Complete Guide to How Altcoins Are Made

This guide is part of the “Guide to Altcoins” series.

Every bull market in crypto has its initial spark. For Bitcoin, it was proving to the world digital money could work. For Ethereum, it was showing us that smart contracts could sustain a programmable economy. And for the thousands of other crypto projects, that spark was the initial coin offering or ICO. 

Once they caught on in 2013, ICOs became the best way for people to fund new crypto projects, fueling both incredible innovation and unbelievable scams. If you’ve ever wondered how altcoins are launched, or why ICOs make the headlines then this article is for you.

We’ll explain what an initial coin offering really is, walk you through the token launch process, go over tokenomics and legal basics, and finish by comparing the different token offerings that exist. 

What is an Initial Coin Offering?

Let’s take a closer look at what an ICO really is and why it became such a turning point in the crypto world.

The core concept: a crowdfunding platform

At its core, an initial coin offering is crypto’s version of crowdfunding. A project team creates a token and sells it to early supporters in exchange for established cryptocurrencies like Bitcoin or Ethereum. 

Instead of stock certificates, investors receive digital tokens, often built on the Ethereum blockchain using the ERC-20 standard. These tokens might represent access to a service, governance rights, or in some cases a share of revenue.

Unlike a stock market initial public offering (IPO), an ICO is not tied to equity ownership, and most operate without traditional financial oversight. This made ICOs explode in popularity all over the world. But global access is also extremely risky, since anyone could launch or buy into something with minimal barriers.

Coins vs. tokens 

One of the biggest sources of confusion is the difference between coins and tokens. A coin usually means a cryptocurrency with its own blockchain, such as Bitcoin or Ethereum. A token is built on top of an existing blockchain. 

Most ICOs involve the issuing of tokens, not coins, because it is easier and faster to create them using the standard ERC-20. So when we talk about an ICO, what you’ll typically see is a token sale, not the creation of a brand-new blockchain from scratch.

Launching an ICO step-by-step

Understanding how projects actually go from an idea into a token sale helps people evaluate them properly. Let’s go over the main stages of a typical token launch.

Step 1: The idea and the whitepaper

Every ICO starts with a vision, a great idea and a business plan. The team documents that vision in something called the whitepaper, which serves as both a pitch deck for investors and a technical manual. Strong whitepapers will include the following features:

• A good whitepaper should clearly explain the problem being solved and why it matters, describing the real-world issue or inefficiency in simple terms so readers understand the need.
  
• It should then outline the proposed solution and its technical architecture. The project needs to show how they plan to address the issue with enough technical detail to prove it is more than just an idea.
  
• The section on tokenomics needs to lay out the token supply, how tokens will be distributed, whether the team’s share is locked under a vesting schedule, and what practical use the tokens will have.
  
• A strong whitepaper also defines governance structures and roadmap milestones. It should explain how decisions will be made and highlight the major goals and product releases that are planned for the near future.
  
• Finally, it must unveil the founding team’s experience and credibility, showing who is behind the project, their background, and why they are capable of delivering on the vision.
  

The whitepaper is the first place you want to look when doing your own research on any potential crypto you may want to buy. If it lacks any detail or clarity, that’s usually a red flag.

One of the clearest examples of a poorly written whitepaper was BitConnect (2016–2018) that led to a disaster. BitConnect’s whitepaper was full of vague promises and lacked clear tokenomics, a roadmap, or a credible team, and the project eventually collapsed as one of the most notorious rug pulls in crypto history. Investors collectively lost an estimated 1–2 billion dollars as the token’s price collapsed from over $400 to just a few cents almost overnight.

Step 2: Token creation via smart contracts

Once the vision is set, the project creates the token. This is typically done with a smart contract, most commonly on the Ethereum blockchain. The smart contract handles all the technical aspects like token minting (creating), transferring, and very often token distribution to buyers during the sale itself.

Before the launch, responsible teams commission a token audit. Third-party auditors will review the contract code to catch any vulnerabilities like re-entrancy attacks or backdoors. Without this kind of audit conducted, any potential investors are going in blind. They risk losing their funds to exploits or hacks.

