ICO vs IEO vs STO (2025): What’s the Difference—and Which Fits Your Project?
Since 2017, token fundraising has evolved from wide-open ICOs to exchange-hosted IEOs and fully regulated STOs. This guide explains how each model works today, where they’re legal, the investor protections involved, and when you’d pick one over the other.
New to crypto? Start with our primer: How to get started in cryptocurrency and our explainer on what a stablecoin is.
ICO vs IEO vs STO: quick comparison
| Model | Who sells the tokens? | Typical buyer checks | Regulatory posture | Liquidity expectations | Best for |
|---|---|---|---|---|---|
| ICO (Initial Coin Offering) | Project team (direct on site / launchpad) | Varies widely; KYC/AML not guaranteed | Often pitched as “utility”; still subject to securities tests like Howey in the U.S. | High if listed; risk of never listing | Community-driven projects with credible utility and strong disclosures |
| IEO (Initial Exchange Offering) | Crypto exchange runs the sale and listing | Exchange KYC/AML; geo-blocking by jurisdiction | Exchange due-diligence + local promo rules (e.g., UK FCA promotions) | Usually lists day-one on the host exchange | Teams prioritizing immediate access to an exchange user base |
| STO (Security Token Offering) | Issuer or registered intermediary | Full KYC/AML; often limited to accredited/eligible investors | Treated as securities (e.g., Reg D/Reg S/Reg A+ in U.S.; MiCA/MiFID-adjacent in EU) | Lower early liquidity; trades on ATS/MTF venues where available | Asset-backed or revenue-share offerings needing legal certainty |
What is an ICO?
An Initial Coin Offering (ICO) sells a project’s native utility token directly to the public, usually before a full product launch. Investors typically use BTC/ETH or stablecoins to buy in. ICOs exploded in 2017–2018, then cooled as regulators clarified that many token sales meet the definition of a security under the U.S. Howey test and the SEC’s 2017 DAO Report interpretation.
Pros
- Fast to launch; global reach
- Community marketing (airdrops, allowlists) can accelerate traction
- Lower up-front platform fees than IEOs/STOs
Cons
- High compliance risk if the token functions like a security
- Buyer protections vary; fraud/scams historically common
- Listing risk—tokens may never achieve exchange liquidity
What is an IEO?
An Initial Exchange Offering (IEO) is a token sale hosted by a crypto exchange. The exchange manages KYC/AML, runs the crowdsale, and (usually) lists the token after the sale. This offers instant visibility and a built-in user base, but you pay listing/marketing fees and accept stricter checks. Regulators have warned that IEOs are not exempt from securities laws or advertising restrictions (e.g., the SEC’s investor alerts, UK FCA promotion rules). :contentReference[oaicite:1]{index=1}
Pros
- Immediate exchange listing and distribution
- Exchange due-diligence + standardized KYC/AML
- Higher trust for retail buyers vs. self-run ICO websites
Cons
- Higher costs and stricter eligibility
- Jurisdictional geo-blocks can shrink your audience
- You still face securities-law analysis in many countries
What is an STO?
A Security Token Offering (STO) sells securities in token form—equity, revenue share, debt, or asset-backed claims—recorded on a blockchain. In the U.S., STOs are issued under existing exemptions (e.g., Reg D/Reg S or Reg A+), while secondary trading typically occurs on registered alternative trading systems (ATS). The approach delivers legal clarity and investor protections at the cost of higher time and compliance. :contentReference[oaicite:2]{index=2}
Pros
- Strong investor protections; clear legal footing
- Works well for asset-backed or revenue-share models
- Institutional participation more feasible
Cons
- Higher legal/filing costs; longer timelines
- Early liquidity can be limited to compliant venues
- Cross-border sales are complex
Regulatory snapshot (2025)
- United States: Tokens that meet the Howey investment-contract test are securities; the SEC’s DAO Report set the tone in 2017. Issuers commonly use Reg D (accredited), Reg S (offshore), or Reg A+ (wider distribution) when structuring STOs. :contentReference[oaicite:3]{index=3}
- European Union: MiCA entered into force in 2023, with major provisions fully effective by late 2024, creating a harmonized regime for crypto-asset issuers and service providers (disclosures, authorization, market integrity). :contentReference[oaicite:4]{index=4}
- United Kingdom: Since Oct 2023, retail-facing crypto promotions must comply with FCA rules (authorized/registered firm, fair-clear-not-misleading). :contentReference[oaicite:5]{index=5}
- Global AML: FATF guidance (2021 update) covers VASP licensing, the “travel rule,” and risk-based controls for stablecoins and P2P transfers. :contentReference[oaicite:6]{index=6}
Note: Rules change fast. Founders should obtain counsel in each target jurisdiction before launching any sale.
Which one should you choose?
For founders
- High-utility consumer token, global community: Consider an IEO with strict disclosures and geo-compliance, or a launch under a compliant regime where applicable.
- Revenue share / equity / real-world assets: Choose an STO using Reg D + Reg S (U.S.) or equivalent. Plan for compliant secondary trading rather than immediate CEX hype.
- Earliest-stage concept without legal budget: Avoid public sales; build MVP, pursue grants or private SAFTs with accredited investors.
For investors
- Read the whitepaper + legal section. If “profits from efforts of others” is the pitch, treat it like a security.
- Verify jurisdictional eligibility and the promoter’s licensing status (FCA/SEC/ESMA portals where relevant). :contentReference[oaicite:7]{index=7}
- Watch custody and lockups; IEOs list fast but can have cliff unlock overhangs.
FAQ
Are IEOs “approved” by regulators because an exchange runs them?
No. Exchanges may do diligence, but sales can still be securities offerings or violate advertising rules. The SEC and FCA have both warned about this. :contentReference[oaicite:8]{index=8}
What changed in the EU with MiCA?
MiCA harmonizes rules across member states for issuers and crypto-asset service providers—covering disclosures, authorization, market abuse, and stablecoin classes. Rollout began in 2024 and is now broadly in force. :contentReference[oaicite:9]{index=9}
Are STOs only for accredited investors?
Not necessarily—Reg A+ (U.S.) allows broader participation with caps and disclosures, but it’s slower and more expensive to qualify. :contentReference[oaicite:10]{index=10}
Bottom line
ICOs maximize speed and community reach but carry the greatest compliance risk. IEOs add exchange diligence and day-one liquidity but remain subject to securities and advertising rules. STOs offer the cleanest legal path for asset-backed or revenue-sharing projects, trading near-term hype for long-term durability.
Going deeper? See our related guides on stablecoins and our hands-on smart-home coverage like the best smart thermostats—we love practical tech that actually helps people.
