In many ways as an act of rebellion against the Web2, VC-centric funding model described in Part I, Web3 companies have pioneered a variety of fundraising mechanisms, leveraging blockchain technology to bypass traditional finance’s gatekeepers.
These methods have evolved over time, driven by innovation, regulatory pressures, and a push for fairness.
Here’s an overview of the key approaches, from the early days of Initial Coin Offerings (ICOs) to the more recent Fair Launch model, laid out in a way that tracks their development and trade-offs.
1. The OG: Initial Coin Offering (ICO)
The OG of Web3 fundraising, an ICO is like an IPO for crypto. A company issues a new token and sells it to the public, usually in exchange for established cryptocurrencies like Bitcoin or Ethereum, to fund a project.
In the ICO “craze” of 2016-18, teams simply released a whitepaper outlining the project (if at all…), set a token supply and price, and opened a sale window, typically under an action system (incl. “reverse” auctions). Investors buy in, hoping the token’s value rises once the project launches.
The pros are that projects can fast raise millions overnight with global reach - think Ethereum’s $18M haul in 2014.
However, as some of you may remember in a painful way, the Wild West vibes of the early ICOs quickly degenerated into outright scamming: Anybody remember TenX out of Singapore in 2017 raising $80MM in an ICO staged by Toby Hoenisch, later unmasked by Laura Shin as the hacker of TheDAO).
As a result, regulators felt they could not watch idly and started to crack down hard on ICOs, e.g. when in 2019 the SEC issued an emergency action against Telegram’s $1.7B $GRAM token offering (settlement of which in 2020 effectively ended Telegram's plans for the TON blockchain and Gram token distribution, only to see TON being resuscitated by the Swiss TON Foundation “in partnership” with Telegram).
This increased scrutiny of ICOs, in which investors had very few if any rights as token holders, made them fade after they peaked in 2017 with $7B raised.
2. The STO auto-flagellation
STOs came next, in which projects fessed up about the securities nature of their token and auto-flagellated into compliance with securities laws, including KYCing their token buyers.
This meant registration with regulators (typically the SEC in the U.S.) before issuing what effectively is a tokenized stock sale on a blockchain to accredited or vetted investors.
STOs gained traction in the post-ICO crackdown (2018-2019) for projects wanting legitimacy but significantly increased compliance costs (Blockstacks - now Stacks - allegedly spent close to a million when launched their STX token) and slowed down the sales process (no more sudden wealth!).
Despite STOs providing significantly more legal clarity and increasing investor trust, it is fair to say nobody in Web3 really wanted to go the STO way. In line with the “anyone should be able to invest” ethos of Web3, many projects started to take a “catch-me-if-you-can” approach when offering their token to the wider community, often by giving a semblance of decentralization of who controlled the project, with the intent to undermine one of the key prongs of the Howey test.
3. Hello middlemen: The Initial Exchange Offering (IEO)
An IEO is essentially an ICO with a middleman. Instead of selling tokens directly, a company partners with a crypto exchange (e.g., Binance) to host the sale.
The exchange vets the project, lists the token, and manages the sale. Investors buy through the platform, often using the exchange’s native coin.
The advantage of the IEO is that the vetting by the exchange is supposed to reduce scams, and instant listing boosts liquidity. For instance, Binance Launchpad’s success with projects like Axie Infinity (2019) showed its pull.
On the downside, the offering is centralized—exchanges take a cut and control access. Founders lose some autonomy, and investors face platform risks (e.g., hacks). But perhaps the biggest downside is that exchanges charge outrageous fees to list a token, taking advantage of project leads who believe an IEO means support for their token price.
4. A decentralized IEO by way of an IDO
The IDO is a decentralized twist on the IEO. Tokens are sold via decentralized exchanges (DEXs) like Uniswap or PancakeSwap, often through liquidity pools.
The way it works is that projects launch tokens on a DEX, pairing them with a cryptocurrency (e.g., ETH). Investors swap funds for tokens, and liquidity pools enable trading post-sale. Platforms like Polkastarter added structure with whitelists or staking.
Compared to IEOs, IDOs do not involve a central authority, have lower fees, and align better with Web3’s ethos of fast and accessible funding. SushiSwap’s IDO in 2020 thrived this way.
However, IDOs are eminently prone to “pump and dump” schemes due to low barriers. Bots can front-run sales, snagging tokens before retail investors, and market makers appointed by the project itself wash-trade to create an appearance of demand.
Nonetheless, IDOs grew strongly in 2020-2021 together with DeFi’s rise and continue to be used. A more recent IDO is $COOKIE (June 2024) on Bybit’s Web3 platform - the same Bybit that got hacked in February 2025.
The $COOKIE offering also shows that IDOs are often engineered by early investors who look to realize a quick gain from a liquid token (in Cookie3’ case, Animoca Brands, Spartan Group, GSR, Big Brain Holdings, CMT Digital, Hartmann Capital, Jsquare, and Orange DAO, among others, who together participated in Cookie3’s $3.3 million seed and strategic rounds before the IDO and all bought tokens at a discount compared to the IDO price).
