Initial Coin Offerings (ICOs)—What to Know Now and Time-Tested Tips for Investors
•February 11, 2026
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Why It Matters
Because most crypto offerings lack SEC registration, investors face heightened fraud and loss risk, making informed diligence essential for capital preservation.
Key Takeaways
- •ICOs frequently unregistered, missing prospectus disclosures.
- •Stablecoins risk depegging and algorithmic failures.
- •Private keys control assets; loss equals total loss.
- •Regulators apply Howey and Reves tests to tokens.
- •DeFi platforms lack traditional investor protection safeguards.
Pulse Analysis
The crypto‑asset market has exploded beyond Bitcoin, encompassing a diverse array of tokens, stablecoins, NFTs, and tokenized securities. While native coins serve as digital money, most new projects launch through Initial Coin Offerings (ICOs), Initial Exchange Offerings (IEOs) or Security Token Offerings (STOs) on public blockchains. This rapid innovation outpaces regulatory frameworks, leaving many offerings outside the oversight that protects traditional securities investors. As a result, the line between a utility token and a security often hinges on legal tests such as the Howey and Reves analyses, creating uncertainty for market participants.
For investors, that uncertainty translates into heightened risk. Unregistered ICOs typically omit prospectus‑style disclosures, making it difficult to assess financial health, token economics, or potential fraud. Price volatility compounds the danger, especially for stablecoins that can lose their peg or algorithmic designs that collapse. Savvy investors therefore diversify exposure through regulated vehicles—exchange‑traded funds, exchange‑traded products, or equities of firms that provide crypto‑related services—where SEC registration and reporting standards apply. Conducting thorough due diligence, including reviewing white papers, team credentials, and regulatory compliance, is essential to avoid costly missteps.
Even after a purchase, safeguarding crypto assets remains a critical challenge. Ownership is secured by private keys; loss or theft of those keys means irrevocable loss of the underlying value. Custodial wallets offered by exchanges simplify access but shift trust to third‑party security practices, while self‑custody solutions—hardware wallets, cold‑storage devices, or paper backups—give users full control at the cost of personal responsibility. Best practice combines multi‑factor authentication, offline key storage, and regular backups, ensuring that the promise of decentralized finance does not become a conduit for avoidable financial disaster.
Initial Coin Offerings (ICOs)—What to Know Now and Time-Tested Tips for Investors
ESSENTIALS
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A crypto asset is any asset that’s issued or transferred using distributed ledger technology (DLT) or blockchain technology.
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There are many terms for crypto assets, including “digital assets,” “virtual assets,” “virtual currencies,” “coins,” “tokens” and “cryptocurrencies.”
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There are many types of crypto assets, including native crypto assets (such as ether or bitcoin), non‑native tokens (such as those that utilize the ERC‑20 standard on the ethereum network), stablecoins and non‑fungible tokens (NFTs), to name a few.
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Crypto assets may present the potential for price appreciation but can be exceptionally risky and are often volatile. They also often lack, or are offered or sold in a manner that isn’t consistent with, the robust regulatory protections and market oversight that investors have when they purchase securities such as stocks and bonds.
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Developers of crypto assets might offer investors the opportunity to participate in offerings of crypto assets. Crypto asset intermediaries and decentralized finance (DeFi) protocols offer trading of crypto assets.
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Investors can also get exposure to crypto assets through exchange‑traded products (ETPs) and publicly traded companies that are involved in crypto‑asset‑related activities.
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Unregistered offerings of crypto assets that are securities or sold as securities may not provide key information that investors need to make informed decisions, and information that is provided might not be accurate. In addition, fraud and scams involving crypto assets are common.
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Information about crypto assets can come from many sources, some more reliable than others. Avoid investing based on social‑media posts, messages or videos, especially when they tout new crypto assets.
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Avoid investing based on FOMO—the fear of missing out.
Crypto assets are assets issued or transferred using distributed ledger technology (DLT) or blockchain technology. DLT allows for simultaneous access, validation and record updating of crypto‑asset transactions on a decentralized ledger maintained by peers on a network, with each peer holding a complete copy of the ledger. Blockchain technology is a peer‑to‑peer DLT that’s secured through cryptography. It’s append‑only and seeks to be immutable, meaning that the data and transactions can’t be deleted once added and can only be modified through agreement amongst peers (a function known as consensus).
Crypto assets can be exchanged for traditional currency (e.g., U.S. dollars) or other crypto assets at crypto‑asset trading platforms and other intermediaries (collectively “crypto‑asset service providers”).
