The Good Tech Companies - Crowdsales in Crypto: Initial (Something) Offerings and Their Regulations

Episode Date: May 11, 2025

This story was originally published on HackerNoon at: https://hackernoon.com/crowdsales-in-crypto-initial-something-offerings-and-their-regulations. A crowdsale in the crypto space is a risky fundraising method that anyone could prepare, so it could lead to big gains or big Check more stories related to web3 at: https://hackernoon.com/c/web3. You can also check exclusive content about #ico-investment, #ieo-vs-ico, #ico-and-sto, #howey-test, #obyte, #crypto-crowdfunding, #good-company, #hackernoon-top-story, and more. This story was written by: @obyte. Learn more about this writer by checking @obyte's about page, and for more stories, please visit hackernoon.com. Crowdsales in the crypto space are a fundraising method in which a DLT-based project offers its native tokens to the public in exchange for established cryptocurrencies. This process typically occurs before the project is fully launched. In 2017 and 2018, ICOs exploded in popularity, quickly becoming the go-to way for crypto startups (and scammers) to raise money.

This audio is presented by Hacker Noon, where anyone can learn anything about any technology. Crowdsales in crypto. Initial, something, offerings and their regulations. By obite, surely you do know what crowdfunding is, don't you? Someone shares a project or personal circumstances on an online platform, and whoever wants to help them or invest in their initiative can donate some money. Well, crowdsales in crypto aren't that different, except that it's always about investing in a new idea, and it always involves the purchase of newly minted tokens. To be more specific, a crowdsale in the crypto space is a fundraising method in which a DLT-based project offers its native tokens, created by their team, to the public in exchange for

established cryptocurrencies, such as Bitcoin or Ether, or fiat money, like USD or EUR. This process typically occurs before the project is fully launched and is often part of an initial coin offering, ICO, or a similar token distribution event. Crowdsales allow early supporters to acquire tokens at a fixed or tiered price, and the funds raised are generally used to finance the development and deployment of the project's ecosystem or platform. ICO, by the way, was the most popular type of crypto crowd sale some years ago. And, between 2017 and 2018, it was in charge of demonstrating everything that could go wrong with this new and unregulated model.

A bad track record, in layman's terms, an ICO happens when someone, which could be, literally anyone with internet and a minimum level of crypto literacy, decides to put together a website, some social channels, and, if we're lucky, a white paper, to offer some kind of new crypto project to potential investors, anyone with internet, too. These investors would be buying a batch of recently minted tokens to fund that project and, if everything goes well, their tokens would acquire a lot of value and time. No laws, no limits, and no more requisites than a crypto wallet and a dream. Except, yes, things often go wrong. In 2017 and 2018, Icos exploded in popularity, quickly becoming the go-to way for crypto startups, and scammers, Toray's money. What started quietly with projects like Mastercoin suddenly turned into a frenzy, with Ethereum's early success showing the potential.

Early buyers paid just $0.31 per ETH, now worth around $1,600. Big names like Tezos, Filecoin, and EOS raised millions, even billions, and it seemed like anyone with a vague white paper and some marketing could secure funding in minutes. NBUT behind the hype, problems grew. Many teams had no working product and still walked away with millions, some didn't stick around at all. A 2018 report by Status Group found that nearly 80% of ICOs from the previous year were outrights cams. By the end of that year, prices crashed, trust evaporated, and funding

dried up by 95% in 2019. Only about 1 in 10 projects actually survive, according to ICO Bench. Eventually, governments stepped in with stricter rules, trying to protect investors and clean up the mess. Regulations for IKOS After 2017, regulatory agencies around the world began scrutinizing IKOS due to the increasing concerns. Governments responded in different ways. China and South Korea imposed full bans on IKOS, while others, like Australia, New Zealand, and France, released regulatory

guidelines or introduced opt-in frameworks. The US took a case-by-case approach, driven largely by the Securities and Exchange Commission – SEC – which began classifying some ICOS-AS unregistered securities offerings. A key tool in the sex evaluation is the Howey Test, a legal standard used to determine whether a financial transaction qualifies as an investment contract, and therefore, a security. If a token sale involves an investment of value in a shared venture, with expectations of profit derived from someone else's work, it likely passes the test. Many ICOs, especially those promoting future profits or development promises, met these criteria. When they did, they triggered strict securities laws and regulatory requirements.

