An initial coin offering (ICO) is a way for a crypto project to raise money by selling newly created tokens directly to buyers, who usually pay in other crypto assets or in fiat currency. Buyers get tokens rather than company shares. What those tokens entitle them to depends on the project's white paper and code, not on corporate law. The newest development is in the United States. On 18 August 2026 the Securities and Exchange Commission proposed "Regulation Crypto Assets", its first offering framework written specifically for token sales. The comment period closed on 20 October 2026, and the rule is still a proposal, not law.
How an ICO works
A typical ICO follows the same few steps:
- White paper. The team publishes a document describing the project, the token, how much will be sold, at what price, and what the money will fund. The SEC's investor bulletin on ICOs describes the white paper as the main disclosure document in most offerings. It is written by the issuer and is usually not reviewed by any regulator.
- Token creation. The tokens are usually issued by a smart contract on an existing blockchain. The contract's code, not the white paper, decides what actually happens to supply and transfers.
- The sale. Buyers send crypto or fiat during a set window and receive tokens, either straight away or after the sale ends.
- After the sale. The tokens may later trade on secondary markets, or they may never become liquid.
A well-known early example is Ethereum. Its ether sale began on 22 July 2014, ran for 42 days and was paid for in bitcoin, according to ethereum.org. Two weeks into the sale, the Ethereum Foundation reported that it had already raised more than 24,000 BTC.
Are ICO tokens securities?
In the US, often yes. On 25 July 2017 the SEC published its report on The DAO and concluded that DAO tokens "were securities and therefore subject to the federal securities laws". The SEC added that this applies whether the issuer is a traditional company or a decentralised autonomous organisation. Issuers of tokens that are securities must register the offering or qualify for an exemption.
The SEC then refined its position:
- 17 March 2026: the SEC and the CFTC issued an interpretive release, "Application of the Federal Securities Laws to Certain Types of Crypto Assets and Certain Transactions Involving Crypto Assets" (Release No. 33-11412). Law-firm analyses and company filings that cite it say it groups crypto assets into digital commodities, digital collectibles, digital tools, stablecoins and digital securities. Digital commodities, collectibles and tools are not securities in themselves, although any of them can still be sold as part of an investment contract. Among stablecoins, only payment stablecoins that qualify under the GENIUS Act are excluded from the securities definition by statute.
- 18 August 2026: the SEC proposed Regulation Crypto Assets (Release No. 33-11434, File No. S7-2026-27). According to the SEC's press release, it would create:
- a one-time exemption for offerings of up to $5 million over four years; - an exemption for offerings of up to $75 million in each 12-month period, with financial statements and ongoing reporting; - a conditional safe harbor. Under it, a token stops being treated as part of an investment contract once the issuer has completed or permanently ceased the "essential managerial efforts" it promised; - preemption of state registration requirements for these offerings and for certain secondary-market trades.
Both exemptions require principles-based narrative disclosure. Comments were due on 20 October 2026. The final rule, if one is adopted, could differ from the proposal.
Rules outside the US
European Union
Under the Markets in Crypto-Assets Regulation (Regulation (EU) 2023/1114), from 30 December 2024 anyone offering crypto-assets to the public in the EU must draw up a crypto-asset white paper, notify it to the national competent authority and publish it. The same applies to anyone seeking admission to trading. This covers tokens other than asset-referenced tokens and e-money tokens. Article 6 sets out what the white paper must contain, Article 8 covers notification and Article 9 covers publication.
Thailand
Thailand's 2018 framework requires public token offerings to go through an ICO portal approved by the Thai SEC. Under that framework, the portal is a Thai company with at least THB 5 million in paid-up capital. It must carry out due diligence on the offeror and on the smart contract's source code. As reported in 2018, retail investors were capped at THB 300,000 per project. In 2023 the Thai SEC consulted on lifting that cap for real estate- and infrastructure-backed tokens. Revised rules for debt-like and infrastructure-backed tokens took effect on 16 November 2023.
