A Beginner’s Guide to Initial Coin Offerings (ICOs) | by Cryptoverse Insight | The Capital | Dec, 2024

An Initial Coin Offering (ICO) is a way for cryptocurrency startups to raise assets for a new blockchain-based project, application, or service. It works similarly to an Initial Public Offering (IPO) in the stock market, where companies sell shares to raise money. In an ICO, investors buy tokens or coins issued by the company. These tokens can serve different purposes, like providing access to the project’s services or representing a stake in the company.

Unlike IPOs, which are strictly regulated and follow a structured process involving marketing, legal compliance, and public trading, ICOs operate with fewer restrictions in many countries. However, if an ICO meets certain criteria, it might be classified as a security and fall under regulatory oversight. In the U.S., the Howey Test is used to determine if an ICO qualifies as a securities offering.

To launch an ICO, project organizers decide how to structure the sale. Common models include:

1. Fixed supply and price: A limited number of tokens are sold at a preset price.