The ICO Renaissance: Selective Capital Allocation Takes Center Stage

The ICO Renaissance: Selective Capital Allocation Takes Center Stage

Introduction: Initial Coin Offerings (ICOs) are back, and launchpads are booming, all vying for a piece of the pie. In October, Coinbase acquired Echo and launched its token sales platform earlier this month; in September, Kraken partnered with Legion. Meanwhile, Binance maintains close ties with Buildlpad, and PumpFun is attempting to issue utility tokens via Spotlight. These developments coincide with a resurgence of investor interest and trust in ICOs.

Umbra Privacy saw a staggering $156 million raised on MetaDAO against a fundraising goal of $750,000, and Yieldbasis was oversubscribed by 98x in less than a day on Legion. Aria Protocol was oversubscribed by 20x on Buildpad, attracting over 30,000 users. As ICOs begin raising funds at multiples of the offering price, filtering the noise becomes paramount.

In our previous article, 'Capital Formation in Crypto,' Saurabh articulated how capital formation in crypto has evolved. He explored how novel funding architectures, like the Flying Tulip investing model and MetaDAO’s ICO, attempt to address potential conflicts of interest between teams, investors, and users. Each new mechanism claims to better align the interests of all parties. While the success of these models remains to be seen, we are seeing launchpads attempt to solve the investor, user, and team contradictions in different ways. They are doing this by allowing project founders to independently select investors in the public token sale, to curate their “Cap Table.”

From First Come First Serve to Curated Token Holders

From 2017 to 2019, most ICO investing operated on a first-come, first-served basis, with investors swarming in to try and get in at lower valuations, typically aiming for a quick profit in the early stages of the project. Data from a study of over 300 ICO projects shows that 30% of investors exited in the first month after the project launched.

While quick returns are always enticing to investors, project founders are under no obligation to accept every wallet that asks for money. A truly visionary team should be able to select who participates in their ICO, filtering out investors who are committed to the long-term development. Here’s Ditto from Eigencloud discussing the shift from a first-come-first-served (FCFS) sales model to a community-centric sales system. The problem with this ICO cycle was that it ended up getting into a 'lemon market' predicament. Too many ICO projects came out, including a lot of scams or traps, making it hard to differentiate good projects from bad ones.

Launchpad platforms could not rigorously vet all of the projects being launched, resulting in less trust from investors in ICOs. Ultimately, ICO volume exploded, but there wasn't enough money to support them. Now, it looks like the tide is starting to turn again.

Cobie’s fundraising platform, Echo, has raised over $200 million for over 300 projects since launching. At the same time, we are also seeing millions of dollars being swept up in minutes in some independent fundraising projects. Pump.fun successfully completed an ICO, raising $5 million in less than 12 minutes; Plasma raised $373 million with a goal of $50 million in its XPL public offering.

This shift is not only visible in token issuances, but also in the launchpads themselves. Emerging platforms like Legion, Umbra, and Echo promise greater transparency, clearer mechanisms, and more thoughtful architectures for founders and investors. They are removing information asymmetries, enabling investors to discern the quality of projects. Today, investors can clearly understand a project’s valuation, the funding amount, and relevant details to better protect themselves from the risk of being trapped in scam projects. This has led to capital returning to ICO investing, with project subscriptions far exceeding expectations.

The new generation of launchpads is also focused on building an investment community that aligns with the long-term vision of the plan. Following Coinbase's acquisition of Echo, they announced the launch of their own token sales platform, focused on screening based on how well users fit the platform. Currently, they achieve this by tracking users' token selling patterns. Users who sell tokens within 30 days of the sale starting will receive a lower allocation, and more fit metrics will be announced soon.

This shift in the idea of community-centric allocation is clearly reflected in the careful design of Monad’s airdrop plan and MegaETH’s ICO distribution plan, both of which are centered on community members. MegaETH was oversubscribed by approximately 28x. The project asked users to link their social media profiles and wallets to the chain record in order to filter a list of token holders that they believe best aligned with the project’s idea.

This is the shift we are seeing: when the funds participating in the ICO are abundant again, project founders need to choose who to allocate the funds to. The new generation of Launchpads was created to solve this problem.

Next Generation Launchpads

Currently, platforms like Legion, Buildlpad, MetaDAO, and Kaito are emerging as representatives of new launchpads. The first step is to audit ICO projects to ensure investor trust in the launchpad platform; the next step is to audit participating investors to ensure that the allocation of funds aligns with the project’s standards.

Legion adheres to the idea of performance-oriented distribution, providing the most comprehensive community member ranking system. The platform has successfully completed 17 token issuances, with the oversubscription rate of the most recent token issuance reaching approximately 100x. To ensure that tokens reach the right people in an oversubscribed sale, each participant is assigned a Legion score, which takes into account their on-chain history and activity across protocols, developer qualifications (e.g., GitHub contributions), social influence, network coverage, and qualitative statements about the contributions they plan to make to the project. Founders launching products on Legion can select allocation weighting indicators, such as developer engagement, social influence, KOL (Key Opinion Leader) engagement, or community education contributions, and allocate weights accordingly.

Kaito, in turn, takes a more targeted approach, allocating a portion of the shares to active participants in Twitter discussions. Participation is weighted based on the user's voting credibility and speaking influence, the number of $KAITO staked, and the rarity of genesis NFTs. Project founders can choose from these types of priority supporters. Kaito's model helps plans attract influential social media participants as early investors. This strategy is especially useful for projects that rely heavily on initial exposure.

Buidlpad’s core idea is based on the allocation of funds. The more funds users stake, the more tokens they get to participate in the token sale. However, this makes participation possible only for wallets that have funds. To balance this capital-based system, Buidlpad introduced a “team system,” which gives extra leaderboard points and extra rewards through community behaviors such as content creation, educational promotion, and social promotion.

Of these four launchpads, MetaDAO is the most unique. Funds raised through the MetaDAO ICO are placed in an on-chain vault, and a marketed governance mechanism called Futarchy is adopted. Futarchy is essentially futures trading of the underlying token, but it is traded based on governance decisions rather than prices. All funds raised are stored in an on-chain vault, and every expense is verified through a conditional market. Teams must submit plans for the use of funds, and token holders bet on whether these actions will create value. A transaction can only be completed when the market agrees.

Investor participation in the MetaDAO ICO is permissionless and completely open, and each investor receives a token allocation corresponding to the amount of funds they invested. However, community building and alignment of interests of token holders is carried out after the ICO ends. Each proposal is a market in Futarchy, and traders can sell tokens when the proposal is approved, or they can buy more. Therefore, a group of token holders is formed based on the final decision. Although this article focuses on selected allocation plans, there are many other factors to consider from the perspective of a project founder before deciding to launch an ICO, such as project screening standards, founder flexibility, platform fees, and post-listing support. The following comparison table can help you understand all these factors at a glance.

Web3 can bring users, traders, and contributors together through incentive mechanisms based on verifiable reputation systems. Without corresponding mechanisms to exclude bad actors or attract the right participants, the majority of community token sales will remain in an immature stage, filled with a mixed group of believers and non-believers. Current launchpads provide teams with an opportunity to improve token economics and take the right first step. Projects need some tools to identify the right users in the ecosystem and reward them for the actual contributions they make. This includes influential users who have an active community behind them, as well as founders or builders who create practical applications and experiences for others. These user groups play a key role in driving ecosystem development, and they should be incentivized to stay for the long term. If the current momentum can be maintained, the next generation of launchpads may be able to help solve the community launch problem in the cryptocurrency field, a problem that airdrops have failed to solve.