Regulatory reform in America and the thawing of crypto hostility globally in 2025 will herald a new generation of decentralized capital formation, first promoted in 2017 as “ICOs” (initial coin offerings).
During the 2000s, cryptocurrencies did not settle into the productive use case of Bitcoin and altcoins until Ethereum smart contracts enabled early-stage teams to raise capital from backers spread around the globe. We saw Ethereum bootstrap a global decentralized computer that spawned DeFi, NFTs, and various crypto fundamentals funded with less than $20 million raised from a global community.
Many other projects soon followed suit, and we observed a new dynamic where raising capital at the early stage of a decentralized community always increased the added value of the project and the entrepreneurs beyond what even the best and well-meaning venture capitalists could provide. With a decentralized investor pool, entrepreneurs get free evangelists, beta testers, and code contributors – i.e. free labor that contributed to the project at hand. The shorter liquidity timeframe also allowed for improved risk-return profiles for early-stage investors.
Unfortunately, Initial Coin Offerings (ICOs) have been slowly stifled and referred to as “non-compliant” with regulations that have never been precisely clarified. By 2020, they had slowed down significantly and 88% of ICO tokens slowed down. Trading below the issue price.
Fast forward to 2025, we can see the convergence of some important inputs that allow for the reemergence of compelling investment opportunities, but with very different characteristics than ICO 1.0.
Components of ICO 2.0
1. Updating the regulatory position
I expect that value accumulation will be a key part of the “why” to invest in tokens this time. Entrepreneurs and investors in this space have matured and are willing to collectively acknowledge that there is an expectation of profit with most tokens. In fact, one could argue that obfuscation over how token holders are compensated is an attempt to avoid token manipulation. Amateur test It was the main problem the first time.
KYC/AML will be focused on on-ramps and off-ramps such as exchanges and L2 bridges, and reasonably focused at the point of making gains back into fiat currencies, which is the appropriate light touch that should satisfy reasonable regulators.
2. Market turnover
We are seeing the rapid decline of some middle market companies that could reshape their business models by becoming community-led and decentralized. For example, medium-sized media companies, including newspapers and magazines, are an obvious business model that could be greatly improved by using the token economy to nudge citizen journalists toward greater professionalism.
3. The evolution of cryptography
In 2017, we had ICO click races on very difficult UI/UX interfaces, pre-launch SAFT (Simple Agreement for Future Token) rounds going to a few VCs and years of waiting until the network went live. No one should be surprised then that the majority of ICO projects are dead. The Darwinian nature of any emerging technology is that most of it will perish, but the few that survive go on to create significant value (spoiler alert: more than 90% of AI projects will also disappear).
Crypto now has decent, good user-engagement apps, and more importantly, the community has demonstrated an uncanny ability to publicly call out bullshit and root out bad actors far better than any government oversight ever could. The light of decentralized open ledgers is a particularly powerful purgatory.
Implications and expectations
So what does all this mean for the cryptocurrency community?
This new wave of decentralized capital formation will virtually diminish $20 billion of capital was allocated to ICO 1.0 in 2017 and 2018.. Over the coming years, we will see hundreds of billions in gross capital formation across DeFi, NFTs, RWAs, and a plethora of other crypto fundamentals.
Merger and acquisition activity will represent an important component of capital formation activity across the chain. Whether it’s traditional companies getting serious about cryptocurrencies and buying up lost ground, like the Stripe-Bridge deal, or EVM L2s joining forces as they realize that only a handful will survive to be relevant, we will see billions of dollars worth of M&A activity in Next year.
In addition, Web2 and legacy mid-market companies will seek to reinvent their business model now that they can use token stimulation under less adversarial conditions. We are seeing companies in energy, media, art, and cellular communications getting serious about token incentives to shift their value chain to an open market, as well as quickly acquiring customers and using cheap labor.
I am also optimistic that renewable financing, which blends a capital mandate with a philanthropic mandate, will find its place. And I’m very excited about how cryptocurrencies can change paradigms in bridging reasonable returns on capital with social goals in more compelling ways than we’ve seen so far.
I expect we will see a range of new ways to select ICO participants, whether as a reward for limited partners, relying on reputation based on on-chain activity or through the use of certain clues. The byproduct of this is that we will see a better balance between individual investors and institutions/venture capital.
Finally, as is always the case with cryptocurrencies, we will continue to see relentless innovation and new ideas that lead to more early-stage funding opportunities. Many exciting new teams clearly see that the natural transaction medium for AI will be via cryptocurrencies and are preparing accordingly. AI agents will bootstrap themselves with token-backed fundraising mechanisms that blend debt and equity principles.
Overall, I am optimistic that the cryptocurrency community has internalized the lessons learned along the path of stoic evolution to this point. With a flurry of capital allocation opportunities emerging in the coming year, I encourage everyone in the cryptocurrency space to be frank and open in highlighting the red flags of due diligence and bending the arc of the industry toward open access, fair launch, and outright projects in accumulating value for token holders.
A fair launch is an excellent way forward, and we must all work toward more equitable and transparent fundraising practices. There are still many issues to solve and there will be some stunning failures as we move forward, but decentralized capital formation is the original killer app for crypto, and it is worth continuing to evolve.
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