Evolution of Public Offerings in Crypto
The cryptocurrency landscape is constantly evolving and a lot has changed in how crypto
projects raise funds since Bitcoin began. The changes have taken place because of increased
technological progress, calls for regulation, and urges for more transparent, inclusive, and
fairways of engaging the community. In this article, we will be looking at how public crypto
offerings have been conducted through the years, from the inception of ICOs to how Airdrops
are affecting the scene today.
Initial Coin Offerings (ICOs): The Wild West of Crypto Funding
The idea of the Initial Coin Offering was born out of the need for a decentralized and borderless way for blockchain projects to be funded.
ICOs first came into existence in 2013, when Mastercoin used this model. But it wasn't 2017 that saw them go into the limelight. It was about this time that startups began to realize it was possible to simply issue tokens to the general public in return for cryptocurrencies such as Bitcoin and Ethereum, skipping traditional venture capital funding. One of the most famous successes at raising money through an ICO was the Ethereum project, raking in over $18 million in 2014, which became the foundation for the Ethereum network we know today.
The simplicity and potential for massive returns made ICOs so popular that there was an
effective gold rush in 2017. Every investor wanted to get in on the next big thing, which ended up seeing a staggering $6 billion raised through ICOs in that year alone. However, this excitement came with significant risks. The lack of regulation meant that most ICOs were launched by a team with little more than a whitepaper and a website. It was so rife with scams and some projects vanished after raising funds, with investors left holding worthless tokens.
Finally, the uncontrolled nature of the ICOs led regulators to intervene. The US Securities and
Exchange Commission (SEC) decided that a good number of these ICOs were unregistered
offerings of securities. Hence, they commenced a set of enforcement activities, fines, and
arrests, taking the cool off the market on ICOs. By 2018, the ICO bubble had burst, and most of the projects failed to live up to their promise, with token prices dropping exponentially. It was the fall of ICOs that gave place to more regulated and structured ways of raising funds within the crypto space.
Security Token Offerings (STOs): The Regulated Path
STOs came into being after the industry focused on enabling fund-raising events in a very clear regulatory environment. Unlike ICOs, STOs were designed to be compliant with securities laws and regulations. In STOs, blockchain-based tokens that represent equities, real estate, or other types of financial instruments are distributed to investors by companies.
STOs appealed more to conservative investors who wanted to avoid risks associated with ICOs. With legally recognized security tokens, STOs gave a feeling of legitimacy and protection. Notable examples of projects that have facilitated STOs are tZERO and Blockchain Capital.
However, despite the regulatory benefits, STOs still didn't explode like ICOs. This is due to the increased legal burden and compliance with multiple jurisdictions, and STOs went out of reach from the average retail investor. Also, the process of conducting the KYC and AML checks was draining. STOs will, however, live on as a potential option for projects intending to raise funds in a regulated environment, particularly within industries like real estate, where asset tokenization gives palpable benefits in terms of additional liquidity.
Initial Exchange Offerings (IEOs): The Exchange-Centric Model
IEOs were introduced as a solution to the chaotic and scam-filled ICO market. In an IEO, there
is an intermediary whom investors can trust in the form of a cryptocurrency exchange that will
run a token sale on behalf of a project. The idea became widespread in 2019 on platforms such as Binance Launchpad.
IEOs had various advantages over ICOs. The most obvious one is the additional layer of
security and trust derived from the involvement of a reputed exchange, wherein the exchanges vet the projects before listing, therefore reducing the risk of scams and increasing investor confidence. IEOs leveraged the existing user base of the exchange, hence there was immediate liquidity and exposure to a large potential pool of investors.
One of the greatest successes for IEOs was the launch of the BTT token by BitTorrent Token on the Binance Launchpad. The event sold out in minutes and raised millions of dollars. It did not take very long for other exchanges to follow steps in the same direction and create their IEO platforms. Just as with ICOs, the rapid rise of IEOs caused oversaturation, and markets cooled with increased wariness from investors.
Initial DEX Offerings (IDOs): The Decentralized Alternative
With the growing momentum for DeFi, that for the Initial DEX Offering followed through. Unlike ICOs and IEOs, which are based on centrally located platforms, IDOs are conducted on
decentralized exchanges. Anyone with an internet connection and a compatible wallet will be
able to participate without going through any intermediary.
Key advantages of IDOs include their level of decentralization and accessibility. On a
decentralized platform, projects could be exposed to the world with less hassle of attending to regulatory compliance. Most importantly, it democratized access to the first phases of
investment, making it feasible for small investors to invest in token sales, which otherwise would have been restricted to high-net-worth individuals or institutions.
One of the biggest decentralized exchanges, Uniswap has hosted many successful IDOs. For
example, on the Solana blockchain, the launch of the decentralized trading protocol Serum
became a huge success. Its IDO raised a serious amount of money and gained wide attention,
thus helping to support the status of Solana as one of the major DeFi players.
Fairlaunches: The Quest for Equality
A Fairlaunch ensures that all participants of a network start on an even keel with no competitive advantages in token acquisition given to any single entity, usually meaning launching a token with no presale or insider allocation so everybody could participate equally.
Fairlaunches are highly praised for being very transparent and inclusive. By avoiding pre-sales
and insider deals, it bypasses the cost that algorithmic and insider manipulation inflicts and
allows for the distribution of tokens in a much fairer way. But at the same time, that could be
challenging for a project, since there is no upfront private investment to boost them. Again, they create high volatility because there is no anchor price that early investors can create.
Perhaps the best-known instance of a Fairlaunch is Yearn Finance (YFI). There was no presale
or insider allocation in this distribution of YFI tokens, but the project had reached the gathering of a loyal community. With the success of YFI, other projects followed suit with the same model of Fairlaunch. Not everyone was as successful as YFI, though.
Airdrops: A New Way to Distribute Tokens
Airdrops are used to distribute tokens to a large audience, mostly for free, with the intent to
promote a new project or reward the community of early adopters. Airdrops became very
popular during the ICO era as a marketing tool; however, lately, they have evolved to serve a
number of purposes within the crypto ecosystem. In fact, in 2024, airdrops have become the
most popular medium for public crypto offerings and are seeing more participants than ever
before.
Airdrops are an effective means for projects to build up communities swiftly, with much noise.
Some use airdrops as a way to reward holders of other tokens or to incentivize the use of a new platform. For users, airdrops mean a possible way to earn tokens without needing to invest money beforehand.
The Uniswap UNI token airdrop that happened in September 2020 is one of the highest-profile examples. Uniswap distributed 400 UNI to every wallet that, at any time before a certain date, had interacted with the platform. The airdrop not only compensated the early users of this platform but also secured UNI's place as the top governance token within DeFi. The value of the tokens quickly increased, easily making this the most prominent event in airdrop history.
Conclusion
As more public offerings begin to enter into the crypto space, their chances of success depend on how well they satisfy regulations, embrace decentralized, community-driven fundraising, and ensure inclusivity and accessibility to a wider range of investors.
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