Step 3: Marketing, hype, and community building

As the old saying goes “If you build it, they won’t come unless you tell them about it.” No ICO can succeed in silence. Teams need to ramp up their marketing campaigns with polished websites, massive Twitter activity, Telegram & Discord channels, and any media coverage they can get. 

Some projects also run ICO whitelist programs, requiring participants to register early, complete KYC/AML checks, and secure a spot in the token sale. This both creates scarcity and keeps regulators slightly more comfortable.

The marketing push can generate real excitement, but what initially starts as genuine excitement from supporters can quickly spiral into hype. The problem with hype is that these inflated expectations rarely match the project’s actual stage of development, and when reality sets in, the community’s trust often collapses.

Step 4: The token sale event

The token sale itself usually happens in several phases:

1. Private sale. These are the allocations to accredited investors, venture funds, or strategic partners at discounted prices. They help finance the project, they buy a lot of tokens, they get a deal.
   
2. Pre-sale. This is the early access for the core community, often with bonuses for early participation.
   
3. Public sale. This is the main event where everyone else who registered can buy tokens.
   

Sales are typically capped. A soft cap vs hard cap system is common. The soft cap is the minimum amount of investment needed to move forward, while the hard cap is the maximum they can raise. If the soft cap isn’t met, the more responsible projects promise refunds.

How this happens technically is investors send ETH or another cryptocurrency to the ICO contract address and receive tokens in return automatically. Keep in mind some of the execution can get messy. Prepare for a gas fee spike, bots will sometimes front-run transactions, and if there’s an oversubscription that means many hopeful buyers never get in at the opening price.

Step 5: Post-ICO development and exchange listings

After raising funds, the real work begins. Teams must manage their war chest carefully with strong financial management.  They will be balancing fiat conversion, watching crypto reserves, and carefully monitoring development spending.

Investors usually look for two milestones specifically. Progress on the roadmap and the token’s exchange listing. Being listed on a major centralized exchange or added to a decentralized liquidity pool provides incredible benefits like liquidity and price discovery. Without getting listed, token holders may be stuck holding an illiquid asset.

The post-ICO phase is where many projects stumble. Without clear governance, transparent spending, and consistent progress updates, the early excitement quickly fades and token prices start to collapse.

The pros and cons of participating in ICOs

Now that we’ve walked through the mechanics, it’s worth looking at what made ICOs so powerful, and so controversial.

The advantages of ICOs

For founders, ICOs provided fast access to global capital without going through slow, restrictive venture capital channels. A token launch to support a business idea could be organized in months, not years. At the same time, ICOs create a personal community of token holders who have skin in the game and are motivated to promote the project.

For investors, ICOs offered a chance at making outsized returns by getting in at the ground level. Buying Ethereum at its ICO price of just 30 cents per token is a legendary example. 

Beyond potential profits, ICOs gave individuals around the world access to early stage projects that would have been usually limited to Silicon Valley insiders or firms off Wall Street.

The overwhelming risks and criticisms

The flip side is that ICOs became synonymous with risk. With little to no regulation, scams flourished. Fake teams copied whitepapers, ran flashy marketing campaigns, and disappeared with the money. Even legitimate projects failed, unable to deliver on ambitious roadmaps.

Price volatility is extreme. Tokens were often pumped after getting listed, then crashed as insiders dumped allocations. A lack of lockup periods or a loose vesting schedule was what made the selling pressure even worse.

This period reached its highest point in the 2017–2018 ICO bubble. During this time thousands of projects raised billions but only a fraction of them survived. Regulators worldwide cracked down on the industry, issuing fines and lawsuits. Thinking about it in hindsight, it seemed like it was a necessary reset at the time, but it left scars on many investors’ trust.

The evolution of fundraising

The ICO model proved that crypto crowdfunding could raise billions, but its flaws led to new approaches. Today, projects have several launch pads they can start from with improved trust, compliance, and fairness.

Initial exchange offerings

First we have an initial exchange offering (IEO). IEOs are when a token sale is run directly through a centralized exchange such as Binance or KuCoin. The exchange vets the project, handles KYC/AML procedures, and conducts the sale on its platform. This model adds credibility because investors trust the exchange to filter out scams.

