Why ICOs will restart in 2025

Regulatory reform in the United States and an easing of hostility toward cryptocurrencies globally in 2025 will usher in the next generation of decentralized capital formation, first popularized as “ICOs” (initial coin offerings) in 2017.

In the 2010s, cryptocurrencies failed to establish themselves as productive use cases for Bitcoin and altcoins until Ethereum smart contracts allowed early-stage teams to raise capital from globally distributed supporters. We have seen Ethereum bootstrap a global decentralized computer that has created DeFi, NFTs, and various cryptocurrency primitives with less than $20 million raised from the global community.

Many other projects soon followed, and we saw a new dynamic in which raising early-stage capital from decentralized communities almost always offers more added value to projects and entrepreneurs than the most well-intentioned venture capitalists can provide. observed. Through a decentralized investor group, entrepreneurs get free evangelists, beta testers, and code contributors. That is, free work contributed to an ongoing project. Additionally, the shorter liquidity period allowed it to offer a better risk-return profile for early-stage investors.

Unfortunately, the ICO was slowly shut down and flagged as “non-compliant” with regulations that were not precisely specified. By 2020, the pace had slowed slightly, with 88% of ICO tokens trading below their issue price.

By 2025, we may see a convergence of several important inputs that will allow for the re-emergence of attractive investment opportunities, but with very different characteristics from ICO 1.0.

Components of ICO 2.0

1. Regulatory position update

I predict that value accrual will be a fundamental part of the “why” to invest in tokens this time around. Entrepreneurs and investors in the sector have matured and are ready to collectively acknowledge that there is an expectation of profit from most tokens. In fact, it could be argued that obfuscation of how token holders will be compensated was a major problem for the first time, due to easy attempts to evade the Howey test.

KYC/AML will reasonably focus on the on-ramps and off-ramps – exchanges, L2 bridges, etc. – and the point at which profits are realized back into fiat, with an appropriate light touch that should satisfy reasonable regulators.

2. Market turnover

We are seeing the rapid decline of certain mid-sized companies that have been able to rebuild their business models through community-led and decentralized technology. For example, mid-sized media companies, including newspapers and magazines, are an obvious business model that could be greatly improved by using the token economy to further enhance the expertise of citizen journalists.

3. Development of cryptocurrency

In 2017, we had an ICO click race on a very rough UI/UX interface, a pre-launch SAFT (Simple Contract for Future Tokens) round with a handful of VCs, and waited years for a live network launch. No one will be surprised to learn that most ICO projects are dead. The Darwinian nature of all emerging technologies is that most will disappear, but the few that survive will create tremendous value (spoiler alert: >90% of AI projects are disappearing too).

Cryptocurrencies now have proper onboarding, good user-facing apps, and most importantly, the community has shown an incredible ability to publicly call out nonsense and root out bad actors far better than government oversight. The light of open distributed ledgers is a particularly powerful disinfectant.

Implications and Predictions

So what does all this mean for the cryptocurrency community?

This new wave of decentralized capital formation will dwarf the approximately $20 billion in capital allocated to ICO 1.0 in 2017 and 2018. Over the next few years, we will see hundreds of billions of dollars in total capital formation across DeFi, NFTs, RWAs, and many other sectors. Cryptographic primitives.

M&A activity represents an important component of on-chain capital formation activity. Whether it’s the Stripe-Bridge deal or the EVM L2 joining forces and traditional companies getting serious about crypto and buying up lost ground while recognizing that only a few will survive to become significant players, we’re set to see billions of dollars worth of M&A activity. It will be. next year.

Additionally, mid-market Web2 and legacy companies will seek to reinvent their business models to enable token incentives to be used in less hostile situations. We are seeing companies in the energy, media, arts and telecommunications sectors thinking seriously about token incentives to transform their value chains into open markets, quickly acquire customers and tap into cheap labor.

I am also optimistic that regenerative finance, which blends capitalist and philanthropic imperatives, will find its place. And I’m very excited to see how cryptocurrencies can change the paradigm of connecting social goals and reasonable returns on capital in a more compelling way than we’ve seen to date.

I predict that we will see a variety of new ways to select ICO participants, whether through rewarding LPs, relying on reputation based on on-chain activity, or through the use of specific evidence. A by-product of this is that there will be a better balance between retail investors and institutional/VC investors.

Lastly, as always with cryptocurrencies, we will continue to see constant innovation and new ideas creating more early-stage funding opportunities. Many exciting new teams are clearly aware that AI’s natural medium of transaction will be through cryptocurrencies and are preparing accordingly. AI agents will bootstrap themselves through a token-based funding mechanism that mixes debt and equity principles.

Overall, I am optimistic that the cryptocurrency community has internalized the lessons learned along its ascetic evolutionary path so far. As numerous opportunities for capital allocation emerge in the coming year, I urge everyone in the cryptocurrency industry to speak up, publicly highlight due diligence red flags, and bend the arc of this industry towards projects that are open access, fair launch, and honest in creating value. It is recommended. Token Holder.

Fair launch is a better way forward and we must all strive for more equitable and transparent fundraising. There are still many issues to be solved and there will be some spectacular failures as we move forward. However, decentralized capital formation is the original killer app for cryptocurrencies and deserves to continue to evolve.