China
On 4 September 2017 the People's Bank of China and other regulators jointly banned fundraising through ICOs, with immediate effect. They classed it as unauthorised public financing and told projects that had already raised funds to arrange refunds.
Does this token sale show the warning signs?
Answer a few questions about an ICO you are looking at to see which warning signs and basic checks from this article apply.
Does the promoter promise or guarantee high returns from a "cutting-edge" opportunity?
- Yes → A warning sign the SEC lists
- No → next question
Are you being pushed to buy now, before the window closes?
- Yes → A warning sign the SEC lists
- No → next question
Does the promoter say the SEC approved the offering, or point to a Form D filing as proof?
- Yes → A warning sign the SEC lists
- No → next question
Is the offering described as "exempt" even though you are not an accredited investor?
- Yes → Be very careful
- No → next question
Does the white paper set out token rights, total supply, team allocations and vesting, and does the deployed smart contract match what it describes?
- Yes → next question
- No or not sure → Basic checks are not finished
Do you know who the team is, which jurisdiction the issuer is in, and whether the offering is registered, exempt or notified with the relevant regulator?
- Yes → No listed warning signs, but risks remain
- No or not sure → Basic checks are not finished
Guaranteed or very high returns, pressure to buy now and claims of SEC approval are all on the SEC's list of ICO warning signs. The SEC does not approve offerings, and a Form D filing does not mean the offering is registered or endorsed.
Most exemptions have net worth or income requirements, so an "exempt" offering sold to someone who is not an accredited investor is a warning sign the SEC highlights.
The white paper is written by the issuer and usually not reviewed by any regulator, and the contract's code, not the white paper, decides what happens to supply and transfers. Gaps in the token's rights, the contract, the team or the regulatory status leave key questions unanswered.
Passing these checks does not make a sale safe. The token may never trade, or may trade far below the sale price, and if an ICO turns out to be a fraud or funds are stolen, your ability to recover money may be significantly limited.
This walks through the warning signs and checks named in the article only; it does not assess any specific project, confirm whether a token is a security in your jurisdiction, and is not investment advice.
ICO vs IPO
| ICO | IPO (US) | |
|---|---|---|
| What buyers receive | Tokens; rights set by white paper and code | Shares with legal ownership rights |
| Main document | Issuer-written white paper | Registration statement (usually Form S-1) with a prospectus filed with the SEC |
| Regulatory review | Depends on jurisdiction and whether the token is a security | Must be registered with the SEC or qualify for an exemption |
| Stage of business | Often an idea or early product with little financial history | Usually an operating company with audited financials |
Launchpads and portals
Many token sales now run through launchpads, which are platforms that list upcoming sales, screen projects to varying standards and handle distribution. Screening criteria differ from platform to platform and are not regulatory approval. Thailand's ICO portals are different: they are licensed and have legal due-diligence duties.
Risks and red flags
The SEC's investor materials on ICOs point to recurring warning signs:
- Guaranteed or very high returns. The SEC warns that fraudsters promise or guarantee high returns from a "cutting-edge" opportunity.
- Pressure to buy now. False urgency is a common tactic.
- Claims of SEC approval. The SEC does not approve offerings, and a Form D filing does not mean the offering is registered or endorsed.
- "Exempt" offerings sold to everyone. If a promoter says an offering is exempt and you are not an accredited investor, be very careful, because most exemptions have net worth or income requirements.
- Limited recourse. If an ICO turns out to be a fraud or funds are stolen, the SEC notes that your ability to recover money may be significantly limited.
Practical checks before taking part:
- Read the white paper for token rights, total supply, team allocations and vesting.
- Check that the deployed smart contract matches what the white paper describes. An independent audit, if there is one, helps.
- Find out who the team is and which jurisdiction the issuer is in.
- Confirm whether the offering is registered, exempt or notified with the relevant regulator.
- Assume the token may never trade, or may trade far below the sale price.