For project developers, IEOs provide an instant exchange listing, guaranteed liquidity, and marketing exposure to the exchange’s user base. For investors, it reduces some of the risks, although exchange backing is no guarantee of success.

Initial DEX offerings

The initial DEX offering (IDO) launch model takes things a step further. Instead of relying on centralized platforms, tokens are listed directly on decentralized exchanges (DEX) like Uniswap or PancakeSwap. Investors swap ETH, BNB, or stablecoins for the new tokens through a smart contract.

The appeal of IDOs is immediate liquidity in a decentralized liquidity pool, open access, and fairer participation. But IDOs also come with some risks like higher chances of bots, price manipulation, and shallow liquidity.

Security token offerings

A security token offering, or STO, is a type of token sale that falls under the traditional securities laws because it is tied to real world assets. The tokens can represent assets such as company shares, debt, or even ownership in real estate. 

Participation is usually limited to accredited investors, and the compliance process makes these launches much slower and more expensive. The benefit of STOs is that they offer stronger investor protections and create a bridge between blockchain projects and the established financial markets.

The legal landscape

One of the main features of ICOs was their unregulated nature. That has since changed. Regulators now view many ICOs as offering securities, subject to laws like the U.S. Securities Act.

In the U.S., regulators often use something called the Howey Test to decide if a new token counts as a security. In simple terms, that means if people are putting money into a project mainly because they expect profits from what the team builds, that token should be treated like a stock. 

Regulators like the SEC in the U.S. apply the Howey Test to determine whether a token offering qualifies as a “security.” If a project promises profits, then the token may be deemed a security token. That brings it under securities laws, with strict compliance requirements.

Because of that, many crypto projects try to avoid promising profit or investment returns. Instead, they emphasize that their tokens are utility tokens or instruments meant to access or use a platform’s features (for example paying fees, voting in governance, unlocking services). The idea is that if a token is primarily a functional tool rather than an investment contract, it is less likely to be regulated as a security.

Jurisdictions, however, differ widely on this. Singapore and Switzerland have been friendlier to token launches, while in the U.S. and in China regulators have taken harder stances. Regardless of location, most serious projects now include risk disclosure statements, run KYC/AML checks, and avoid public sales to retail investors unless legally obligated to.

How to evaluate an ICO

For traders and investors, the key question now is how to identify innovation from disaster. Here is a due diligence checklist that can help:

1. Whitepaper quality – Are the whitepaper requirements we mentioned above met? Is it clear, detailed, and realistic?
   
2. Team transparency – Do the founders use real names and have verifiable experience?
   
3. Tokenomics – How is token distribution structured? Is there a vesting schedule in place that prevents early dumping?
   
4. Smart contract security – Was there a credible token audit by a well-known firm?
   
5. Governance and roadmap – Is there a clear governance model? Are roadmap milestones realistic and transparent?
   
6. Legal structure – Has the project addressed regulatory compliance? Are only accredited investors allowed?
   
7. Treasury management – How will funds be held, diversified, and spent? Is there a multi-signature control in place to prevent misuse?
   
8. Community and marketing – Is there genuine engagement, or just hype driven by influencers?
   
9. Listing plan – Is there a path to exchange listing or integration with a liquidity pool?
   
10. Risk disclosure – Has the project outlined potential risks, or is it too good to be true?
    

If a project fails to check several of these boxes, it’s a big red flag.

Lessons from past token launches

Looking back at some of the most famous token launches shows both the incredible potential of this model and the costly mistakes that shaped how new projects raise money today.

Ethereum’s ICO (2014) success story

Ethereum raised $18 million in its ICO by selling ETH tokens at about 30 cents. It delivered one of the most transformative platforms in blockchain history, proving to the world that ICOs could fuel real innovation.

The DAO (2016) cautionary tale

The DAO raised $150 million but suffered a major exploit in June 2016 due to a smart contract vulnerability. It forced an Ethereum hard fork and highlighted the importance of token audit processes and a security first design.

