What is Initial Coin Offering (ICO)?

ICOs gained massive attention during 2017-2018, with projects raising millions in just hours. Ethereum, for example, raised $18.3 million through an ICO in 2014, laying the foundation for what it is today.

But not all ICOs were successful. Many projects failed or turned out to be scams, causing ICOs to lose credibility. This led to stricter regulations and the rise of new fundraising models like IEOs and IDOs.

This guide explains how ICOs work, their benefits and risks, and how to evaluate a project before investing. If you're considering joining an ICO, understanding these factors is crucial.

What is an Initial Coin Offering (ICO)?

An Initial Coin Offering (ICO) is a method used by blockchain startups to raise funds by selling their newly created tokens to potential investors (like initial public offering into stock). It's like buying a share in a project before its official coin launches, except instead of stocks, you get digital tokens. During an ICO campaign, investors exchange cryptocurrencies like Stablecoins (USDC), Bitcoin (BTC) or Ethereum (ETH) for the project's tokens.

Why do investors participate in ICOs?

Investors join ICOs because they believe the project has a bright future and expect the token price to rise once it gets listed on major exchanges.

In traditional investing, early access to startups was for wealthy angel investors and venture capitalists. ICOs changed the game, allowing anyone—even with just $100—to participate in early-stage funding. Now, retail investors can access the same opportunities that used to be exclusive to big institutions.

Every investor dreams of finding the next Bitcoin, Ethereum, or Google at an early stage. ICOs give them a shot at life-changing gains if they pick the right project. ICO investors buy tokens at the earliest stage, hoping they will increase in value when trading begins. But if it fails, the token might never recover, leading to a complete loss.

Who shouldn’t invest in initial coin offering?

ICOs are not for everyone. They offer potential rewards, but also serious risks. Some people thrive in this environment, while others may struggle. Who shouldn’t invest in ICOs?

People who don’t believe in crypto assets: If you don’t have confidence in Bitcoin or the crypto market, ICO investing isn’t for you. You need to believe in the future of blockchain and understand its long-term potential. Otherwise, market dips and uncertainty will make you panic.

People who want guaranteed returns: ICOs are high-risk, high-reward. There’s no safety net. If you prefer stable investments like real estate, stocks, or gold, ICOs might not be a good fit. Even the most hyped projects can fail.

Impatient investors: ICOs require patience. Even if you pick a strong project, it might take months or years before the token sees significant growth. If you expect quick profits, you may end up selling too soon or at a loss.

People unwilling to learn: The crypto space changes daily. Every day, thousands of projects release updates, partnerships, and new developments. Just imagine, right now the crypto market has over 8,000+ quality projects. If each one update one per day, that’s over 8,000+ news pieces to filter through. If you’re not willing to research and adapt, you’ll struggle to make informed investment decisions.

How much money do you need to invest in an ICO?

In the modern day of ICO where launching project is easier. There is often no minimum limit for how much you can invest, but there is a maximum limit that you can buy. Some decentralized ICO platform requires you to stake their tokens to gain higher tier, and more purchase allocation.

If you don’t have much capital, you can still build up funds through bounty programs and airdrops.

• Bounty campaigns reward users with free tokens for promoting the project (e.g., sharing on Twitter, writing blog posts, or referring friends).
• Airdrops give away free tokens to early supporters or users who meet specific criteria such as interacting with their testnet, stake their tokens or interact with different decentralized applications in the ecosystem.

After earning these free tokens, you can sell them for startup capital, which can then be reinvested into future projects.

What are the risks of investing in initial coin offering?

Below are the biggest risks you need to be aware of before investing in an ICO:

• Legal and regulatory risks
• No investor protection
• Market manipulation and price volatility
• Cybersecurity risks and hacks
• Team incompetence or failure to deliver

Investing in ICOs comes with high potential rewards, but it also carries significant risks. Many new investors get excited about the opportunity to buy into a project early, hoping for massive returns. But, without understanding the risks, they can easily fall into traps that could wipe out their investment.

1. Legal and regulatory risks

One of the biggest concerns with ICOs is regulatory uncertainty. Many governments are still figuring out how to regulate crypto digital asset, and some have already imposed strict laws against them.

