What is an ICO (initial coin offering)?
How crypto projects raised billions by selling tokens straight to the public, why regulators stepped in, and what token sales look like now.
An ICO (initial coin offering) is when a crypto project sells newly created tokens directly to the public to raise money, usually in exchange for ether or bitcoin. ICOs boomed in 2017 and 2018, raising billions for projects such as Tezos and EOS, but many failed or were frauds. In July 2017 the SEC said such tokens can be securities, and enforcement followed. Today token sales continue as exchange launchpads, IDOs on decentralized exchanges, airdrops and newly regulated sales, with many of the same risks.
How an ICO worked
A team would publish a white paper describing a project, set up a smart contract on Ethereum, and announce a sale. Buyers sent ether (or bitcoin) and received the project's new tokens, often at a discount for early buyers. Unlike shares in a company, the tokens usually gave no ownership, dividends or legal rights; buyers hoped the tokens would be needed to use the finished product, or simply that the price would rise once trading began on exchanges.
The appeal was obvious: anyone in the world could invest from a laptop, and teams could raise millions in minutes without banks, lawyers or regulators. So were the problems. See coin vs. token and how tokens are created.
From Ethereum's sale to the 2017 boom
Mastercoin runs what is usually called the first ICO, raising about 5,000 BTC.
Ethereum's sale raises about 31,500 BTC (around $18 million at the time) by selling ether to fund development, a year before the network launched. It became the template, and Ethereum's token standard (ERC-20) later made launching tokens easy. See who created Ethereum.
Tezos raises about $232 million. Disputes between its founders and its Swiss foundation delay the launch and lead to US class actions, later settled.
EOS, run by the company Block.one, holds a year-long sale that raises about $4 billion, the largest of the era.
Thousands of ICOs raise billions of dollars in total. Many promise products that never ship. A widely cited 2018 analysis by Satis Group classed about 78% of 2017 ICOs, by number, as scams, though they accounted for a much smaller share of the money raised.
The SEC's DAO Report and the crackdown
On July 25, 2017, the US Securities and Exchange Commission published its DAO Report, about tokens sold in 2016 by The DAO, an Ethereum investment fund. It concluded that those tokens were securities, because buyers invested money expecting profits from others' work, the test from the Supreme Court's 1946 Howey case. Calling something a "token" didn't change that. Selling securities to the public without registering, or an exemption, is illegal.
Enforcement followed:
- December 2017: the SEC halts the Munchee token sale, its first case against an ICO with no fraud alleged.
- September 2019: Block.one settles over its unregistered EOS sale, paying a $24 million penalty.
- 2020: courts side with the SEC against Telegram, which returns about $1.2 billion to investors from its $1.7 billion sale, and against Kik.
- 2022: a court rules that LBRY's token sales were unregistered securities offerings.
Other countries went further: China and South Korea banned ICOs outright in September 2017. Combined with the 2018 crash, this ended the classic ICO. US policy has since shifted again: in 2025 the SEC dropped many crypto cases, and on August 18, 2026 it proposed "Regulation Crypto Assets," which would create exemptions for raising money by selling tokens with required disclosures. See US crypto regulation.
What replaced ICOs
| Type | How it works | Main risk |
|---|---|---|
| IEO (initial exchange offering) | An exchange sells a project's tokens to its own users, often through a "launchpad" (Binance's first, in January 2019, was BitTorrent's token). | The exchange vets the project, but it also profits from the listing. |
| IDO (initial DEX offering) | Tokens are sold or first listed on a decentralized exchange or a launchpad app. | Little or no vetting; easy to copy, fake or abandon. |
| Airdrops and points | Tokens are given to early users instead of sold. See airdrops. | Fake airdrops are a common way to drain wallets. |
| Meme coin launchpads | Apps such as pump.fun (launched January 2024) let anyone create and trade a token in seconds. | Most tokens collapse within days; many are rug pulls. |
| Regulated token sales | Sales that follow disclosure rules, such as white papers under the EU's MiCA law. In late 2025 Coinbase began hosting public token sales in the US after buying the platform Echo. | Rules reduce fraud but not the chance a project fails or the token falls. |
Risks to check before joining any token sale
- Who are the team, and can you verify them? Anonymous teams can disappear.
- Does the token have a real use, or only a promise of a future product?
- Token unlocks: how much do insiders hold, and when can they sell? Large unlocks often push prices down.
- Is the sale legal where you live? Many sales exclude US residents for legal reasons; lying about your location can leave you without any protection.
- Is the website real? Fake sale pages and impersonating social accounts steal deposits. See fake crypto sites.
- Could you afford to lose it all? Most new tokens end up worth far less than their launch price.
The full research checklist is in how to research a cryptocurrency.
Related reading: Crypto pump-and-dump schemes
Frequently asked questions
What does ICO stand for?
Initial coin offering: the first sale of a new cryptocurrency token to the public, named after a stock market IPO.
Are ICOs legal?
It depends on the country and the token. In the US, a token sold as an investment is usually a security and must be registered or exempt. China and South Korea ban ICOs. The EU allows token offers that follow MiCA's white-paper rules.
What was the biggest ICO?
EOS, which raised about $4 billion between June 2017 and June 2018. Telegram raised $1.7 billion privately in 2018 but returned most of it after losing to the SEC.
Was Ethereum an ICO?
Yes. Ethereum sold ether to the public from July 22 to September 2, 2014, raising about 31,500 BTC, before its network launched in 2015.
What's the difference between an ICO and an IPO?
An IPO sells shares in a company under strict securities rules and gives legal ownership. An ICO sells tokens that usually give no ownership, often with far fewer disclosures.
Where to next
Sources
- Report of Investigation: The DAO, Release No. 81207 (SEC, July 25, 2017)
- SEC orders Block.one to pay penalty for unregistered ICO (SEC, September 30, 2019)
- Telegram to return $1.2 billion to investors (SEC, June 2020)
- Launching the ether sale (Ethereum Foundation blog, July 22, 2014)
- SEC proposes new Regulation Crypto Assets (Mayer Brown, August 2026)
Written for beginners and checked against the sources listed. Last reviewed November 4, 2026. This page is educational and is not financial, tax or legal advice. How we write and check pages.