Published
January 11, 2022

Comparing the ICO Boom of 2017/18 and the NFT Boom of 2021

To both active participants in and outside observers to the world of cryptocurrencies, it can be agreed that the markets are characterized by persistent trends and ephemeral fads. Where some innovations in the crypto-sphere manage to retain their market dominance and mindshare among investors, others witness a rapid and unceremonious fall from grace. Two crypto trends which gained significant prominence are initial coin offerings (ICOs) and non-fungible tokens (NFTs).

This article will provide an overview of both the ICO and NFT booms as well as attempt to address the question of why NFT markets will not ultimately see a catastrophic collapse. In particular, the following subjects will be covered:

  1. Detailing the Rise and Fall of ICOs
  2. Chronicling the Rise and Rise of NFTs
  3. How the ICO and NFT Booms Compare

Recounting the Rise and Fall of ICOs

ICOs once represented a novel, blockchain-native approach for emerging protocols to raise capital and finance the development of their projects. The ICO process involved the sale of project-specific tokens in exchange for cryptocurrencies, primarily ether and bitcoin. These tokens would be marketed as offering some form of utility within the project, granting ICO investors early-access to the protocols upon launch. Thanks to their low barriers to entry for new projects, ICOs were widely-touted as a way of democratizing early-stage venture funding. By enabling crypto-focused crowdfunding on a global scale, Web 3 founders without access to traditional VC money could enjoy substantial infusions of capital into their projects.

That said, investors were not necessarily incented to purchase tokens simply because they were interested in using the underlying projects. Rather, thanks to the flywheel effect which cyclically translates protocol adoption into price gains for the associated token, many investors purchased tokens with the sole objective of profiting from future price appreciation following launch of the project. Additionally, the low barriers to entry and unregulated nature of ICOs made them a prime opportunity for scams which preyed on unsophisticated investors looking to speculate on new tokens.

It is clear from this description of ICOs that they effectively inverted the traditional model of raising capital through VCs or public markets. Whereas the valuations of non-crypto companies have generally relied on finding product-market fit, building traction, and demonstrating an ability to scale sustainably, valuations of crypto protocols during the ICO boom hinged entirely on the hype surrounding the project and the token’s liquidity. Projects holding ICOs could drive up market interest with little more than a whitepaper, achieving spectacular valuations without any provable market demand for their projects. Overall, while ideas in the non-crypto world are often deemed worthless without proper execution, the frenzied ICO market seemed to place total emphasis on ideas over execution.

The first formal ICO was conducted in July of 2013, with the MasterCoin layer-2 protocol – which has since rebranded as Omni Layer – raising roughly USD$500K in BTC. The Ethereum protocol was also notable for raising initial funding in the form of a July 2014 ICO, exchanging the first 60M ether for USD$18.3B worth of BTC. Betting platform Augur holds the distinction of having conducted the first ERC-20 ICO, raising roughly USD$5.3M in exchange for 11,000 REP. However, the speculative mania which came to enrapture the ICO market did not truly begin until early-mid 2017. While difficult to pinpoint an exact start to this boom, the market’s enthusiasm for ICOs and the potential upsides of several tokens propelled countless projects to multi-million-dollar raises and some to the realm of multi-billion-dollars. Following the initial run-up, EOS and Telegram Open Network (TON) broke records for the largest ICOs of all time, raising USD$4.1B and USD$1.7B, respectively.

At their peak, ICOs had achieved spectacular heights in terms of fundraising for early-stage projects. For instance, ICO funding in the month of June 2017 surpassed traditional VC funding for Web 2 startups, with USD$550M raised through ICOs compared to only USD$300M through angel and seed VC investments. This dynamic continued into July of 2017, with ICOs raising USD$300M and traditional VCs deploying only USD$200M. By the end of this blistering growth period for ICOs, the cumulative all-time funding raised through the vehicle had surpassed USD$1.6B. This total was easily multiplied several times over before the boom ultimately subsided, with crypto research firm TokenData reporting cumulative ICO funding between January 2017 and July 2018 at USD$17.8B.

Unfortunately, the ICO market was rife with fraudulent projects seeking to exploit the ignorance of unsophisticated investors for the financial gain of the pretend development team. Instances of exit scams were not uncommon, with many millions of dollars being lost on ICOs held for projects which were only masquerading as true ventures. The funds were ultimately stolen by the project’s fictional developers who would disappear from the public eye with their newfound riches. Other tokens were being offered as unregistered securities, the most notable of which was Kik’s KIN token. By passing the Howey Test, many tokens came in direct violation of US securities laws and exposed the project’s development team to the risk of lawsuits from the US Securities and Exchange Commission (SEC). Other common frauds which manifested in the ICO market included Ponzi schemes and pump-and-dumps.

