Authors: Steven Robertson, Tessa Rowland

An Initial Coin Offering (“ICO”) – also sometimes referred to as an Initial Token Offering – provides a nascent business (typically a startup) with a crowdfunding vehicle to raise the necessary capital to launch a new product or service.

It differs from a traditional offering of equity securities in that participants in the ICO receive digital “coins” or “tokens” rather than shares or other equity securities. Unlike an offering of equity securities in which the shares issued give the purchaser an ownership stake in the relevant business, the digital coins or tokens instead typically represent only future rights to obtain the products or services that the startup is developing or plans to develop, but they but do not give the holder an ownership stake in the business.

Many of the cryptocurrencies currently in circulation were originally created and sold in an ICO.


The first ICO was for the cryptocurrency Mastercoin (now called Omni) in 2013, raising US$600,000. One of the most well-known ICOs fueled the launch of the blockchain-based Ethereum platform. In 2014, funding for Ethereum was raised through an ICO of units of Ethereum’s cryptocurrency known as Ether, whereby the founders raised US$18 million in Bitcoin. Each unit of Ether sold in the ICO had a price of US$0.40.

Even after the recent plunge in the price of many cryptocurrencies, a unit of Ether is still trading today in the US$1,000 range. Ethereum is now a widely used platform from which ICOs are launched.

Traditional Funding vs. ICO

Traditional funding alternatives open to startups from venture capital, private equity firms, and other relatively sophisticated private investors are carried out in the “analog” fashion, using customary financing agreements and other documents. In contrast, ICOs tend to be exclusively digital and virtual, and are widely and indiscriminately offered via the internet to “retail” investors regardless of their level of sophistication.

Similarly, the marketing of an ICO primarily happens online. The startup will often interact with potential backers via a Twitter account, with their own website, and through a subreddit created solely for the project that the startup is seeking to fund. The Twitter account and subreddit allow the startup’s founders to market themselves and their envisioned project and interact with potential backers, answering any questions about the ICO that may arise.

The website provides potential backers with a description of the team leading the project as well as the “whitepaper.” The whitepaper is the key document for evaluating the subject matter and terms of an ICO. It will typically outline, among other things, the project model, details surrounding the coins or tokens being offered, the “ecosystem” in which the future value of the coins or tokens is expected to be realized, and a budget plan for the expenditure of the funds in the ICO.


ICOs in many countries, including Canada, are currently unregulated, and the key unresolved legal question is whether the coins or tokens offered in an ICO are securities.

To date, only the People’s Republic of China and South Korea have issued outright bans on ICOs. The current absence of regulation means that each ICO is conducted differently and without governmental oversight. This can have a dampening effect on the ICO market, as stories arise from time to time about ICOs that are, at best, haphazardly organized or, at worst, fraudulent. We will discuss regulation in North America in our next post.

Note: This article is of a general nature only and is not exhaustive of all possible legal rights or remedies. In addition, laws may change over time and should be interpreted only in the context of particular circumstances such that these materials are not intended to be relied upon or taken as legal advice or opinion. Readers should consult a legal professional for specific advice in any particular situation.