Importantly, a particular crypto asset or crypto‑asset transaction may be a security, a commodity or another asset type (e.g., property) under applicable law. Many crypto assets lack, or are offered or sold in a manner that isn’t consistent with, the robust regulatory protections and market oversight that investors have under the federal securities laws. Whether a particular crypto asset or crypto‑asset transaction is a security depends upon whether it meets the definition of a security under federal securities laws. A number of tests and factors, such as the Howey Test and Reves Test, both based on court cases, may be used in evaluating what is and isn’t a security.
Crypto assets—as well as stocks, mutual funds and exchange‑traded funds (ETFs) that derive value from crypto assets—may present the potential for price appreciation. However, while all investments have some risk, crypto assets and crypto‑asset service providers carry both traditional investing risks and additional unique risks. You should understand these risks as you consider what, if any, investments in crypto assets might be appropriate for your investment plans.
Types of Crypto Assets You May Encounter
Native Crypto Assets
Native crypto assets (sometimes referred to as “coins”) belong to a specific blockchain. These assets might be perceived as a store of value secured through cryptography and depend on encryption used to store, verify, secure and pass information. Consequently, native crypto assets are sometimes called “cryptocurrency.”
While they share some similarities with traditional currencies (e.g., they can be a means of exchange and a store of value), native crypto assets aren’t issued by central banks and aren’t, except in a handful of smaller countries, designated by governments as legal tender. Their prices are highly volatile and often driven primarily by speculation.
Examples: bitcoin, ether.
Tokens
Tokens are developed on blockchains and depend on the blockchain for their operations. Tokens vary in purpose—some provide utility within a decentralized application (dApp), others grant governance rights or ownership interests. Unlike native crypto assets, multiple blockchains can support tokens.
The ERC‑20 token standard is commonly used on the ethereum blockchain and employs “smart contracts” (computer code that automates certain internal operations on a distributed ledger).
Categories of tokens
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Non‑Fungible Tokens (NFTs) – Unique crypto assets with distinct identification codes and metadata; cannot be exchanged on a one‑to‑one basis. NFTs can represent digital or real‑world assets (artwork, videos, music, gaming items). They may be offered as securities via fractional ownership, royalties, or ETPs.
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Uniqueness – Each NFT is distinct.
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Documentation of Control and Provenance – Can create digital certificates of ownership, though accuracy isn’t guaranteed.
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Linked Smart Contracts – May embed conditions such as royalty payments.
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Stablecoins – Crypto assets that attempt to maintain a stable value relative to a reference asset (e.g., U.S. dollar, gold, other crypto assets). Two main types: (1) backed by reserve assets, and (2) algorithmic. Risks include depegging, cybersecurity threats, and type‑specific vulnerabilities, which have led to the collapse of some stablecoins.
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Tokenized Securities – Traditional securities (stocks, bonds) issued or transferred on blockchains via tokenization. Tokenized securities can be:
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Issued and transferred on‑chain with the issuer maintaining the security‑holder registry, or
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Issued in traditional form, held by an intermediary that tokenizes them for blockchain transfer, recognizing token holders as beneficial owners.
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Crypto Asset Offerings – Coins or tokens offered to investors. In the U.S., if a coin or token is a security, it must be registered with the SEC or qualify for an exemption. Many offerings are not compliant, lacking prospectus‑style disclosures (financial statements, risk factors, officer information). Investors should review all offering materials and be wary of misleading or fraudulent information.
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Initial Coin Offering (ICO) – Direct sale of crypto assets to investors via a blockchain network.
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Initial Exchange Offering (IEO) – Similar to an ICO, but the assets are issued through a crypto‑asset service provider (exchange).
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Security Token Offering (STO) – Sale of a token disclosed as a security; must comply with securities laws.
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While some FINRA‑member broker‑dealers sell crypto assets that are securities, the vast majority of crypto‑asset offerings are not conducted by regulated entities. Most buying and selling of crypto assets occurs outside the protections provided by registered broker‑dealers and other SEC‑regulated institutions. Some broker‑dealers have relationships with affiliates or third parties that enable customers to buy, sell, and custody crypto assets, but those affiliates are not subject to the same comprehensive regulations.
How Crypto Assets Are Traded
Crypto‑asset service providers may:
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Allow users to trade certain crypto assets. These platforms act as intermediaries that enable trading, record ownership, and facilitate custody. Many are called “exchanges” but are not registered with the SEC and do not meet broker‑dealer or national securities‑exchange standards. Some operate as Money Services Businesses (MSBs) with anti‑money‑laundering obligations but no investor‑protection duties.
