Author: Ryan Zurrer, CoinDesk; Translated by: Deng Tong, Jinse Finance
By 2025, regulatory reforms in the U.S. and a easing of global cryptocurrency crackdowns will usher in a new generation of decentralized capital formation, which first gained popularity in 2017 in the form of 'ICOs' (Initial Coin Offerings).
In the 2010s, cryptocurrency had not yet established effective use cases for Bitcoin and altcoins, until Ethereum smart contracts allowed early teams to raise funds from supporters spread across the globe. We saw Ethereum guide the creation of a global decentralized computer, giving rise to DeFi, NFTs, and various crypto primitives, all funded by less than $20 million raised from a global community.
Many other projects quickly followed suit, and we observed a new dynamic where raising early funds from decentralized communities almost always brings more value to projects and entrepreneurs than the best-intentioned venture capitalists can provide. Through decentralized investor groups, entrepreneurs can obtain free contributions from evangelists, beta testers, and code contributors for their projects. Additionally, shorter liquidity time frames offer better risk-return profiles for early investors.
Unfortunately, ICOs are slowly being curtailed and are considered 'not compliant' with regulations that have never been clearly articulated. By 2020, their pace had slowed, with 88% of ICO tokens trading below their issue price.
Fast forward to 2025, we may see a fusion of significant inputs that bring prominent investment opportunities back, but characterized distinctly from ICO 1.0.
ICO 2.0
1. Updated Regulatory Position
I predict that value accumulation will be the fundamental reason for this round of investment tokens. Entrepreneurs and investors in the space have matured and are ready to collectively acknowledge that most tokens have profit expectations. In fact, one might argue that the confusion over how token holders are compensated, as a manual attempt to avoid the Howey test, is the main issue that has emerged.
KYC/AML will focus on entry and exit points like exchanges and L2 bridges, reasonably centering on the issue of converting proceeds back to fiat, which is a proper attempt to meet reasonable regulatory requirements.
2. Market Transaction Volume
We see certain mid-market companies rapidly declining, which could reshape their business models through community-led and decentralized approaches. For example, mid-sized media companies, including newspapers and magazines, present a clear business model that could be significantly improved by using token economics to drive journalists towards higher professional standards.
3. Progress in Cryptocurrency
In 2017, we conducted an ICO click competition on a very rough UI/UX interface, with SAFT (Simple Agreement for Future Tokens) rounds before launch participated by a handful of venture capital firms, waiting years to go live on the network. The nature of emerging technologies is such that most technologies will fade away, but a few surviving technologies will continue to create immense value (spoiler alert: > 90% of AI projects will also disappear).
Cryptocurrency now has a decent entry threshold and user-friendly applications, most importantly, the community has demonstrated an incredible ability to publicly call out nonsense and root out bad actors, far more effectively than government oversight. The brilliance of open decentralized ledgers is a particularly powerful force.
Impact and Predictions
So what does all this mean for the crypto community?
In the coming years, we will see total capital formation in DeFi, NFTs, RWA, and numerous other crypto primitives reaching hundreds of billions of dollars.
M&A activity will become an important component of on-chain capital formation activities. Whether traditional companies seriously embrace cryptocurrency and reclaim lost ground, such as the Stripe-Bridge deal, or EVM L2s team up recognizing that only a few businesses can survive, we will see M&A activities worth billions of dollars.
Additionally, mid-market Web2 and traditional companies will seek to reshape their business models as they can incentivize with tokens in a less adversarial environment. We see companies in energy, media, art, and mobile communications taking token incentives seriously, transforming their value chains into open markets, rapidly acquiring customers, and utilizing cheaper labor.
I am also optimistic that regenerative finance, which merges capitalist and charitable missions, will find its place. I am very excited about how cryptocurrency will change paradigms in more compelling ways than we have seen so far, linking reasonable capital returns with social goals.
I predict we will see a range of new ways to select ICO participants, whether as rewards for LPs, relying on reputation based on on-chain activity, or through the use of certain proofs. The byproduct of this will be a better balance between retail and institutional/venture capital investors.
Finally, like in the cryptocurrency space, we will continue to see constant innovation and new ideas, leading to more early-stage financing opportunities. Many exciting new teams clearly see that the natural trading medium for AI will be through cryptocurrency and are making preparations accordingly. AI agents will navigate themselves through token-supported 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 resilient evolution to this point. As a series of opportunities for capital allocation arise next year, I encourage everyone in the crypto space to dare to speak out, publicly highlight the warning signs of due diligence, and steer the industry towards open access, fair launches, and projects that create value directly for society.
Fair launches are a better way forward, and we should all strive for more equitable and transparent fundraising. There are still many issues to address, and there will be some astonishing failures as we move forward, but decentralized capital formation is the original killer app of cryptocurrency, and it deserves to continue evolving.