• Uncertain legal status: In countries like the U.S., the SEC (securities and exchange commission) used to classified many ICO tokens as securities, meaning they must comply with strict regulations. If a project doesn't meet these requirements, investors could be left with tokens that is illegal.
• Banned in some countries: Some countries, like China, have outright banned ICOs, making it impossible for investors in those regions to legally participate.
• Risk of legal action: If an ICO is later declared illegal, investors could lose everything, and project founders might face prosecution.

Before investing in an ICO, always check whether the token complies with local regulations and if the team has taken steps to ensure legal compliance.

2. No investor protection

Unlike traditional stocks, ICO investments don’t come with any legal protection.

• No official contract: When you buy stocks, you receive official documentation proving your ownership. But with an ICO, you’re just trusting that the project team will deliver.
• No money back if something goes wrong: If the team disappears with investor funds or fails to deliver, there’s usually no way to get your money back.
• No transparency in fund usage: Some projects may raise millions but spend the money recklessly or fail to deliver a working product.

Example: In 2023, Fintoch claimed to be an investment platform but turned out to be a Ponzi scheme. The team allegedly ran off with $31.6 million in investor funds, leaving buyers with worthless tokens.

To reduce this risk, always check the team's background, project whitepaper, and roadmap before investing.

3. Market manipulation and price volatility

The crypto market is known for extreme volatility, and ICOs are even more unpredictable.

• Pump and dump schemes: Some ICOs attract investors with hyped-up marketing. Once the token is listed on exchanges, early insiders dump their tokens, causing the price to crash.
• Whales controlling the market: Some projects allocate large amounts of tokens to private sale investors, the team, and market makers, allowing them to manipulate prices. One common tactic is selling tokens to drive the price down. When other investors panic and sell, they buy back at a lower price, creating FOMO. Then, they sell again at a higher price to take profits.

To avoid these scams, be cautious of projects with anonymous teams, tokenomics that allocate a large portion of tokens to private investors, the core team, or advisors, and tokenomics with no vesting period or immediate token unlocks after launch.

4. Cybersecurity risks and hacks

New cryptocurrency projects are a prime target for hackers. If an ICO’s smart contract has vulnerabilities, attackers can steal investor funds.

• Hacked smart contracts: Poorly written code can be exploited, causing millions in losses.
• Phishing scams: Fake websites or social media accounts may trick investors into sending money to the wrong address.
• Wallet hacks: You can never be sure if an ICO project is a scam. If it is, hackers can gain access to your wallet the moment you interact with the smart contract to claim your tokens. They can then steal all your funds in an instant.

Before investing, check if the ICO has undergone a security audit by a reputable firm. Also, use secure wallets and verify official project links before making any transactions.

5. Team incompetence or failure to deliver

Many ICOs are launched by inexperienced teams who have no real ability to execute their vision.

• Overpromising, underdelivering: Some projects create flashy whitepapers but fail to launch a working product.
• Mismanaged funds: Some teams spend their ICO funds on marketing, expensive partnerships, or salaries instead of building their product.
• Abandoning the project: If the team loses interest or runs out of money, the project can collapse overnight.

Example: Eros.vision raised millions in an ICO but quickly shut down, with the team blaming "lack of funding", despite having just raised money. Investors were left with worthless tokens.

To avoid such projects, look for teams with a strong track record, transparent funding plans, and a working prototype before investing.

How to find ICO crypto projects?

Here are some of the best platforms to track upcoming, active, and completed ICOs:

1. ICO Drops

ICO Drops is one of the most popular platforms for tracking ICO projects. It provides clear and simple categorization:

• Active ICOs – Ongoing token sales that investors can participate in immediately.
• Upcoming ICOs – Projects that will launch soon, giving you time to evaluate and prepare.
• Ended ICOs – Completed ICOs that are either awaiting exchange listings or already tradable.

Each listing provides project details, fundraising goals, and tokenomics, making it easier to assess opportunities.

2. Popular ICO platforms

Crypto launchpads such as DAO Maker, Polkastarter, and Binance Launchpad frequently posts upcoming and ongoing ICOs. These platforms often require users to stake tokens to access sales but offer safer investment opportunities compared to random public ICOs.

