The Funding: Why ICOs are being revived
2024-12-01

ICOs dominated headlines during crypto's early boom in 2017, raising billions of dollars for startups and driving blockchain growth. But after the 2018 crypto crash, regulatory scrutiny and high-profile failures caused the funding model to lose its shine. Now, a new wave of interest in ICOs is emerging, with some industry experts believing it's time for them to make a comeback. So, what's driving this renewed interest?
"The ICO topic is coming back now because smart founders, especially in the U.S., will no longer feel fear from the Securities and Exchange Commission (SEC) enforcement after Donald Trump becomes president and the current SEC chairman, Gary Gensler, resigns in January 2025," Fiskantes, pseudonymous partner at crypto venture firm Zee Prime Capital and chief investment officer at Sigil Fund, told me.
Jack Platts, founder of Hypersphere Ventures, echoed Fiskantes, telling me that the Trump administration is "pro-innovation," in contrast to the previous one, which aimed to restrict crypto and limit funding for U.S.-based projects.
Secondly, retail investors are "generally frustrated" by paying higher prices than VC investors while recognizing that many valuations are "completely unjustified," according to Dean Eigenmann, co-founder and partner at investment firm Dialectic and a smart contract developer. "I think $100 million rounds before a mainnet launch are a thing of the past and generally non-sustainable," Eigenmann told me.
Jed Breed, founder and general partner of Breed VC and former head of digital assets at Circle, concurred with Eigenmann, saying that ICOs once allowed retail investors to benefit from early project growth. However, as projects moved to raise funds from VCs, they now often list their tokens at billion-dollar valuations, leaving retail investors with limited upside. "Nobody really gets their 100x anymore, which is a shame," Breed told me.
Meanwhile, Erick Zhang, managing partner at Nomad Capital and former Binance executive, pointed out issues with token airdrops, contributing to renewed interest in ICOs. Zhang said airdrops have led to poor user retention and heavy selling pressure after token generation events (TGEs), making them "ineffective."
Matt O'Connor, co-founder of the newly launched "merit-based" ICO platform Legion, which is incubated by Delphi Labs, said that even when a large portion of tokens is allocated to the community, the community doesn't receive them until much later — after insiders have already vested their share. This creates "unfair terms," O'Connor said, prompting questions about how to ensure the community can be involved in a more meaningful way.
As ICOs gain renewed attention, Zhang told me he is preparing to launch his own platform, adding to efforts like O'Connor’s Legion.
A new chapter for ICOs?
While fundraising from angel and VC investors brings value, O'Connor emphasized that community involvement is critical to the success of projects. He said that ICOs allow for "product evangelism at scale" and the type of product feedback that only a passionate community can provide. However, O'Connor acknowledged the challenges of large-scale community involvement, such as token dumping and low-quality participation. To address this, O'Connor said Legion uses a reputation-based score to ensure ICO projects build a quality community while achieving broad token distribution.
Fabrizio Giabardo, the other co-founder of Legion, said attracting 50 to 250 aligned investors through ICO sales drives word-of-mouth marketing and helps scale projects.
Zhang also emphasized the value of community involvement, while Fiskantes suggested that projects focused on community building and wide token distribution should consider public sales like ICOs. Platts described ICOs as "the fairest distribution mechanism."
Checks and balances
While ICOs offer notable advantages, nearly 80% of all ICOs in 2017 were scams, according to a study by ICO advisory firm Satis Group at the time. Despite this, some experts continue to support the idea of an ICO comeback — but this time with proper checks and balances.
O'Connor said platforms like Legion and Echo (an angel investing platform founded by popular crypto trader Jordan Fish, also known as Cobie) help ensure that only quality projects are considered for their token sales, acting as a safeguard against fraud. He also noted that Legion is on track to become a fully regulated entity under the European Union's Markets in Crypto-Assets (MiCA) law and that the platform's reputation score and other customized features could further help de-risk ICOs for both projects and investors.
Earlier this week, Legion held its first ICO sale for Pulse, a DePIN project focused on collecting health data. Pulse's founder River Tamoor Baig, also known as Nyx, told me that the project aimed to raise $100,000 via Legion but ended up with $600,000 in subscriptions and is now reviewing who to select. Pulse also conducted a sale through Echo, Nyx said, adding that these sales were primarily about getting a quality community onboard.
O'Connor said Legion is set to hold another ICO sale next week and then has sales scheduled about once per week for the remainder of the year, with even more frequent sales expected for next year. Cobie's Echo, which launched in beta in April, has already helped projects raise around $30 million to date, according to a post by Cobie on X, dated Nov. 27.
Notably, Legion is not available for non-accredited or retail U.S. investors, nor for investors in some other restricted jurisdictions. But O'Connor said Legion wants to be "everywhere where regulation permits."
Shifting focus from memecoin mania to ICOs?
Once ICOs are back in action, they could shift the focus away from the memecoin craze, according to O'Connor. Memecoins often thrive on the perception of being less controlled by VCs or insiders, he said, adding that ICOs have the potential to encourage projects to prioritize genuine community engagement over speculative hype.
While ICOs have their advantages, the role of VCs, particularly top-tier investors, cannot be overstated. VCs bring their own set of skills and help projects scale in various ways, O'Connor acknowledged (Legion itself recently raised a VC round). Breed also said that "it's arguably a lot harder to succeed as a company" with only ICO funding, not VC support. "I think having a combination of retail investors through ICOs and VC investors is the best outcome," Breed said.
Platts agreed, saying more capital going into crypto is good for everyone and that bringing back ICOs doesn't mean VCs will get hurt. "Polychain Capital did pretty well funding Tezos, Filecoin, Polkadot, Dfinity and Cosmos through ICOs at the same terms as retail," he said.
As the crypto world eyes a potential ICO resurgence, even industry giants are taking note. Earlier this month, a16z crypto, one of the largest crypto VCs, said that with Trump returning to power, crypto projects can now "feel empowered to explore all of the groundbreaking products and services that blockchains enable, including tokens."
"For many of you who have delayed using tokens to distribute control of your project and build community due to fears of regulatory overreach, you should now have greater confidence in your project's use of tokens as a legitimate and lawful tool," a16z crypto said.
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