What Is ICO? Complete Guide to Initial Coin Offerings

Initial Coin Offering (ICO) is the cryptocurrency world's equivalent of Initial Public Offering (IPO) in traditional financial markets. ICOs are defined as a fundraising method initiated by a company looking to raise money to create a new token, coin, application, or service. Through ICOs, investors can buy the project's native cryptocurrency at a lower price before it hits the market. This cryptocurrency may have certain benefits for using the company's product or service, or it may simply represent voting rights in a project related to the company.

With the widespread adoption of token standards like ERC-20, developing a new cryptocurrency and raising funds for a project has become much easier. Today, most ICOs are conducted through an intermediary institution. A project raises funds through an exchange or launchpad platforms where it can meet users and investors.

ICO caught the real attention of many cryptocurrency investors in July 2014. During this period, Ethereum raised $18.4 million in funding, opening the doors to an era where many projects announced ICOs. With Ethereum's success, ICOs became the de facto method of financing cryptocurrency project development through tokens or coins somehow integrated into the project.

Since 2014, ICOs have generally been used to finance the development of new cryptocurrencies. Pre-created cryptocurrency can be easily bought and sold on cryptocurrency exchanges listed after the ICO process.

How Does an ICO Work?

When a blockchain or blockchain application entrepreneur wants to raise money through an ICO, they typically need to publish technical documents containing information about what the project is about, how it works, and what kind of tokenomics structure it has on the ICO website or their own websites beforehand. Then, through the platform where the ICO will take place, a fundraising process is initiated from investors in exchange for their tokens or coins during specified dates and times.

During the ICO campaign, enthusiasts and supporters of the project buy the project's digital currency at fixed or predetermined prices. After this sale, the collected money is sent to the company to achieve its goals and objectives. During this process, platforms conducting ICOs may create their own specific participation requirements.

What Are the Differences Between ICO and IEO?

While ICO is a general concept created to raise funds for a project, IEO is the name given to collecting these funds through an exchange platform. ICO participation requirements are determined by the project or infrastructure provider platform and vary from project to project. IEO is the name given to the fundraising concept that cryptocurrency exchange users can participate in and has basic rules such as AML (Risk Management) and KYC (Know Your Customer).

While sales for fundraising in ICOs are provided by the developers in the project, in IEOs, these transactions can only be made through cryptocurrency exchanges. After an ICO sale, the project must reach out to exchanges for listing. However, in IEOs, listing through the exchange where the sale took place is quite common and easier.