In 2013, a company named Mastercoin conducted the first ICO in the
history becoming one of the first applications built on top of the Bitcoin Blockchain.
Founders raised what was then worth $500K USD. By 2014, Mastercoin had appreciated
in value to make the initial investment worth $5.5M USD, proving the validity
of the investment model and paving the way for further ICOs.
Since then, there has been a great variety of ICOs with a new ones
launching every other day. Especially ICO funding started gaining traction in
2016 and exploded in 2017, where the funding increased from $228m to $2.6bn,
showing a tremendous increase within 1 year (Coindesk, 2017). Tezos and Bancor
are among the top ICOs of 2017, with the earlier raising $230 million and the
latter raising $153 million. Additionally, in 2017 ICOs has outcompeted and
outperformed VC in the financing of cryptocurrency and blockchain startups in
the second quarter of 2017 for the first time (CB Insights, 2017).
Such an explosive growth of ICOs has divided the industry into critics
associating the phenomena as a bubble waiting to be popped and proponents
justifying the use of such ICOs as a revolutionary innovation. In order to
understand the features of ICOs and analyze the novelty of the new fund-raising,
it will be more pronounced to compare it with other funding options available
for startups in the financial market such as crowdfunding, angel investment or
Additionally, defining ICOs in first place will be necessary in order
establish a taxonomy for this phenomenon. Even though ICOs have experienced an
exponential growth only in the last two years, the cryptocurrency community has
not come together to clearly define what terms surrounded ICOs actually mean.
Crowdsale, token generation event (TGE), initial coin offerings are the terms
which are interchangeably used by the community members and in the media. The
absence of the clear taxonomy made it difficult to navigate within the ICO
industry as well as regulate this phenomenon.
Broadly speaking, Initial Coin Offering is the process of raising money
for entrepreneurial blockchain
initiatives from a public token sale
(Kaal, Dell’Erba, 2017). However, when digging below the surface, we observe
that blockchain-based tokens represent a wide variety of assets, some of which qualify
as securities under U.S. law.