Overview of Ways to Distribute Crypto Assets and Raise Funds for Crypto Projects (ICO, STO, IEO…

Photo by Sharon McCutcheon on UnsplashThe crypto industry is developing extremely rapidly. It is also true for methods by which crypto projects raise funds to build their products and distribute their cryptocurrencies or tokens to the public.Initially, there was only distribution of cryptocurrencies to the general public performed by mining (or pre-mining in POS systems), while funds were raised mainly through the investment of venture capitalists.Later on, since 2013, the first public crypto-native fundraising tool appeared — Initial Coin Offering (ICO) — which became especially popular in 2017. In an ICO, a project team, on their own (through their website or an aggregator platform), sells their tokens to investors in exchange for fiat or high caps cryptocurrencies like BTC or ETH. ICO tokens may have some utility, e.g., give their holders access to an app the project is offering or merely be bought in anticipation of future profits from their increased value.In its early years, ICOs were almost unregulated and constituted very risky investments. In exchange for their investments, in most cases, investors did not receive any equity in crypto companies, nor did they get any legal guarantees. Although there were indeed successful ICOs (such as Ethereum or NEO), many fraudsters took advantage of the investment rush. In 2017 approx. 80% of ICOs were reported as scams, whereas the 10 most notorious scam schemes stole $687.4 million from inexperienced investors.As a result, some countries restricted ICOs (e.g., China, India). Other countries’ national frameworks incorporated a distinction between utility tokens and tokens with securities characteristics (e.g., shares, bonds, derivatives). The latter are allowed to be sold to the public only in a new sale format — Security Token Offering (STO). In an STO, crypto assets are considered securities tied to a registered company, and therefore, their issuance and distribution are subject…