Table of Contents
What Is an Initial Coin Offering (ICO)?
If you’ve spent any amount of time in the crypto world, then you will have most likely heard about initial coin offerings (ICOs). Some of the biggest cryptos, after all, raised startup funding from ICOs, which means that the financing of the project started from a sale of crypto tokens, instead of the usual way of receiving venture capital funding.
Not surprisingly, ICOs have become an extremely popular way for web3 companies to amass capital prior to launching. Want to know how ICOs work?
How does an ICO work?
When a startup makes the decision to conduct an initial coin offering, it would announce the dates, rules, and processes ahead of the actual ICO date.
Once the ICO date comes to pass, prospective investors can begin buying the tokens allocated for the presale.
Most ICOs require investors to buy in using other cryptos, typically based on which blockchain the project will be built on. For instance, if the project is being built on Ethereum, Solana, or Binance Chain, they would be required to buy in using ETH, SOL, or BNB tokens. Some ICOs may accept fiat.
The buying process generally involves sending funds to a particular ICO wallet address. Investors will then provide their own receiving address to receive the tokens that they purchase during the ICO. The number of tokens sold during an ICO and the token price can be either fixed or variable. Here are some of the most common examples of how this works:
- Fixed amount of tokens/fixed price. The project could set a fixed number of tokens and the price they can be bought ahead of time, such as offering 1 billion tokens at a fixed price of $0.25 per token.
- Fixed amount of tokens/variable price. The project could sell a fixed number of tokens and price them based on the funding it raises, with more funds resulting in a higher price per token.
- Variable amount of tokens/fixed price. The project could set a fixed price without limiting its presale token allocation. For instance, the project could sell presale tokens at $0.25 apiece until the ICO ends.
What are the requirements to launch an ICO?
Anyone and everyone with a modicum of technical knowledge can, in theory, launch an ICO due to its low barrier to entry.
However, launching a successful ICO is anything but easy.
While it is true that some projects launched a successful ICO after putting in the barest amount of effort, the crypto market has matured in a very short amount of time since its “Wild West” days.
Due to the innumerable number of scams linked to ICOs, many jurisdictions have been cracking down on them around the world. Some jurisdictions, in fact, have completely banned the entire concept of ICOs. Moreover, investors have grown more wary and discerning of slapdash ICOs and avoid any dubious-looking projects like the plague.
That said, what requirements do you need to launch a successful ICO in 2024?
A solid white paper
White papers in the crypto world refer to a document laying down the technical specifications, rationale, and research behind your project. In it, you should answer the following questions:
- What was the rationale behind creating your product?
- What problem does your product solve?
- How will your product solve the problem?
- What utility will your token have?
Likewise, founders and dev team members should seek to leave no stone unturned when writing the white paper, as this will be scrutinized by peers and potential whales who might be looking to provide funding or contribute to the project. Think of the white paper as your project’s “north star”—the single most important document that lays out the foundation of your project from a technical, marketing, and public relations standpoint. If you put out a low-effort whitepaper that fails to convince your target audience, you can best believe your ICO—and your project—will flop.
Token utility aka tokenomics
Prospective investors will want to know what your token actually does to evaluate whether it’s worth buying. Without highlighting your token’s utility, your crypto will exist solely for market speculation—and no different from the sea of derivative meme coins that have saturated the market.
Moreover, you’ll want to make sure that your token has solid tokenomics. Is your crypto’s token supply hard-capped and deflationary like Bitcoin, or inflationary like Ethereum? What percentage of the token supply is allocated to the development team and early investors? Is there any vesting period for these early-stage investors? Settling these questions before launching your ICO is important because they will directly affect the token’s price trajectory.
Legal and financial compliance
The importance of staying fully legally compliant cannot be understated. If you don’t get this part down pat, or if you ignore it completely, trust us: authorities WILL come knocking on your door sooner or later.
Crypto founders need to prioritize compliance in order to hedge against the constantly-evolving regulatory landscape surrounding the industry as well as those governing token sales. Here are three main factors you have to consider about compliance before launching:
- Choice of jurisdiction. You need to consider where you intend to launch the ICO, since crypto regulations vary wildly in every jurisdiction. Verify the requirements about registration with securities regulators and disclosure requirements of your chosen jurisdiction.