The COOKIE price curve shows that when those early investors came out of their 6-month token lockup, the token seems to have been artificially pumped only to then be dumped…
5. IDOs on steroids
IDOs for gaming NFTs (Initial Game Offering or IGO) or an initial NFT Offering (INO) added steroids to the IDO by looking to raise from the sale of a pure in-game token or a fancoin (e.g. $TRUMP).
IGOs fund Web3 games, while INOs sell unique NFTs to bootstrap ecosystems. Tokens or NFTs are sold via launchpads (e.g., Enjinstarter for games) or marketplaces. Buyers get early access to in-game assets or collectibles (or a blend).
More recently. pump.fun on the Solana blockchain has become the go-to place, simplifying the creation of memecoins, it lets anyone create a token in minutes without coding skills or significant upfront costs.
Though no doubt a degen platform with lots of scamming happening, we do see merit in the bonding curve mechanism pump.fun uses and in fact pioneered this mechanism for Otonomos’ sister company, otoco.io, when offering its OTOCO token to its early users and fans.
Such bonding curve is a pricing model where the cost of a token rises as more people buy, typically starting from a tiny fraction of a cent.
In the case of pump.fun, if the token hits a set market cap (currently $100,000) it “graduates” to Raydium, a Solana-based decentralized exchange, which adds liquidity (currently $17,000), and the creator gets a 0.5 SOL reward. Pump.fun takes a 1% swap fee on trades and 1.5 SOL per graduation, fueling its revenue—over $250 million by late 2024.
The best way to look at pump.fun is as a gamified, high-risk playground for meme coin enthusiasts, blending creativity, speculation, and Solana’s low-fee speed, essentially a crypto slot machine where anyone can spin up a coin and hope it moons.
6. Fair Launches
A “fair launch” refers to a type of token distribution with no presales and no insider allocations, aiming to curb traditional rug pulls (where developers dump tokens and vanish). Tokens are distributed organically, often through mining, staking, or yield farming, without a traditional sale.
Projects like Bitcoin and Yearn.Finance (2020) are the OGs of the fair launch model. Tokens are earned by contributing to the network (e.g., liquidity provision) and price rises with demand, not as a result of a pre-set allocation.
Fair launches arguably have maximum fairness—early adopters aren’t screwed by whales with distribution being genuinely decentralized from day one.
However they are slow to scale as they lack big upfront capital and can still favor tech-savvy insiders who jump in early.
Fair launches did gain steam in 2021-2022 as a backlash to ICO/IDO greed but - perhaps because they’re fairer than other models - tend to be used by hardcore crypto ideologists, some of whom nonetheless got pilloried e.g. Andrew Cronje in the case of yearn.finance.
A variant of the fair launch model is Airdrops: Free token drops to build hype or reward users—Uniswap’s 2020 airdrop of 400 UNI ($1,000+ at peak) is a reference case. Airdrops do not directly help raise funds but they do bootstrap adoption.
7. Private Sales/Seed Rounds
Perhaps on the other side of the spectrum from fair launches are private sales/seed rounds: Pre-ICO (or public sale) token sales to VCs or insiders.
Private sales are used by most projects small and big (e.g., Solana’s $20M in 2019, leading to accusations of it being a “VC Chain”), but are criticized for favoring the connected. Their terms are often scandalously in favor of an early group of investors who at the moment of public sale dump their early allocation on “retail”.
Conclusion: Let's turn crypto from the indefensible into the indispensible
For some, the arc from ICOs to Fair Launches mirrors Web3’s maturation: ICOs were chaotic and capital-rich but scam-riddled. STOs and IEOs added guardrails, while IDOs and IGOs leaned into decentralization and niche appeal.
Fair Launches prioritize equity over speed, reflecting a push for trust and inclusivity, and many saw in the $TRUMP coin an explicit endorsement of crypto.
For others however, the culmination of a decade and a half of token issuance model experimentation in platforms such as pump.fun or Fix Float - despite its alleged fair launch model at heart - has lead to a degree of despair about the state of crypto as we entered 2025.
Perhaps this month’s $LIBRA scam, inevitably labelled “Cryptogate”, will mark an inflection point.
The $LIBRA theft followed the disconsolate playbook of a classic rug pull, in which developers hype a token, cash out at the peak, and abandon it in a rapid pump-and-dump scam.
In the case of $LIBRA, over 75% of the 40,000+ investors lost money, with only 0.18% making significant profits over $100,000, mostly early sellers tied to the project.
Perhaps more than the staggering take of the est. $100MM (who counts a million when it comes to rug pulls?) was its speed of execution: Within 40 minutes after the run-up in price following the Libra project’s public endorsement by (in our opinion) an unsuspecting President Milei of Argentina, 3 wallets that held 87% of all $LIBRA proceeded to surgically extract value by dumping the token on other buyers.
In the best of cases, we foresee that the $LIBRA rug-pull will cause a temporary pull-back from crypto, but that after a period of introspection both money and talent will eventually return to a more sober space.
In the worst of cases, money and talent will feel so disgusted that they will abandon crypto to never return...
Go to Part III
> Speak to Otonomos before you plan your token sale
