Why did ICOs Become Popular?

Token Sales

Why did ICOs Become Popular?

The rapid rise in popularity of ICOs was primarily due to three simultaneous developments.

First, there was the launch of Ethereum. More than 90% of all ICOs have been conducted on Ethereum’s platform, as of this writing. This is because smart contracts configured on Ethereum’s blockchain can be used for tasks in decentralized apps (Dapps). The contracts simplify the process of development and distribution of tokens. Also as of this writing, there are 162,619 smart contracts developed using ERC-20, Ethereum’s most popular token standard.

The second factor that contributed to a rise in ICO funding was the revision of existing regulations for capital raises by the SEC. In 2012, as part of the JOBS Act, the agency revised Rule 506 (b) to lift the ban on general solicitation or advertising capital raises through the internet for Regulation D. Regulation A+, which was overhauled in 2015, removed the holding period for resales and bumped up the funding amount to $50 million. (However, those increases came with caveats in the form of more disclosures and reporting requirements.)

The third factor that contributed to a surge in ICO funding was the development of a surrounding ecosystem for such offerings. Venture capitalists can exit their startup investments through liquidity events in secondary and public markets. Before 2017, there were very few such avenues for ICO investors. Cryptocurrency exchanges mostly had an unsavory reputation of being prone to hacks and scams.

In the last couple of years, the number of cryptocurrency exchanges has multiplied and their reputation has improved significantly. While exchanges still make headlines for security breaches, the frequency of breaches has declined. News coverage of price movements for crypto has ensured mainstream traction and boosted liquidity volumes on cryptocurrency exchanges. Coinbase even now reportedly has more users than Charles Schwab, one of the world’s biggest brokerages.

The emergence of legal advisory and ICO marketing services has also contributed to the ICO ecosystem’s growth. Unlike IPOs, initial coin offerings can span multiple international borders, and the legal complexity of such offerings can be quite nuanced.

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