[Perspective] A Comprehensive Analysis of Token Issuance in the Cryptocurrency Sphere: From the “Wild Era” to “Community-Centric” Approaches, How Have Token Issuance Mechanisms Changed?

Observing the Evolution of Token Issuance Mechanisms from the Perspective of Crypto VC

In the past two years, the crypto investment ecosystem in the primary market has undergone profound changes. From the frenzy of coin offerings ignited by the ICO boom in 2017 to the dominance of various IDO tools and community-led narratives by 2025, we are witnessing not only the evolution of issuance mechanisms but also the historical shift of power from VCs and exchanges to communities and users.

During this process of power redistribution, the role of Crypto VCs has dramatically changed, with the logic of token value capture shifting from traditional profit-sharing models to more intrinsic compounding mechanisms such as Buyback & Burn.

The Four-Stage Evolution of Token Issuance

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, allowing any team to initiate fundraising globally with just a white paper and token contract. However, this lack of barriers and oversight ultimately led to a fraud rate as high as 80%, triggering the bear market in 2018.

STO (Security Token Offering) emerged as a response to the chaotic state of ICOs, representing the ultimate in regulation and compliance. By adhering to securities laws, STOs attempt to integrate on-chain assets into the traditional financial system, ensuring high legitimacy and survival rates. Yet, the high legal costs and liquidity scarcity have prevented widespread adoption.

IEO (Initial Exchange Offering) subsequently arose, with centralized exchanges taking on the role of gatekeepers, providing token audits and liquidity support, thereby enhancing project quality and reducing the fraud rate to 5-10%. However, this also led to an excessive concentration of power within exchanges, gradually stripping project teams and VCs of their token issuance dominance.

The emergence of IDO (Initial DEX Offering) marks a resurgence of decentralized spirit. Projects can freely issue tokens on DEX platforms, and tools like Pump.fun and Hyperliquid further lower the technical and cost barriers, transforming token issuance into a popular creative activity. Communities become the new valuation entities, but this also brings more market noise and investment risks.

The development across these four stages reflects the crypto market’s varying answers to the three key questions of “who has the right to issue tokens, who determines pricing, and who can exit.”

The Fundamental Differences Between IEO and IDO

IEO and IDO represent two extreme paths of issuance. One emphasizes centralized scrutiny and quality assurance of liquidity, while the other pursues openness and permissionlessness. IEOs are suitable for highly compliant, institutionally preferred projects, whereas IDOs serve as incubators for community culture experiments, creative currencies, and extreme narratives.

For example, Hyperliquid employs a Dutch auction combined with a downward linear price model to establish a more transparent price discovery mechanism for token issuance; meanwhile, Pump.fun breaks down all barriers, allowing anyone to issue tokens on Solana with just one click. This extreme openness, while fraught with risks, is the core driving force behind community participation and creativity.

IEOs, on the other hand, represent a highly institutionalized capital process, with exchanges replacing traditional investment banks. Projects must undergo rigorous vetting, 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 operation and institutional client service, allowing VCs to attain a relatively controllable exit mechanism.

Dual-Track and Integration of Issuance Mechanisms

Starting in 2025, an increasing number of projects have shifted away from choosing a single path, opting instead for a dual-track parallel strategy. On one hand, they engage in public auctions or initial liquidity construction through platforms like Hyperliquid, enabling community participation in early pricing and governance; on the other hand, once projects have a preliminary market foundation and revenue model, they may pursue listings on centralized exchanges or traditional capital markets (e.g., SPACs or Hong Kong stocks).

This model resembles the phased financing process of traditional startups from seed rounds, A rounds, B rounds to IPOs, except that crypto projects preemptively and on-chain certain capital market activities while incorporating elements of community co-governance. Small creative projects choosing IDOs aim to swiftly test narratives and community dynamics, whereas large compliant projects opting for IEOs or STOs seek alignment with institutional capital and legal frameworks. Future issuance paths will trend towards “modularity” rather than 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 so-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 takes a different approach: the protocol automatically uses revenue for market buybacks of $HYPE and burns them. This not only creates intrinsic supply-demand pressure but also automates the value recapture process, enabling token holders to benefit from price appreciation without relying on dividends. This Buyback & Burn mechanism effectively enhances token capital efficiency and is fairer to all holders.

More importantly, it imposes substantial restrictions on insiders: if the foundation wishes to cash out, it must do so through the public market, incurring reputational costs and exposing itself to market price fluctuations.

Reshaping the Role of Crypto VC

Crypto VCs are gradually transitioning from a role of “leading token issuance” to that of a co-creator who “assists in community building and liquidity design.”

First, there is a shift in investment strategy. VCs are no longer merely betting on narratives or exchange listing paths but are returning to the essence of assets, emphasizing whether protocols possess long-term value capture capabilities, including revenue models, capital structures, community strength, and token economic design.

Second, there is a diversification of exit strategies. Amid declining influence of exchanges and convergence of market capitalization, VCs are beginning to seek liquidity initiation via DEXs, issuing convertible bonds, and going public via SPACs, thereby reducing reliance on any single exchange.

Ultimately, this involves co-construction with the community. The new generation of quality projects tends to retain the vast majority of tokens for the community and future incentives rather than allocating them to VCs and foundations. For VCs to participate, they must contribute value in areas such as incentive model design, governance participation, and business development; otherwise, they will be viewed as mere arbitrageurs and excluded.

Stages, Subjects, and Core Selling Points

The evolution of token issuance is not merely an update of financial instruments but a reconstruction of the entire logic of the capital market. From the anarchic experiments of ICOs, to the institutional responses of STOs, to the vetting systems of IEOs and the community self-governance 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, the projects that can truly go far will be those that integrate openness with governance, security with liquidity, and community participation with capital responsibility. The future of token issuance is not just about issuing a coin, but about creating an ecosystem, a consensus entity—also a reimagination of how the capital world operates.