How to evaluate ICO projects?

A good ICO should have a strong foundation, real-world utility, and a committed team capable of delivering results. Here are 9 key criteria to help you separate high-potential projects from weak or fraudulent ones:

• Business idea: Does the project solve a real problem, or is it just hype?
• Team: Are the developers and leaders experienced in blockchain or the industry they’re targeting?
• Advisors: Do they have reputable advisors who add real value, or just big names for show?
• Strategic partners: Does the project have strong backers that signal credibility?
• Product: Is there a working prototype, or is it just an idea on paper?
• Roadmap: Are the development milestones realistic and well-structured?
• Tokenomics: Is the total token supply, distribution, and use case well thought out?
• Budget allocation: How will the raised funds be used? Is the spending plan reasonable?
• Community: Does the project have strong organic interest, or is it all marketing hype?

1. Business idea: Is the project solving a real problem?

Many ICOs claim to be the "next big thing," but not all of them address an actual need. A good project should:

• Identify a clear pain point – Does it solve an existing inefficiency or improve a current system?
• Offer a blockchain-specific solution – Not every problem requires blockchain. If the same thing can be done with a traditional database, the project may be unnecessary.
• Show market demand – Are people or businesses actively looking for this solution?

A solid project should also have a clear revenue model beyond token sales. If it relies only on token speculation, it’s a red flag. Sustainable revenue sources include transaction fees, licensing, or real-world utility—like Uniswap earning from swap fees or Chainlink charging data providers.

For example, Ethereum solved a major issue by providing smart contract functionality, allowing decentralized applications (dApps) to be built on its blockchain. Compare this to the thousands of ICOs that launched in 2017 with vague goals and no real utility—most of them failed.

2. Team: Who is behind the project?

A great idea means nothing without the right team to execute it. When evaluating an ICO, look at who is building it—their experience, credibility, and track record.

Start with the core team—especially the CEO, CTO, and developers. Have they worked on successful blockchain or tech projects before? Strong teams often come from reputable companies or have previous startups, fintech, or crypto experience. If the team is anonymous or lacks relevant expertise, that’s a red flag.

Next, check advisors and strategic partners. Good projects often have well-known experts backing them—whether in blockchain, finance, or the specific industry the project targets. Advisors should add value beyond just lending their names. If an ICO boasts high-profile names but lacks their actual involvement, that’s a warning sign.

3. Strategic partners: Who is supporting the project?

Strategic partners can significantly impact an ICO’s credibility, adoption, and long-term success. These are companies, investment firms, or organizations that provide funding, technology, or business connections to help the project grow.

Some projects list big names as “partners” when, in reality, there’s little or no collaboration. Check if the partners publicly posts about the partnership announcement on their social media platform.

4. Product: Does the project have a working product?

A great idea is not enough—an ICO project needs a working product or at least a functional prototype to prove it can deliver on its promises. Many failed ICOs raised millions based on whitepapers alone but never built anything working.

Here’s what to check when evaluating a project's product:

• Is there a demo, MVP, or beta version? A project that already has a working product or a prototype shows commitment and progress. If all they have is a whitepaper and a website, that's a major red flag.
• Is the product open-source or verifiable? If the project is blockchain-based, they should have a GitHub repository where you can see the development activity. A lack of transparency means the team isn’t actually building anything.
• Are there users or early adopters? A good project should have test users, partnerships, or pilot programs before launching an ICO. If they have nothing to show, the risk is higher.

5. Roadmap: Is the development plan realistic?

A clear and achievable roadmap shows whether the team has a structured plan to build and grow the project over time. Many ICOs fail because their roadmaps are either too vague, or simply unrealistic.

Here’s what to look for when evaluating a project’s roadmap:

• Clear milestones and timelines: A good roadmap should break down the project’s progress into phases with expected completion dates.
• Reasonable development timeline: If the roadmap claims they’ll build a complex blockchain in a few months, that’s a major red flag.
• Progress before the ICO: Has the team already accomplished anything before asking for funding? If the roadmap starts from zero with nothing built yet, the project is much riskier.
• Post-ICO growth strategy: A great roadmap doesn’t just end at the token sale. Look for plans on how the team will expand adoption, look for partnerships, and develop the ecosystem.

