Observing the Evolution of Token Issuance Mechanisms from Crypto VC Perspectives
In the past two years, the investment ecology of the primary market in Crypto has undergone profound changes. From the explosive wave of ICOs ignited in 2017 to the dominance of various IDO tools and community-led narratives in 2025, we are witnessing not just the evolution of issuance mechanisms, but a historical shift in the power center from VCs and exchanges gradually moving towards communities and users.
In this process of power redistribution, the role of Crypto VCs has changed dramatically, and the logic of value capture for tokens is shifting from traditional profit-sharing to models such as Buyback & Burn, which incorporate more endogenous compounding mechanisms.
The Four Stages of Token Issuance Evolution
The token issuance mechanism has evolved from ICO, STO, IEO to IDO, with each stage representing different responses from the crypto industry to the tension between “efficiency, compliance, and decentralization.”
ICO (Initial Coin Offering) is the epitome of efficiency, where any team with a white paper and token contract can initiate fundraising globally. However, this lack of barriers and regulation ultimately led to a fraud rate as high as 80%, becoming the trigger for the bear market in 2018.
STO (Security Token Offering), as a response to the chaotic state of ICOs, represents the ultimate in regulation and compliance. By adhering to securities laws, STO attempts to integrate on-chain assets into the traditional financial system, boasting high legality and best survival rates. However, high legal costs and liquidity scarcity have prevented its widespread adoption.
IEO (Initial Exchange Offering) subsequently emerged, with centralized exchanges playing a gatekeeping role, providing token audits and liquidity support, thus enhancing overall project quality and reducing fraud rates to 5-10%. However, this also led to an excessive concentration of power in exchanges, gradually stripping project teams and VCs of their token issuance dominance.
The emergence of IDO (Initial DEX Offering) marks a resurgence of decentralization. Projects can freely issue tokens on DEX platforms, with tools like Pump.fun and Hyperliquid further lowering technical and cost barriers, turning token issuance into a popular creative act. The community has become a new valuation subject, but this also brings more market noise and investment risks.
The development of these four stages reflects different answers from the crypto market to three major questions: “Who has the right to issue tokens? Who has the right to price them? Who can exit?”
The Essential Differences Between IEO and IDO
IEO and IDO are two extreme paths of issuance. One emphasizes centralized scrutiny and liquidity quality assurance, while the other pursues openness and permissionlessness. IEO is suitable for highly compliant, institutionally preferred projects, whereas IDO has become an incubator for community culture experiments, creative currencies, and extreme narratives.
For instance, Hyperliquid adopts a Dutch auction combined with a bottom price linear decline model to establish a more transparent price discovery mechanism for token issuance; Pump.fun breaks all barriers, allowing anyone to issue tokens on Solana with a single click. This extreme openness, while fraught with risks, is also the core driving force behind community participation and creativity.
IEO represents a highly institutionalized capital process, with exchanges replacing traditional investment banks. Projects must undergo strict reviews, incur high costs, and accept lock-up arrangements to gain platform liquidity and market endorsement. This is a necessary path for projects aiming for long-term operations and serving institutional clients, allowing VCs to obtain a relatively controllable exit mechanism.
The Dual-Track and Integration of Issuance Mechanisms
Starting in 2025, more and more projects are no longer choosing a single path but adopting a dual-track parallel strategy. On one hand, they conduct public auctions or initial liquidity builds through platforms like Hyperliquid, allowing communities to participate in early pricing and governance. On the other hand, after establishing a preliminary market base and revenue model, they move towards listings on centralized exchanges or traditional capital markets (such as SPAC or Hong Kong stocks).
This model is similar to the phased financing process of traditional startups from seed rounds, A rounds, B rounds to IPOs, except that crypto projects have pre-empted and on-chained some capital market activities while incorporating community co-governance elements. Small creative projects choose IDO to quickly test narratives and community dynamics, while larger compliant projects opt for IEO or STO to connect with institutional capital and legal frameworks. Future issuance paths will be more “modular” rather than adopting a single model.
From Profit Sharing to Buyback & Burn
Traditional protocols often choose to distribute ETH or USDC directly to governance token holders to demonstrate what is called “real yield.” However, this mechanism often creates an invisible capital siphon, allowing insiders or large holders to quietly exit without impacting the market.
Hyperliquid adopts a different approach: the protocol automatically uses its revenue to buy back $HYPE from the market and burn it. This not only creates endogenous supply and demand pressure but also automates the value reinjection process, allowing token holders to benefit from price increases without relying on dividends. This Buyback & Burn mechanism effectively improves the capital efficiency of tokens and is fairer to all holders.
More importantly, it imposes substantial restrictions on insiders: if the foundation wants to cash out, it must do so through the public market, bearing reputational costs and exposing itself to market price volatility risks.
The Reshaping of Crypto VC Roles
Crypto VCs are gradually shifting from the role of “leading token issuance” to becoming co-creators in “assisting community building and liquidity design.”
First is the shift in investment strategies. VCs no longer simply bet on narratives or the pathways of exchanges but return to the essence of assets, focusing on whether protocols possess long-term value capture capabilities, including revenue models, capital structures, community strength, and token economic design.
Secondly, there is a diversification of exit strategies. In the context of declining influence from exchanges and converging market capitalizations, VCs are starting to seek ways to initiate liquidity through DEX, issue convertible bonds, or list via SPAC to reduce reliance on a single exchange.
Ultimately, it is about co-building with the community. A new generation of high-quality projects retains the vast majority of tokens for the community and future incentives, rather than distributing them to VCs and foundations. If VCs want to enter, they must contribute value in terms of incentive model design, governance participation, and business development; otherwise, they will be seen as mere arbitrageurs and excluded.
Stages
Main Body
Core Selling Points
ICO (2016-2018)
Project Parties
Zero barriers, global fundraising
STO (2018-)
Regulatory Authorities
Compliance securitization, highest survival rate
IEO (2019-2022)
Centralized Exchanges
Platform review + liquidity
IDO (2021-)
Decentralized Community
No permission needed, instant launch
The evolution of token issuance is not merely an update of financial tools but a reconstruction of the entire logic of capital markets. From the anarchic experiments of ICOs, to the institutional responses of STOs, to the review systems of IEOs and the community autonomy of IDOs, the crypto industry is on a path of capital evolution that is “user-driven and market-validated.” VCs are no longer the sole capital providers but one of many value participants.
In this new order, projects that can truly go far will be those that can integrate openness and governance, security and liquidity, community participation and capital responsibility. Future token issuance will not be as simple as issuing a coin but issuing an ecosystem, a consensus body — also a reimagination of the operational mechanisms of the capital world.