- AML/KYC compliance. Each jurisdiction may subject token sales to particular anti-money laundering (AML) and know-your-customer (KYC) compliance.
- Taxation. Taxation on token sales and crypto is constantly changing—it is therefore important to consult with legal and financial experts to ensure that everything is above-board with your ICO and to avoid any unwanted surprises in the future.
Experienced team
Building the right team is essential to the success of any project. Since execution is the most challenging part of any concept or vision, you need a capable team to pull off your idea and make it real.
This requires a team of competent blockchain and software developers, UI/UX designers, sales, marketing and public relations professionals, and copywriters are just some of the roles your project will need to achieve multi-dimensional goals. Oftentimes, projects allocate a percentage of the ICO’s proceeds as well as tokens to incentivize them to perform.
Choosing the appropriate blockchain to launch on
As the founder, you need to choose the most suitable blockchain from which to launch your project aligned with your principles and goals.
Some of the most commonly-used Layer-1 blockchain platforms used for ICOs include Ethereum, the leading smart contract platform, Solana, a faster, more economical Layer-1 platform positioning itself as Ethereum’s biggest competition, and Binance Chain, which is the Binance ecosystem’s Layer-1 platform. Launching on Solana and Binance Chain, for instance, could be a more logical choice for your project given Ethereum’s congestion and high gas fees. Some projects that would like to launch on Ethereum sometimes do so on a Layer-2 rollup like Polygon (MATIC), Arbitrum, or Optimism in order to sidestep gas fees and congestion.
Writing smart contracts
Tokens on Layer-1 blockchains like Ethereum, Solana, or Binance Chain are all governed by smart contracts.
This means you need to create smart contracts that will define the functionality of your token and launch your ICO. Depending on your chosen blockchain, your smart contracts will have to follow token standards. For instance, if you were to launch on Ethereum or its related L2 platforms, you’ll be using the ERC-20 token standard.
Your developers and engineers will be tasked to create smart contracts; however, you can also use several no-code solutions and code libraries that feature pre-reviewed and tested smart contracts ready for deployment.
Auditing smart contracts
Once you’ve gotten your smart contracts ready, you’ll want to get them audited to determine if there are any vulnerabilities or errors before deploying them on-chain. Undergoing a smart contract audit is a vital part of every successful ICO.
After all, we’re talking about securing people’s money, so you’ll want to ensure that their funds are safe and that the ICO runs without any technical malfunctions or glitches in the code. Contact professional smart contract auditing firms, whose teams are trained to review code and ensure that there are no bugs before giving you the all-clear to launch.
Marketing
You cannot expect to run a successful ICO without a good, solid, marketing plan and strategy. If your target audience has never heard of your project, they will have little incentive to invest in it, no matter how objectively good your product is. Here are some tips to get your marketing push started:
- Create a proper website. The first step to marketing your project is a proper website with all the necessary branding. Don’t cut corners with your website—it should serve as the face of your project and the first point of contact for potential investors. You can also run your ICO directly from this website.
- Raise brand awareness through internet platforms. Social media is a key battleground for crypto projects, as is social media, video sharing platforms, and blogs. Part of your marketing plan should include influencer marketing, social media marketing, copywriting and public relations, as well as community managers. Twitter and Discord are among the most popular platforms for crypto audiences. Buy ads, invest in product placements, and hire influencers to boot your outreach.
Focusing on creating a good project that solves a problem
One of the best ways to market an ICO is to create a product that people will actually want to use. Doing so will give your project the early support from investors who will voluntarily buy into your ICO. Such was the case for Arbitrum, an Ethereum Layer-2 rollup that solved the scalability and high gas fees problems of the latter.
Arbitrum focused solely on creating an intuitive and easy-to-use Ethereum L2 that people could use and build aps on. Once Arbitrum launched its native token, a groundswell of support had already built up—-with its product speaking for itself. Thus, Arbitrum required little to no marketing to succeed.
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