6. Tokenomics: How is the token structured?

Tokenomics refers to how a project's token is designed, distributed, and used within its ecosystem. Here’s what to evaluate in a project's tokenomics:

• Token utility: What is the token actually used for? Does it serve a real purpose in the ecosystem (e.g., on-chain crypto governance, staking, transaction fees?
• Total supply and inflation rate: Check if the project has a fixed supply? Tokens without maximum supply can be minted in the future, which can cause price hard to rise.
• Token allocation: Be careful if a large percentage is reserved for the team, private investors, or advisors, as they could dump their holdings and crash the price.
• Vesting schedule: Does the project lock up team and investor tokens? A good vesting schedule prevents early backers from selling all their tokens at once.
• Burning and buyback mechanisms: Some projects reduce token supply over time through burning (destroying tokens, which can support long-term price appreciation.
• Liquidity and exchange listings: Can investors easily buy and sell the token? Projects with low liquidity or no exchange listings can make it difficult to trade tokens, increasing investment risk.

How to invest in an ICO?

1. Find a promising ICO

• Check ICO listing websites like ICO Drops, ICO Holder, and CoinGecko for upcoming projects.
• Follow crypto communities on Twitter, Telegram, Discord, and Reddit to get early insights.

2. Set up a crypto wallet

• If you participate on a centralized exchange (CEX), you can use your account to join the ICO.
• If you join through a decentralized exchange (DEX) or launchpad, you need a hot wallet like MetaMask or Trust Wallet.
• Make sure the ICO platform supports your wallet. For example, the Ethereum network supports MetaMask, while the Solana network supports Phantom Wallet.

3. Get the required cryptocurrency

• Some ICOs accept payments in ETH, BNB, USDT, or other stablecoins for direct purchases.
• If you participate on a DEX, make sure to prepare the blockchain utility token to pay for transaction fees, ETH for Ethereum network, SOL for Solana network, etc.
• Some projects require you to lock your tokens on their platform to earn ICO tokens gradually over time, like Binance Launchpad.

4. Register for the ICO

• Some ICOs have a whitelist process, where you must register in advance and complete KYC verification.
• Some platforms, like Polkastarter, require you to stake their tokens for a period of time. The more you stake, the higher your tier and the larger your allocation to buy ICO tokens.
• Research the project’s requirements carefully to secure your spot.

5. Participate in the ICO

• On the ICO launch date, visit the official website. Scammers often run ads to trick users into visiting fake websites, connecting their wallets, and stealing their tokens. Double-check the URL before connecting your wallet.
• Double-check the official contract address—scammers often create fake contract addresses to steal funds.
• Connect your wallet and buy your tokens before the sale ends.
• Depending on the vesting schedule, you may receive all or only a portion of your tokens after the sale. If tokens are vested over time, you’ll need to revisit the ICO platform to claim them periodically.

Conclusion: Should you invest in ICOs?

Investing in ICOs can be highly rewarding, but it’s not for everyone. ICOs allow you to get in early on projects that could see exponential growth. Some investors have turned small investments into life-changing profits.

However, scams and rug pulls are always the risks that you need to be aware of. If you’re willing to do in-depth research, take calculated risks, and manage your portfolio wisely, ICOs can be a great opportunity.

If you decide to invest, only use money you can afford to lose.

FAQ

Is initial coin offering legal?

The legality of ICOs depends on the country. Some countries like the U.S. treat certain ICOs as securities, which means they must comply with strict regulations from bodies like the SEC (securities and exchange commission). Others, like Switzerland or Singapore, allow ICOs under specific regulatory frameworks. Always check local laws before investing.

What do investors in an initial coin offering (ICO) typically receive?

Investors usually receive tokens in exchange for their investment. These tokens can represent utility within a platform (like access to services), governance rights, or—less commonly—profit-sharing rights. Unlike stocks, they usually don’t offer ownership in the company. The value of the token depends on the success and adoption of the project.

Are ICOs safe?

ICOs are high-risk investments. Some are legitimate and successful, but many turn out to be scams or fail due to poor execution. Since they're often unregulated, there's little legal protection for investors. Always do thorough research before investing.