The Birth of IEOs

This post was originally published on May 29, 2019, and sent to Messari Pro subscribers.

In 2014, a group of developers decided to build a new decentralized network that added functionality they thought would be difficult to add to Bitcoin. Back then, raising money from traditional investors for a new protocol was a *lot* harder than it is today. So the team took a novel approach to raise funds by pre-mining tokens and selling them to early investors. The end result was the Ethereum crowd sale. While it technically wasn’t the first ICO, it certainly garnered a lot of attention when it raised tens of millions of dollars worth of BTC at the time. As fate would have it, ethereum became the platform upon which the 2017 token bubble was built, allowing crypto projects to raise billions of dollars that led to ICO’s (at least at the peak) outpacing early-stage VC in tech company financing.

Death of ICOs

Most of the 2017 projects that came to market raised at frothy valuations, and accessed millions of dollars in capital at the drop of a hat. Fundraising became as easy as setting up a wallet, website, and a whitepaper (although at times even that was superfluous). Some projects delivered on the promises they made during their token sales, while others simply faded away. Many ICO investors - even in “credible projects” - are still underwater by more than 90%.

The combination of lackluster returns, a macro bear market, and regulatory hurdles in large markets like the U.S. and China has essentially killed the ICO market with the year-over-year capital raised down 97% in Q1’19 according to BitMEX Research.