The ICO boom
For about eighteen months, anyone could raise millions by publishing a document and a token. Most of what was funded no longer exists.
An initial coin offering sold newly created tokens to the public to fund a project. Ethereum made issuing a token a matter of deploying a short contract, so the cost of launching a fundraise fell to almost nothing.
Why it grew so fast
- No intermediary. No underwriter, no listing requirements, no prospectus review. A website and a contract sufficed.
- Global from day one. Anyone with a wallet could participate, regardless of jurisdiction or accreditation status.
- Immediate liquidity. Tokens could trade within days, unlike venture equity which is locked for years.
- No obligations attached. Most tokens conveyed no ownership, no claim on revenue, and no governance right. Buyers were funding a project and receiving nothing enforceable in return.
Selling equity creates duties to shareholders and brings securities law with it. Selling a token that promises nothing appeared, at the time, to do neither — while raising money from the public exactly as a securities offering does. That gap between economic substance and legal form is what the boom was built on, and it is what regulators closed.
The regulatory response
The analysis applied the long-standing test for an investment contract — an investment of money in a common enterprise with an expectation of profit from the efforts of others — and found that many token sales met it. Enforcement actions followed over subsequent years. Other jurisdictions reached broadly similar conclusions, and several banned public token sales outright.
What happened to the money
Studies of the period consistently find that a large majority of projects funded in 2017 and 2018 ceased meaningful activity within a couple of years. The reasons vary: outright fraud in some cases, but more often teams that raised money for products that were difficult, unnecessary, or both, and had no obligation to anyone once the funds arrived.
The honest complication
A small number of genuinely significant projects were funded this way, including infrastructure still in wide use. Ethereum itself was funded by a public token sale in 2014. So the mechanism was not incapable of financing real work — it was simply incapable of distinguishing, and the incentives ran heavily toward the noise.
The pattern it established
Token launches, yield farms, NFT collections, memecoins. The common shape is: a new asset with no cash flow, sold to the public with a narrative, liquid immediately, issued by people holding a large allocation obtained at a lower price. Recognising the shape is more useful than learning each cycle's vocabulary — see fraud patterns and tokenomics.