Short for Initial Coin Offering, an ICO is a type of crowdfunding, or crowdsale, using cryptocurrencies as a means of raising capital for early-stage companies.
It is widely seen as the cryptocurrency world’s answer to initial public offerings (IPOs) — and they were especially popular during the crypto bubble of 2017.
Tokens sold through an ICO may offer utility, meaning that the owner can exchange them for access to a certain product or service. In rare cases, they may represent an ownership stake in the start-up that launched the listing.
ICOs have hit headlines in recent years for being very risky investments, and some of them have even been identified as exit scams.
Research by the Review of Financial Studies shows ICOs raked almost $13 billion globally between January 2016 and August 2019. Meanwhile, a report by Ernst & Young found that 86% of leading ICOs that launched in 2017 were below their listing price by October 2018.
The SEC has been known to take action against some projects — including Telegram, which was ordered to return a large sum of the $1.7 billion it raised for the Telegram Open Network back to investors.
In March 2020, under a preliminary injunction issued by the District Court for the Southern District Court of New York, Telegram had to return $1.2 billion to investors on top of a civil penalty worth $18.5 million.
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