Cardano (2017), the slow and steady approach

Cardano raised about $62 million through a series of token sales. Its methodical, research-first roadmap took years to deliver results, but ADA has grown into one of the largest cryptocurrencies. Cardano’s story highlights how patience and clear governance structures can pay off over time.

BitConnect (2017), the rug pull

BitConnect promised guaranteed returns and operated like a Ponzi scheme. The marketing they used went on to be a meme. When it collapsed, investors lost billions. To this day it remains the textbook example of what a rug pull looks like.

Solana (2020), the speed play

Solana launched its token sale in 2020, raising over $20 million through private and public rounds. With its focus on high-speed transactions and low fees, it grew into one of the top layer-1 blockchains. Despite several network outages, Solana’s success shows us that a strong technical edge and exchange listings can turn a token launch into a thriving ecosystem.

These cases show both sides of the ICO era, massive potential paired with very high risk.

Which model is the best today?

Comparing between these fundraising models often helps investors and builders understand their benefits:

• Initial Coin Offering (ICO): Open to everyone, fast, but high risk. Has minimal oversight, maximum freedom.
  
• Initial Exchange Offering (IEO): Safer, thanks to being vetted by an exchange, has built-in KYC/AML, and instant exchange listing. Centralized.
  
• Initial DEX Offering (IDO): Decentralized exchange, transparent, with immediate liquidity pool creation. Risk of hacks and manipulation.
  
• Security Token Offering (STO): Fully regulated, targeted at accredited investors, legally safer but slower and costly.

Each approach reflects a balance of access, trust, and compliance.

The legacy and the future

The ICO boom reshaped crypto forever. It opened up investment opportunities to everyone, put tokenomics into mainstream conversation, and gave thousands of entrepreneurs a way to bypass traditional venture capital while fundraising. At the same time, it left people wary of scams, failed promises, and regulatory backlash.

Today, most projects opt for IEO and IDO models, in other cases regulated STOs are used in certain jurisdictions. The wild west days are mostly over, but the lessons remain. Always do your own research and never forget that token sales are speculative in nature.

In the future, new tokens might be launched directly by DAOs (community-run organizations), issued gradually over time instead of in one big sale, or even managed with the help of AI tools. The one thing they all have in common is that crypto makes it easier for anyone to take part, but investors still need to be careful and do their research.

The lasting impact of ICOs

The initial coin offering was both a financial revolution and a lesson for the crypto community. It proved that decentralized fundraising could scale globally, but it also proved that without safeguards, chaos will follow.

If you’re exploring how to launch an altcoin or considering investing in one, study the whitepaper, confirm the token audit, check the vesting schedule, and run through our due diligence checklist before committing.

The ICO may no longer be the dominant model, but the core idea lives on in IEOs, IDOs, and STOs. Crypto will continue to invent new ways to distribute ownership, innovate funding, and test governance. Token launches will keep evolving, but the rule of thumb remains the same – projects must deliver real value, and investors must approach every opportunity if the criteria for a good project is met.

Below is a quick comparison going through all the initial crypto offerings:

Crypto offerings comparison table

Type	Who runs the sale	Regulation	Access	Liquidity	Pros	Cons
ICO (Initial Coin Offering)	Project team directly	Minimal to none	Global, open	Delayed until exchange listing	Fast, open to anyone	High scam risk, no oversight, rug pull potential
IEO (Initial Exchange Offering)	Centralized exchange (IEO launchpad)	Moderate, KYC/AML	Limited to exchange users	Immediate on listing	Trusted brand, built-in user base	Centralized control, exchange fees
IDO (Initial DEX Offering)	Decentralized exchange (DEX)	Low to moderate, code-based fairness	Open to all with wallet access	Immediate via liquidity pool	Decentralized, fast liquidity	Bot manipulation, shallow pools, volatile prices
STO (Security Token Offering)	Regulated entity under securities law	High, full compliance	Restricted to accredited investors	Varies by jurisdiction	Legal protection, ties to real assets	Costly, slow, limited participation

Fig. 1 – Comparison graph of initial crypto offerings

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