ICO and IEOICO
An initial coin offering (ICO) is when a crypto project sells new tokens to the public to raise money, usually directly from its own website. An initial exchange offering (IEO) is similar but run through a crypto exchange that screens the project and handles the sale.
In 2017 and 2018, thousands of crypto projects raised billions by selling tokens before their products existed. Some built real networks; many disappeared. ICOs and their exchange-hosted cousins, IEOs, are crypto's version of fundraising — and a regulatory minefield. This entry explains how they work, how they compare with IPOs and the risks.
- Category
- Cryptocurrency and Blockchain
- Reading time
- 3 min
- Also called
- Initial coin offering, Initial exchange offering, Token sale
- Updated
ICOs and IEOs in plain words
An ICO is a way of raising capital in the cryptocurrency and blockchain world by selling tokens.1
It is often compared to an IPO, but the comparison is imprecise because the two differ in important ways.1
Under US law, securities offerings must be registered with the SEC or qualify for an exemption, and unregistered crypto offerings may lack key information.2
How a token sale works, step by step
Publish a whitepaper
The project's plan and token design. See Whitepaper.
Set the tokenomics
Supply, allocation and vesting. See Tokenomics.
Run the sale
Directly (ICO) or on an exchange (IEO).
Investors pay
Usually in crypto such as ETH or stablecoins.
Tokens are distributed
Often with lock-ups for insiders.
Listing
Tokens start trading on exchanges.
Worked examples
Example 1 — Sale maths
$10 million raisedA project sells 200 million tokens at $0.05 each.
| Money raised | 200m × $0.05 = $10m |
An ICO raises capital by selling newly created tokens to investors.1
Example 2 — Fully diluted value
Unlock riskThose 200 million tokens are 20% of a 1 billion total supply.
| Fully diluted value at $0.05 | 1bn × $0.05 = $50m |
| Tokens held by insiders and treasury | 800 million |
Most supply often sits with the team and early backers, which can weigh on price when it unlocks. See Fully Diluted Valuation.
Example 3 — A failed project
−95%You invest $2,000 in an ICO; a year later the token trades 95% lower.
| Value | $2,000 × 5% = $100 |
| Loss | −$1,900 |
Unregistered offerings may not provide the information investors need, raising the risk of losses. See Rug Pull.
ICO vs IEO vs IPO
| Aspect | Run by | Investor protection |
|---|---|---|
| ICO | The project itself | Low |
| IEO | A crypto exchange | Some exchange screening |
| IPO | Underwriters, regulated exchange | High. See Initial Public Offering |
| Typical buyers | Global retail | Varies |
Where token sales matter
Project funding
Raising money for new networks. See Blockchain.
Community building
Distributing tokens to early users. See Airdrop.
Exchange launchpads
IEOs on large platforms.
Regulatory scrutiny
Many sales have been treated as securities offerings.
Advantages and disadvantages
Advantages
- Global access to early-stage projects.
- Fast fundraising for developers.
- IEOs add a layer of screening.
Disadvantages
- High fraud and failure rates.
- Little disclosure or investor protection.
- Legal risk for issuers and buyers.
Going deeper
Read as far as you need. Each level builds on the one before it.
Why the IPO comparison falls short
Beginner
There are crucial differences between ICOs and IPOs.1 Many token sales, for example, skip the audited financials and regulatory review that an IPO requires.
Audited financials
Intermediate
A registered offering usually includes financial statements audited by an independent accounting firm — protection many token sales lack.2
Intermediaries must register too
Advanced
Platforms acting as brokers, exchanges or advisers may need to register with the SEC or other regulators.2 See Securities and Exchange Commission.
Common mistakes
Trusting the whitepaper
Promises aren't products.
Ignoring token unlocks
Insider selling can follow.
FOMO buying
Hype drives many sales. See Fear of Missing Out.
Skipping legal checks
Some sales exclude certain countries for a reason.
Check your understanding
Test yourself before moving on. Each answer comes with an explanation.
Key points to remember
- ICOs sell new tokens directly to raise money.
- IEOs run the sale through a crypto exchange.
- They resemble IPOs but offer far less protection.
- Many token sales have failed or been fraudulent.
- Securities laws may apply.
Frequently asked questions
Are ICOs legal?
Are IEOs safer than ICOs?
What is an IDO?
Further learning
- Tokenomics
How token supply is designed.
- Fully Diluted Valuation
Valuing the full supply.
- Rug Pull
A common crypto scam.
- Initial Public Offering
The regulated equivalent.
Sources
This article is written in our own words. The sources below support the specific facts, rules and figures marked with a number in the text. Links open the original publisher’s page.
- Corporate Finance Institute. Initial Coin Offering (ICO) (opens in a new tab) Checked .
- Investor.gov (SEC). Exercise Caution with Crypto Asset Securities: Investor Alert (opens in a new tab) Checked .
Educational content, not financial advice. Examples use hypothetical prices and simplified costs; actual fees, margin rules and regulations vary by broker, market and country. We are not affiliated with any publisher linked above. Last reviewed . Report an error or request a source credit.