The history of ICOs

Although ICOs are synonymous with 2017, the first ever token sale was held four years earlier. In 2013, Mastercoin raised $500,000 worth of bitcoin for a venture that sought to leverage the Bitcoin blockchain while adding additional features to it. 

Soon other projects were following suit, tapping into bullish investor sentiment by exchanging dollars for utility tokens that, in many cases, had no real purpose. 

In 2014, Ethereum came to town and raised 3,700 BTC ($2.3 million) in just 12 hours. Unlike some of its predecessors, it was a sophisticated project that had staying power – and it didn’t take long for it to become the number two cryptocurrency after Bitcoin. 

3,700 BTC
The amount Ethereum's ICO raised in its first 12 hours 
in 2014

Ethereum also became the leading blockchain platform for ICOs themselves, with tokens generally based on its ERC20 standard. ICOs effectively eliminated the barriers to early-stage investment, giving anyone with ETH the ability to fund a project they believed in.

The success of Ethereum convinced many investors that it was possible to earn crypto from ICOs. Few cared that these fundraisers were risky and unregulated, and though it might have been difficult to parse the genuinely promising projects from the boom-and-bust schemes, capital flooded into the market. 

Two years after Ethereum’s record-breaking token sale, The DAO set a new benchmark by raising $150 million worth of ETH. A year later, in September 2017, Filecoin raised $257 million.

By 2018, the ICO market had largely collapsed. There were many reasons for this: increased regulatory scrutiny from the Securities and Exchange Commission (SEC) who deemed many ICO tokens securities; dwindling ROI caused partly by the onset of crypto winter; and a ban on ICO advertisements by platforms like Facebook, Twitter and Google. 

Though the intentions were good - democratise early 
stage investment - in practice the ICO craze 
mirrored a lot of what’s bad about traditional 
investment, including the Cantillon Effect.

This describes how the financial system rewards participants simply because they have privileged access to liquidity – money comes to money. 

The way ICOs were structured, early investors got discounted tokens, which normally meant investment funds that were invited to participate. Access was gradually broadened with diminishing discount, but enough frenzy to guarantee uptake, rewarding the early investors who could bail with immediate profit, leaving latecomers holding the bag.

At an even simpler level there were plenty of examples of big ICO investors gazumping smaller participants by applying ridiculously high transaction fees, essentially front-running the process.

Some ICO startups were exposed as scams, deleting their websites and social media pages and making off with their ill-gotten gains.