Ultimately, the collapse of the ICO boom could be traced to multiple factors. For one, the macro environment around the general time of collapse in 3Q18 was distinctly unencouraging and has since come to be known as the ‘Crypto Winter’. Additionally, the collapse could in part be attributed to an increasingly hostile regulatory environment which aimed to punish perceived misbehaviours and deter further exploitation of unsophisticated retail investors. The US SEC was notable for its aggressive approach to reining in the overheating ICO market. Notable actions pursued by the SEC included levying penalties of USD$24M and USD$18.5M on the development teams behind EOS and TON, respectively, in addition to requiring that TON refund USD$1.2B of funds raised to its investors.

Chronicling the Rise and Rise of NFTs

As a brief reminder, the NFT boom of 2021 first began to take shape in the first half of the year, specifically through the months of February and March. Following a cool-down in market activity and token valuations, a subsequent boom manifested around the start of 2H21. In attempting to trace this boom to any one particular factor, it would appear that the strongest indicator of why the market exploded in 2021 may in part have to do with the equally historic price run-ups in the wider cryptocurrency market. The market was set on an unprecedented upward trajectory which began in late 2020 and continued through the first few months of 1H21, with bitcoin and ether achieving year-to-date price growths of 800% and 2,100% at the time of their respective peaks.

To better understand the growth in the NFT market during 2021 and establish a quantitative comparison to that of ICOs, consider the following performance metrics:

  • USD$2.5B: size of the NFT market at the end of 1H21. This represented a substantial increase from the USD$13.7M market size a year prior 
  • USD$69,346,250: the sale price of digital artist Beeple’s Everydays: The First 5,000 Days, which currently stands as the most expensive NFT sale in history
  • 2,627%: the quarter-over-quarter growth in the NFT market as at the end of 1Q21. This growth continued into 2Q21 with QoQ growth of 111%, and the market is likely to have grow even further by the conclusion of 3Q21

In their purest form, NFTs represent an innovative application of blockchain technology in much the same way that ICOs did. Specifically, NFTs were designed to address challenges around enforcing digital scarcity and enabling provable ownership of immaterial assets via blockchain-based tokens. That said, in spite of having a noble and plainly-stated reason for existing, NFTs have not been impervious to the same greed-driven and value-destructive tactics which bloated the ICO market with scams. To capitalize on the fervor for NFTs, several collections have been launched as low-effort money-grabs and blatant copycats of more successful projects. This has saturated the NFT market with tokens devoid of any artistic integrity or practical functions, being issued for the sole purpose of making speculative returns. Whether the collapse of NFTs will driven by a second Crypto Winter and increased regulatory scrutiny remains to be seen.

How the ICO and NFT Booms Compare

The parallels that can be drawn between the ICO boom of 2017/18 and the NFT boom of 2021 are many. From inspiring mass speculation, to generating billions of dollars in crypto-wealth, to creating a market flooded with value-destroying projects, the two manias have countless similarities that may give an outside observer the impression that their ultimate fates will also be the same. 

From the perspective of total funds raised through ICOs and NFTs, the absolute volume which flowed through the ICO market – as displayed in the graph in the first part of this article – has dwarfed that which has thus far been invested in the NFT market. Regardless, both experienced massive explosions of interest and investments at specific moments in their respective supercycles.

By the same token, the number of investors in ICOs also likely outweighed that of NFTs. The peak number of daily active unique wallets in the NFT market was recorded at just over 16,000 in late-August. On a monthly basis, the number of wallets has ranged from as low as 24,000 in August of 2020 to as high as 280,000 in August of 2021. While little data exists on the number of daily or monthly ICO investors, research has suggested that the average ICO had roughly 4,700 contributors, many of whom invested only small amounts and flipped their tokens before the associated project’s launch. Given the average monthly number of ICOs during the period from June 2017 – June 2018 was roughly 98, this would imply that ICOs averaged over 460,000 monthly investors, evidencing a greater volume of investor interest than what exists for NFTs.

