Token Sales | Notion

This is a chapter from the book Token Economy (Third Edition) by Shermin Voshmgir. Paper & audio formats are available on Amazon and other bookstores. Find copyright information at the end of the page.

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Token sales were introduced as a fundraising mechanism for Web3 projects, where tokens are issued against a financial investment, often before the project becomes operational. Originally, smart contracts were used to issue newly minted blockchain tokens to investors—entirely peer-to-peer—between the project's initiators and their investors. As the crypto space matured, the P2P nature faded. Token sales shifted from being a grassroots crowdfunding tool into a more structured funding mechanism, reflecting both the growing sophistication and the increasing regulatory oversight of the crypto economy.

Token sales introduced a P2P mechanism for pre-issuing tokens in return for direct financial investment, even before a project became operational. In this setup, tokens were minted prior to a project’s launch and distributed to investors. Often, a portion—or sometimes the entire supply—of tokens was released to network participants before any substantial development had taken place, and in many cases, even before any code was written. Beyond serving as a crowd-financing tool, token sales also introduced innovative methods for establishing a minimum viable economy for the project in question. This approach was fundamentally different from how the Bitcoin economy began: Bitcoin never conducted a token sale, nor were Bitcoin tokens pre-issued. Instead, they have always been, and continue to be, minted through the process of Proof-of-Work each time a block of transactions is created by a mining node operator.

The first token sales were referred to as Initial Coin Offerings (ICOs). As the term token became more mainstream, variations emerged, such as Initial Token Offerings (ITOs) and Security Token Offerings (STOs)—the latter specifically referring to tokens classified as securities. Other iterations followed, including Reverse ICOs, Equity Token Offerings (ETOs), Initial Exchange Offerings (IEOs), Initial Dex Offerings (IDOs), Simple Agreements for Future Tokens (SAFTs), and DAICOs. For simplicity and consistency, this book will use the term “token sales” to encompass all these variations.

The primary goal of early token sales was to raise funds for Web3 projects by pre-selling tokens to early supporters. These tokens were typically purchased using BTC and ETH. Unlike the heavily regulated Initial Public Offerings (IPOs) or today’s more structured token sales, early ICOs were often conducted without legal counsel, financial intermediaries, or regulatory approval. They resembled crowdfunding more than traditional financial fundraising.

Token sales gained significant traction after the Ethereum network launched in 2015, providing a public infrastructure that allowed anyone to issue tokens for their projects. In the beginning, most investors were crypto enthusiasts, not traditional finance professionals. However, as the market matured and investment returns soared during the bull markets of 2016–2017, professional investors also began participating. This period marked the first mainstream crypto boom cycle. As the industry matured, economic and regulatory realities began to reshape the landscape. New intermediaries, such as token exchanges and specialized service providers, emerged to facilitate the token issuance processes. While the early ICOs were genuinely P2P, involving direct token swaps between a project’s blockchain wallet and an investor’s wallet, today’s token sales are often managed by highly specialized financial intermediaries.

History of Token Sales

The first token sale took place in 2013 when the founders of Mastercoin issued newly minted tokens in exchange for BTC—raising approximately 500,000 USD worth of BTC. Its success inspired other projects to use Bitcoin's blockchain infrastructure for similar crowdfunding purposes. In 2014, the Ethereum project held a token sale that lasted forty-two days, raising about 18 million USD worth of BTC—a record-breaking achievement at the time. These funds were used to develop the Ethereum whitepaper into a fully operational blockchain network. Once live, Ethereum introduced smart contract functionality, allowing anyone to create tokens with just a few lines of code using smart contracts. This innovation simplified token issuance and trading, sparking a wave of record-breaking token sales between 2016 and 2017.

One notable early token sale was conducted by TheDAO, a decentralized investment fund built on the Ethereum blockchain. In just four weeks, it raised approximately 150 million USD in ETH, offering investors a proportional share of future revenues. Early token sales gave supporters the potential for investment returns, distinguishing them from traditional crowdfunding. Initially, token sales were primarily used by experienced engineers raising funds for blockchain protocol development. Over time, however, ICOs became a fundraising tool for projects across diverse industries, many of which had little connection to blockchain networks or their applications. These newer ICOs often lacked a clear business plan or a well-defined token utility. Instead, they relied on hype-driven marketing and vague promises.

