The Growing Risk and Reward of ICOs in a Volatile Crypto Market

The crypto market's relentless volatility has intensified debates about the viability of investment vehicles like Initial Coin Offerings (ICOs) and venture capital (VC)-backed projects. While ICOs once promised explosive returns, their track record-marked by high failure rates and regulatory scrutiny-has cast doubt on their long-term appeal. Meanwhile, VC-backed crypto projects, though not immune to market turbulence, appear to offer a more structured path to value creation. This analysis evaluates the risks and rewards of ICOs in light of their performance against VC-backed projects, drawing on recent data to assess their role in a maturing crypto ecosystem.

The ICO Paradox: High Returns, Higher Risks

ICOs have historically been a double-edged sword. Between 2018 and 2022, over 80% of ICOs were scams or failed outright, with survival rates plummeting to 10% by 2022. Despite this, early token sales occasionally delivered staggering returns-averaging 179% in two weeks. However, these gains are increasingly overshadowed by systemic risks. For instance, in 2025, only 8% of 2017 ICOs reached exchange trading, underscoring the sector's fragility.

The allure of ICOs lies in their accessibility and potential for rapid capitalization, but these advantages come at a cost. Unlike VC-backed projects, ICOs often lack robust governance, regulatory alignment, and institutional oversight. As one report notes, "ICOs remain inherently high-risk, with historical data indicating that over half of ICO-funded projects fail to survive their first year" according to data. This volatility is compounded by the illiquidity of tokens and the absence of clear exit strategies for investors according to analysis.

VC-Backed Projects: A More Disciplined Approach

VC-backed crypto projects, by contrast, have demonstrated a more measured risk profile. While nearly half of all VC-backed crypto projects are still "dead" as of 2025, they benefit from structured due diligence, professional management, and alignment with market fundamentals. For example, Q3 2025 saw a $4.59 billion investment in crypto startups, with later-stage deals capturing 56% of capital. This shift toward mature projects reflects investor confidence in ventures with proven traction and scalable models.

VC-backed projects also exhibit better risk-adjusted returns. A 2018 vintage of blockchain-focused VC funds delivered a 39% internal rate of return (IRR) since inception according to reports, outperforming many ICOs. This is partly due to their focus on infrastructure, decentralized finance (DeFi), and real-world applications, which offer clearer paths to revenue and user retention according to insights. For instance, the investment in Binance by Abu Dhabi's MGX highlights institutional capital's growing appetite for infrastructure scalability.

Market Volatility: A Shared Challenge

Market volatility has amplified the challenges for both ICOs and VC-backed projects. In Q3 2025, Bitcoin's price dropped from $126,000 to $84,000, driven by Federal Reserve policy shifts and leveraged positions. This turbulence disproportionately impacted ICOs, which lack the liquidity and governance frameworks to weather sharp corrections. Meanwhile, VC-backed projects, though not immune, have shown resilience through diversified strategies and longer investment horizons.

The concentration of capital in later-stage deals-such as Revolut's $1 billion and Kraken's $500 million rounds-reflects a risk-averse approach according to research. Investors are prioritizing projects with defensible market positions and regulatory clarity, a trend reinforced by the passage of the GENIUS Act, which provided a stablecoin framework. This regulatory progress has spurred adoption by traditional financial institutions, further insulating VC-backed projects from market swings.

Survival Rates: A Stark Contrast

Survival rates underscore the stark divide between ICOs and VC-backed projects. During the 2023–2025 market downturn, eight prominent VC-backed crypto projects saw token prices plummet by over 90%, yet their underlying businesses often retained value due to institutional support. In contrast, ICOs faced near-total collapse, with 90% of projects failing within six months of launch. This disparity highlights the importance of governance and execution in sustaining value during crises.

VCs are also recalibrating their strategies. A 2025 study revealed that 77% of VC-backed crypto projects failed to generate $1,000 in monthly revenue, prompting a focus on fundamentals over hype. This shift aligns with broader market trends, as investors increasingly seek projects with real-world utility rather than speculative narratives according to analysis.

Conclusion: Navigating the ICO Dilemma

The crypto market's volatility has exposed the limitations of ICOs as investment vehicles. While they offer the potential for outsized returns, their high failure rates, regulatory ambiguity, and liquidity challenges make them unsuitable for risk-averse investors. VC-backed projects, though not without flaws, provide a more structured approach to capital allocation and risk mitigation. As the industry matures, the focus will likely shift toward institutional-grade innovations in DeFi, stablecoins, and blockchain infrastructure- sectors where VC-backed projects have already demonstrated resilience.

For investors, the lesson is clear: ICOs remain a high-risk, high-reward proposition, while VC-backed projects offer a more sustainable path to value creation in an increasingly regulated and competitive landscape.