After the recent surge in cryptocurrency prices and the wave of legal actions stemming from the initial coin offering (ICO) frenzy of 2017 and 2018, there was a prevailing sentiment that ICOs were effectively finished. Factors such as increased regulatory oversight, particularly in the United States, numerous pump-and-dump schemes, and a general instability reminiscent of the early Dot-com era seemed to have sealed the fate of ICOs. This is unfortunate, as despite the scams and exaggerations that marred the sector, tokens represent an innovative fundraising mechanism. Stylianos Kampakis, CEO of The Tesseract Academy, notes that fundraising for new initiatives was more accessible during the ICO boom. “Back in the ICO days, securing funds was straightforward, but regulatory actions have since complicated things. Although initial exchange offerings (IEOs) still require navigating regulations and scrutiny,” Kampakis explains.
### Alternatives to ICOs Emerge
In light of the changing landscape, various alternatives have surfaced, including initial exchange offerings (IEOs), token generation events, and even initial node offerings (INOs). Some industry experts believe a resurgence of ICOs may be on the horizon. Jamie Elkaleh, global relationships manager at the cryptocurrency exchange Bitget, observes that while the Bitcoin halving and ETFs have created a bullish environment, current token-raising events tend to be smaller in scale than before. “Organizations aiming to fundraise through token sales can leverage transparency, regardless of what they label these events—whether ICOs or otherwise. These methods help engage communities and generate funds transparently,” Elkaleh states. “However, the amounts raised now are significantly lower, often in the millions rather than tens of millions.”
### Innovative Token Fundraising Techniques
New methods of token fundraising are evolving in significant ways. Many Web3 enterprises planning to raise funds in 2024 are opting to exclude U.S. citizens due to the stringent regulations surrounding security tokens. This has compelled companies to think creatively about their fundraising strategies. Airdrops have emerged as a prominent tactic; by distributing tokens for free to generate market awareness, projects can increase their visibility and potentially drive up token value. This approach is particularly effective for projects lacking substantial venture capital support, as organic growth through conventional marketing can be both costly and time-consuming.
Nick Campion, head of marketing at Flare Network, emphasizes the pros and cons of airdrops. He notes that even if some recipients are not committed long-term, successful campaigns can yield early engagement and public awareness crucial for fostering community growth. “The challenge lies in designing an airdrop that maximizes both short- and long-term benefits while minimizing waste and negative implications,” Campion remarks. Properly structuring the incentives is essential to avoid issues like Sybil attacks, where individuals create multiple identities to exploit airdrop distributions.
### The Role of Crypto Presales
David Dobrovitsky, CEO of FUNToken and a seasoned entrepreneur in the Solana ecosystem, views airdrops primarily as a marketing strategy. This allows projects to collect wallet addresses, which hold significantly more value than traditional email lists. He believes the renewed interest in token fundraising reflects the creativity of the Web3 community in response to the U.S. SEC’s crackdown on ICOs. “The term ICO has largely fallen out of use, replaced by various equivalent terms like token sale or presale, which essentially serve the same purpose. For new protocols or startups with native tokens, conducting a token sale is a logical choice. Traditional equity fundraising is often too complex and centralized. Founders focused on building a community are better served by tokens,” he asserts.
### Fundraising in the Gaming Sector
Gaming projects are particularly enthusiastic about utilizing in-game rewards and mechanics for fundraising. Simon Vieira, CEO of MixMob, a Solana-based gaming platform with a background in AAA gaming, highlights the challenge of merging the excitement of traditional Web2 gaming with Web3 elements. “The tokenomics must be effective,” he insists. “We need engaging games that leverage blockchain for its strengths, such as payments and ownership.” Instead of a typical token launch, MixMob chose to conduct an NFT sale in 2021, which sold out in under a day.
“We aimed to create an experience akin to a child visiting a toy store, but with NFTs that provide redeemable coupons for in-game tokens,” Vieira explains. However, launching a token is not an easy task. It involves significant financial investment, extensive exchanges negotiations, and the integration of APIs for both centralized and decentralized platforms. “The process has become more intricate than before, requiring upfront capital despite the mechanics being simpler,” he adds.
### Exploring Initial Node Offerings (INOs)
Similar to MixMob’s NFT sale, Web3 companies are increasingly selling licenses or tangible items to fundraise. Amar Bedi, chief operating officer of Tashi, notes that these offerings often come in the form of NFTs that guarantee income in native tokens redeemable on exchanges. A notable example is Aethir, a leader in decentralized GPU cloud infrastructure, which recently launched a node sale. Node sales are gaining traction as they support decentralized physical infrastructure (DePIN) initiatives, allowing ecosystem participants to contribute both hardware and capital. “The shift toward decentralization is just beginning, and we anticipate it will transform how various industries pay for infrastructure services. INOs provide average retail investors a chance to engage meaningfully beyond mere financial contributions,” Bedi explains.
### Upland’s Unique Approach to Blockchain Fundraising
In a distinctive move within the blockchain realm, Dirk Lueth, co-founder of the metaverse project Upland, chose to establish their headquarters in Silicon Valley, the heart of the tech industry in the United States. While many Web3 firms have opted to operate outside the U.S. due to regulatory challenges, Upland was built with compliance in mind, addressing the tightening token regulations following the SEC’s actions since 2017. Instead of launching a tradable token, Upland focused on developing its gaming platform, which has evolved from a metaverse replica of Earth into a complex ecosystem featuring user-generated content, games, and entertainment.
Upland introduced a foundational in-platform utility token called Spark at its inception, essential for stakeholders to generate value through world-building and community contributions. However, Spark has never been sold to investors or distributed to the team, and it cannot be traded within Upland. Currently, over 130,000 users hold Spark, with 93.6% having utilized it for development within the platform. Following a favorable ruling in the Ripple case in July 2023, which clarified that secondary token sales are not securities, Upland is now exploring ways to extend its in-game token to other chains. In October, the community voted overwhelmingly to launch Sparket as an ERC-20 token on Ethereum, a move that will enhance visibility and ownership for users while encouraging new creators to join the ecosystem.
### The Revival of Utility Tokens
Undrgrnd, a Web3 media company established by founder Joe Gisondi, faced challenges in attracting venture capital funding. Instead, he pivoted towards creating a token coupled with a membership card. “As I sought VC investment, I realized the importance of building a community and rewarding those who supported the project,” Gisondi reflects. Undrgrnd has introduced what can be described as a social token with utility. “This is not a traditional token where a liquidity pool is opened for buyers. Instead, this token will enable users to promote their work or that of fellow artists on the platform,” he explains.
“My aim is to maintain the token’s value at a low level to ensure its utility. If it becomes too expensive, it defeats its purpose, as it’s meant to spotlight art and music,” Gisondi adds.
### Token Sales: A Step Back to Traditional Methods
Traditional token sales continue to persist, albeit with a more refined approach since the ICO boom. Dan Thomson, founder and CEO of Sensay, a platform utilizing AI to create digital simulations of individuals, is currently using token sales through IDOs on various platforms to secure funding. His team initially aimed to raise between $1 million and $2 million but exceeded expectations, securing $3.4 million. Thomson emphasizes the stark contrast between their token sale and those of the 2017 ICO era, which often involved unproven projects. “We prioritize risk management by utilizing two sets of top-quality auditors to scrutinize contracts and details. Furthermore, we have a functioning product, which was not the case for many prior ICOs,” he asserts. “Our token is uniquely designed for our specific niche rather than being a mere copy from another chain.”