Before launching a sale, developers would present a whitepaper outlining the technical specifications and goals of the project. As ICOs proliferated, many whitepapers became little more than vague business plans with scant technical or economic details. This lack of transparency paved the way for intentional and unintentional scams, leading to significant financial losses for many investors. During the ICO boom of 2016–2017, more than 800 token sales were conducted, raising an equivalent of about 20 billion USD, mostly based on a simple promise and often on no product at all. Some individual projects achieved staggering fundraising results, such as Telegram (1.7 billion USD) or EOS (4.1 billion USD). Many token sales were oversubscribed and sold out in minutes—or even seconds—suggesting that even larger sums could have been raised. However, as market sentiment shifted in 2018, token valuations plummeted. Many tokens became valuable only if bought early at a discount and resold immediately after the public sale—a phenomenon known as the greater fool theory.

This led to pump-and-dump schemes, where coordinated groups artificially inflated token prices before quickly selling off for profit. Such schemes, while illegal in traditional markets, were difficult to prosecute in the token sales landscape of that time due to the lack of easy identification of individual participants and cross-jurisdictional challenges. Many early project founders, primarily engineers, lacked experience in portfolio management. Raised funds, often held in volatile assets like BTC or ETH, were mismanaged or lost to market fluctuations. For example, Ethereum’s 18 million USD fundraise shrank to 6 million USD after BTC’s price dropped from 600 USD to 200 USD because the funds were raised and held in BTC. Ethereum Classic faced similar funding crises due to price crashes, and Steemit had to cut team members after token value losses. This underscored the need for professional asset management and strategic treasury planning—skills not typically possessed by blockchain engineers who were managing those funds at the time.

As the ICO boom faded, regulatory scrutiny increased. Authorities required projects to define whether their tokens were securities and address tax implications and other legal requirements. This regulatory pressure, combined with investor skepticism, forced the market to consolidate. Many non-viable projects faded away, and institutional investors began playing a larger role in token sales. New service providers emerged, including legal advisors, investment consultants, custodians, and insurance providers. These professionals specialized in navigating Know-Your-Customer (KYC) and Anti-Money Laundering (AML) requirements, as well as securities legislation. The rise in compliance obligations made token sales more bureaucratic and less accessible to the average developer or small investors who were willing to take the risks involved.

As legal and operational challenges grew, many Web3 projects began targeting institutional investors and authorized financial entities rather than the general public. Pre-sales became common, with institutional investors receiving tokens at discounted prices ahead of a public issuance and trading of tokens. These investors often dumped tokens on public markets once trading began, exploiting their early-entry advantage. To prevent these practices, vesting mechanisms—common in traditional venture capital—were gradually introduced, limiting how and when tokens could be sold after fundraising. While this shift brought a more professional fundraising environment, it also reintroduced centralization into what was originally a P2P fundraising model. Institutional involvement meant greater oversight and professional support for projects but reduced opportunities for small-scale retail investors to participate early.

However, the FTX collapse in 2022 demonstrated that even institutional investors were not immune to failures in due diligence. Despite FTX being backed by highly respected venture capital firms, mismanagement and fraud could not be prevented.

“History of Token Sales” from Token Economy (Third Edition) 2025, Shermin Voshmgir

Initial Exchange Offerings (IEOs)

Many early token sales lacked proper investor protection mechanisms, standardized procedures, and clear accountability. Project teams were soon overwhelmed by the complexities of managing crowd-investing processes entirely P2P while trying to comply with emerging regulatory requirements. Instead of focusing on their core task—developing the applications they were raising funds for—these teams found themselves stretched thin. They had to maintain constant communication with investors across multiple social media channels, navigate Know-Your-Customer (KYC) and Anti-Money Laundering (AML) compliance processes, and work to secure listings on centralized exchanges. Without a token being listed on an exchange, potential buyers and sellers had no market to trade, rendering the token effectively illiquid. This made exchanges the gatekeepers of the emerging token economy.