These comparisons aside, there remain clear distinctions between the two market booms which give reason to believe that NFTs have far greater staying power than did ICOs. For the following two reasons, we believe NFTs will become established as a core application of blockchain technology and crypto-assets where ICOs failed:

  • An investment in an NFT represents an investment in a realized, presently existing asset. In contrast, investments in ICOs typically represented speculative bets that the development team’s project ambitions would ultimately translate into full-featured and functional products. In many cases, developers could raise millions of dollars in ICO funding with little more than a whitepaper describing what their project could be. In other words, no minimum viable product or demonstrated market traction was necessary to launching a successful ICO. The result of these exceedingly low barriers to entry and unthinking market behaviour was that close to 60% of ICO-backed projects failed within four months of their raises, leaving investors holding a bag of worthless tokens. It goes without saying that such highly-speculative bets on future results were doomed to collapse. When NFTs are purchased, on the other hand, their ultimate success does not depend on the resource-management or cohesiveness of the project’s development team. Ultimately, the question of whether an NFT will rise in value depends entirely on market dynamics.


  • Ideologically, NFTs serve as the calling cards for a community and do not overpromise their functional utility beyond that value proposition. The NFTs which have enjoyed the highest valuations have been those which have accrued the most value to their respective communities. This is best exemplified among the trend of NFT-based avatars, which gain value as more of their owners flaunt them on social media as a signal of crypto-wealth. Such blue-chip avatar projects include CryptoPunks and Bored Ape Yacht Club, both of which have recently enjoyed valuations in the hundreds of thousands of dollars, in no small part thanks to the network effects created by their respective communities. In contrast, many ICOs were launched to raise funds for purely fantastical projects which had no reasonable likelihood of materializing. An example of this was Skycoin, which purported to be a faster, more cost-efficient spiritual successor to Bitcoin. It was soon discovered, however, that the algorithm which supposedly enabled the rapid and cheap transfer of Skycoins had never been implemented, and the apparent speed of transactions was due entirely to the fact that the network was centralized on a single server. Other promised features, such as a tumbler mechanism to increase privacy, were also found to be pure fiction and the market for Skycoin ultimately crashed. Evidently, many ICO projects failed to execute on their visions.


  • The implicit purpose of NFTs has never been to circumvent traditional legal and regulatory structures. At their core, the value proposition of NFTs has been to provide a way to enforce the scarcity of unique digital assets, which in theory are infinitely replicable. By leveraging the fundamental properties of blockchain technology, NFTs can enable the sole ownership of digital files and provide a mechanism by which to transfer ownership safely and securely. In essence, NFTs serve as an extension to physical asset ownership rather than an attempt to subvert traditional rules and regulations. Conversely, while noble in their intentions to provide capital access for less-advantaged founders, ICOs were in large part a scheme to avoid the legal and monetary burdens of traditional VC or capital markets fundraising. By raising money through ICOs, founders could forgo the filing and registration requirements inherent to IPOs as well as the ownership dilution that results from giving equity to VC investors. The backhanded and blatant way through which ICOs attempted to undermine regulators ultimately contributed to their downfall.

Overall, while the ICO and NFT booms have shared some distinct commonalities, it is unlikely that the NFT market will exhibit a collapse as catastrophic as that of ICOs.

Closing Remarks

It should be noted that the above comparisons between NFTs and ICOs should not be taken to mean that the ongoing mania in NFT markets will last forever. Rather, it merely implies that NFTs will remain an important segment of the wider crypto markets post-crash, in contrast to the effective disappearance of ICOs. Once the speculative mania surrounding the tokens ultimately dies down and the volume of new projects tapers off, NFT markets will benefit from the clarity and stability – to the extent either of those qualities are possible – present in the markets for more mature applications of blockchain technology.


References

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Fahlenbrach, R., & Frattaroli, M. (2020, November 6). ICO Investors. Retrieved from Springer Link: https://link.springer.com/article/10.1007/s11408-020-00366-0

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Hornuf, L., Kuck, T., & Schwienbacher, A. (2021, March 29). Initial coin offerings, information disclosure, and fraud. Retrieved from Small Business Economics: https://link.springer.com/article/10.1007/s11187-021-00471-y#Sec15

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Palmer, D. (2018, July 10). More Than Half of ICOs Fail Within 4 Months, Study Suggests. Retrieved from CoinDesk: https://www.coindesk.com/markets/2018/07/10/more-than-half-of-icos-fail-within-4-months-study-suggests/

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Rooney, K. (2018, May 1). Ethereum falls on report that the second-biggest cryptocurrency is under regulatory scrutiny. Retrieved from CNBC: https://www.cnbc.com/2018/05/01/ethereum-falls-on-report-second-biggest-cryptocurrency-is-under-regulatory-scrutiny.html

Tian, C. (2017, August 4). $1.6 Billion: All-Time ICO Funding Climbs as Record $500 Million Invested in July. Retrieved from CoinDesk: https://www.coindesk.com/markets/2017/08/04/16-billion-all-time-ico-funding-climbs-as-record-500-million-invested-in-july/

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