This scrutiny led to several high-profile crackdowns. One example is the case of Block. One, the company behind EOS, which raised over $4 billion through an IC owned later settled with the SEC for $24 million. Other projects, like Sentra Tekken Munchy, faced fraud charges or were shut down entirely. The SEC also clarified that promotional endorsements, like those by celebrities, must disclose payments to avoid misleading investors. As regulatory pressure mounted and the investor trust in the old model evaporated, the crypto space adapted. New models like security token offerings, STOs, and initial exchange offerings, IEOs, emerged, focusing on compliance and investor

protection. These alternatives signaled a shift toward more structured, legally sound fundraising strategies. New crowd-sale models, people still launch and participate in ICOs, but crypto projects today also use other types of crowd sales to raise funds, each with distinct methods and levels of oversight. Security token offerings, STOs, rely on tokens backed by tangible or financial assets, such as real estate or company shares, and are subject to securities laws. These tokens represent ownership rights or financial benefits and must follow strict regulatory frameworks, especially in jurisdictions like the US STOs often require investors to be accredited, ensuring they meet specific income or asset

thresholds. This approach offers legal protections and aligns closely with traditional investment models but in a tokenized form. On the other hand, initial exchange offerings – IEOs – and initial DEX offerings – IDOs – serve as alternatives that bypass some regulatory hurdles. The latter type, especially, is largely immune to most regulations because funds are handled in eight centralized way, and users have to check for red flags by themselves, liquidity pools, smart contracts, etc. IEOs are organized by centralized exchanges, which manage the token distribution and require projects to meet certain listing standards, such as a clear white paper and technical setup. IDOs, by contrast, take place on decentralized exchanges, DEXs, providing instant liquidity and broader access but often with less oversight. Both options allow non-accredited investors to participate,

though IEOs may be more selective due to the involvement of centralized platforms acting as gatekeepers. Other forms like initial farm offerings, IFOs, initial NFT offerings, INOs, and initial game offerings, IGOs, expand crowdfunding into DeFi, digital collectibles, and gaming. IFOs typically require users to contribute to Aliquidity Pool using the DEX's native tokens in exchange for early access to new project tokens. INOs involve the sale of NFTs that may carry ownership or access perks, while IGOs focus on gaming-related assets or tokens. Most of these models avoid the need for accredited investor status but still carry risks due to market volatility and limited regulation, similar to the original ICOs.

Accredited investors As mentioned above, some new, regulated crypto crowd-sale models require investors to be accredited. An accredited or verified investor is someone who meets specific financial or professional criteria that allow them to invest in opportunities not open to the general public. Depending on where you live, the requirements may vary. In the US, for instance, you typically need a net worth above $1 million, excluding your home, or an annual income of at least $200,000 for the last two years. In the crypto world, accredited investors gained importance after the ICO boom and mess of 2017. To reduce risks and comply with evolving regulations, many crypto projects started

limiting their fundraising to verified investors only. Crowdsales such as STOs and some IEOs now often require participants to be accredited. This is especially true when tokens represent ownership of real-world assets or follow securities laws. While this narrows access, it also helps build a more trustworthy environment for both investors and creators. If you want to participate in all available types of crypto fundraising, verifying your accredited investor status, if you are one, is key. In the obit ecosystem, this process is simple and secure.

Within the Obyte wallet, you can find the accredited investor attestation, chatbot in the chat menu, bot store. If you meet the US requirements to be accredited, the chatbot helps you verify your status using documents like financial statements or letters from a licensed professional. The attestation is published on the Obyte DAG, so if the crowdsale is conducted on the Obyte platform, you won't need to share your documents again, just the proof of verification. This unlocks access to a broader range of investment opportunities

while keeping things decentralized and transparent. Featured Vector Image by MacroVector, freepick Thank you for listening to this Hacker Noon story, read by Artificial Intelligence. Visit hackernoon.com to read, write, learn and publish.