypto to the project’s address. In exchange, they received the project’s token.

At least $1.3 billion was lost to scams, according to Statis Group. Dozens of enforcement actions followed.

Sid Powell, CEO and co-founder of Maple Finance, says history won’t repeat itself.

“ICOs have evolved. The old days of just sending ETH to an address based on a white paper are unlikely to come back again,” Powell told DL News. “We’re also now in a very different environment than in 2017.”

MegaLabs

As crypto hurdles into another bull market, this ultra-fast fundraising type is already making waves.

MegaLabs, the developer team behind the layer-2 network MegaETH, raised $10 million on December 13. Investors bought equity as well as token warrants, according to The Block, via the crowdfunding platform Echo.

It raised that sum in roughly three minutes.

“It felt like an ICO,” said Shuyao Kong, MegaLabs co-founder tweeted.

Fraud

Like traditional capital raises, funds supported ICOs’ development.

Some projects made off better than others.

EOS, an early attempt at dethroning Ethereum, raised $4.2 billion in 2017. The token powering the crypto browser Brave raised $35 million in just 30 seconds before concluding.

Between 2013 and 2022, the Securities and Exchange Commission issued 70 different enforcement actions related to ICOs, according to economics consultancy Cornerstone Research.

Tokens are the best way to unify a community, and ICOs are the best way to democratize access to a community. Always have been.

— Stani (@StaniKulechov) December 15, 2024

So long airdrops?

ICOs also offer an alternative — some argue better — way of galvanising a community of people around a crypto project.

Before a token is launched, a project may give users points for doing certain actions, like regularly chatting in its Discord or promoting the project on social media. Those points represent an allocation in the token once launched via an airdrop.

However, the mechanism is notoriously gamed by professional bot farms, which means tokens aren’t often evenly distributed.

One farmer earned 400,000 Magic Eden tokens, worth roughly $2 million, when the NFT platform launched its token in December.

WOW

Someone farmed 1350 wallets for @MagicEden airdrop got 400,000 $ME

Currently worth ~$2.05M sent to Binance

Respect 🫡 pic.twitter.com/B3r13EK8OP

— tobi (@tobific) December 11, 2024

With few exceptions, Ivan said that free tokens via so-called airdrops don’t generate the same zealous followers projects want.

“Free stuff doesn’t hit as hard as something you decided to buy. If it was your conscious decision to part with real money for the sake of some other asset, that is it,” he told DL News. “You will nurture it more.”

The MegaLabs raise on Echo also capped how much one individual could invest, allowing more investors to join the fray.

Powell expects this format of capital raise to appear more in the new year.

“There’s less likely to be farmers gaming the system, and you can control the distribution to enable even allocations,” he said.

Unlike the ICOs of yore, Powell also predicts more stringent investor protections.

While President-elect Donald Trump has made audacious promises to the crypto industry, including launching a Bitcoin reserve and mining all BTC in the US, it was his administration that kicked off the ICO crackdown.

Former commissioner Jay Clayton, appointed by then-President Trump, established a specialised unit in 2017 to address the proliferation of fraudulent ICOs.

Adding guardrails

Instead of posting an Ethereum address and technical documents and waiting for the millions to roll in, this next wave of offerings will look different.

“We must acknowledge that the ICO model has historically carried substantial reputational and legal baggage,” Todd Ruoff, CEO of Autonomys, told DL News.

That doesn’t mean they should be tossed completely.

But this time, Ruoff suggested know-your-customer measures and disclosure agreements as guardrails.

“What you’re looking for here is a disclosure regime bespoke to how crypto works,” Bill Hughes, general counsel for Consensys, told DL News.

He pointed to SEC Commissioner Hester Peirce’s proposal for a safe-harbour mechanism in 2020. It would allow crypto projects to develop before being classified as an unregistered security.

“You probably won’t see any meaningful ICO activity until there is a safe harbour,” said Hughes.

Paul Atkins, the incoming commissioner to replace Gary Gensler, has already signalled his support for that proposal.

“Hopefully, we get something like that in place in the short to medium term,” Hughes added.