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Offer ICOs, IEOs, and STOs. Calendars of upcoming offerings may be provided; investors should read offering materials carefully and be aware that some information may be misleading or fraudulent.
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Offer interest or other monetary incentives to attract new customers and assets. Promotions vary; evaluate them carefully.
Crypto assets can also be purchased or traded person‑to‑person, through DeFi services, crypto kiosks, and specialized ATMs. Each mechanism carries its own risks (e.g., higher theft or fraud risk in peer‑to‑peer trades).
NFT marketplaces compete on fees, services (e.g., minting assistance), and content breadth. Exposure to the crypto‑asset sector can also be gained via ETFs, ETPs, or stocks of companies involved in crypto‑related activities (e.g., mining).
Stocks, ETFs, and other ETPs are securities regulated by the SEC; individuals who sell these products must be registered. FINRA BrokerCheck can be used to research investment professionals and firms.
Storing and Securing Crypto Assets
Crypto assets exist as entries on a blockchain ledger. Access and control rely on “private key encryption” schemes: each user has a private key (a secret password‑like string) and a corresponding public key. Storing and securing crypto assets essentially means protecting the private keys.
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Custodial solutions – A third‑party “custodian” stores private keys on the investor’s behalf.
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Self‑custody – Investors hold their own private keys.
Wallet technologies include:
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Software wallets – Programs on computers, smartphones, or tablets.
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Hardware wallets – Physical devices (e.g., USB‑like tokens) with built‑in security.
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Paper wallets – Printed private keys or QR codes.
Wallets can be hot (connected to the internet) or cold (offline).
Glossary
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Address – Alphanumeric string derived from a public key; used to send and receive crypto assets.
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Altcoin – Any crypto asset other than bitcoin.
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Blockchain – Distributed ledger maintained by network participants; uses cryptography to verify transactions.
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Centralized Network – Participants must communicate through a single central source.
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Cold Storage – Offline storage of private keys (e.g., on disconnected drives or paper).
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Crypto Asset – Any asset issued or transferred using DLT or blockchain technology.
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Crypto Asset Trading Platform – Intermediary that enables trading, ownership recording, and sometimes custody of crypto assets.
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Crypto Key – Information (usually a string) used in cryptographic algorithms to encode or decode data.
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Decentralized Autonomous Organization (DAO) – Virtual organization operating on a blockchain with automated governance.
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Decentralized Finance (DeFi) – Financial products and services that use DLT to operate without traditional intermediaries.
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Decentralized Application (dApp) – Application that runs on a distributed computing system.
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Distributed Ledger – Ledger spread across a network with each peer holding a copy.
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Distributed Network – Peer‑to‑peer network where participants communicate directly without a central hub.
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Exchange – Crypto‑asset trading platform that allows buying, selling, exchanging, and sometimes storing assets.
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Hot Storage – Online storage of private keys (e.g., desktop, mobile, or web wallets).
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Howey Test – Supreme Court test for determining whether a transaction is an “investment contract” (i.e., a security).
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Immutable – Data that can be written but not modified or deleted.
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Initial Coin Offering (ICO) – Direct sale of crypto assets to investors via a blockchain.
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Initial Exchange Offering (IEO) – Sale of crypto assets through a crypto‑asset service provider (exchange).
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Mining – Computational process that creates new coins and validates transactions.
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Money Services Business (MSB) – Entity that deals in currency exchange, money transmission, check cashing, etc.
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Non‑Fungible Tokens (NFTs) – Unique crypto assets with distinct identifiers; cannot be exchanged on a one‑to‑one basis.
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Private Key – Secret alphanumeric/hexadecimal string that controls crypto assets; never share it.
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Public Key – Alphanumeric/hexadecimal string used to verify signatures and generate addresses.
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Reves Test – Four‑factor test for determining whether a note is a security.
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Security Token Offering (STO) – Sale of a token disclosed as a security.
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Smart Contract – Self‑executing code on a blockchain that enforces contract terms.
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Stablecoin – Crypto asset claimed to be pegged to a stable reference (e.g., fiat currency, commodity).
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Traditional Currency – Government‑issued fiat money (e.g., U.S. dollar).
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Transaction Fee – Amount paid to process a blockchain transaction (e.g., “gas” on ethereum).
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Wallet – Tool for storing private keys; can provide hot or cold storage.
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White Paper – Document describing a blockchain project’s purpose, technology, and token economics.
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