At TokenOps, we closely follow discussions on token funding models since we serve projects from various funding backgrounds who need to manage their token distributions effectively. 

The recent debate between Matt O'Connor of Legion and Haseeb Qureshi of Dragonfly at ETH Denver 2025 provided valuable insights into the evolving landscape of crypto project funding.

The debate, moderated by Ashley Stanhope from Hardfork Media, revealed deep insights into the evolving landscape of crypto project funding.

The Case for ICOs: Community and Democratization

Matt O'Connor, co-founder of ICO platform Legion, argued that while most ICOs have indeed gone to zero, the same fate befalls most VC-funded projects.

His argument centered on two key pillars: incentives and community.

Incentives

O'Connor highlighted the misalignment of incentives in the VC model, pointing to the "2 and 20" fee structure where VCs earn 2% management fees regardless of performance. This creates pressure to demonstrate paper gains through high fully-diluted valuation (FDV) launches, potentially at the expense of long-term project success.

He argued that these launches are problematic because VCs become the only initial token holders, limiting access for average blockchain users.

Community Power

The Legion founder emphasized that ICOs create widespread token distribution, fostering a diverse ecosystem of supporters. 

As pointed out in his Tokenomics guide, a thoughtful token distribution to all contributors in an open-source tech field like crypto is essential as one of the only ways to create and solidify a project's network effect.

He stated that no VC can replace thousands of different token holders, node operators, and actual end users supporting a project with skin in the game.

O'Connor pointed to the top cryptocurrencies by market cap, noting that nine out of the top ten conducted public funding or raised no VC funding at all.

The Case for VCs: Expertise and Support

Haseeb Qureshi, managing partner at Dragonfly, countered by recalling the ICO bubble of 2017-2018 as an era filled with scams targeting retail investors.

Why Founders Choose VCs

Qureshi framed his argument around the practical value VCs provide to early-stage founders, asking whether a seed-stage founder would prefer to raise from "10,000 randos on the internet" or from VCs who can actually help.

He outlined specific benefits VCs provide beyond capital:

• Help with hiring

• Building partnerships

• Business development

• Product refinement

• Marketing strategy

The Signal Value

Qureshi emphasized that VCs serve as important signals in the market, helping retail investors make decisions without having to deeply research every project. 

VCs specialize in evaluating early-stage projects with limited information, providing a valuable service that retail investors typically cannot match.

He noted that even Legion itself raised from VCs, and most projects listed on ICO platforms already have VC backing, demonstrating the market's natural preference for VC validation.

The Rebuttal Round: Key Counterarguments

After their opening statements, both speakers had three minutes each to directly challenge each other's positions, creating one of the most dynamic segments of the debate.

Matt O'Connor's Rebuttal

O'Connor challenged the "gatekeeping" attitude of VCs, arguing that the decline in ICOs was primarily due to regulatory clampdowns that had "largely strangled public sales" rather than inherent flaws. 

He noted that the regulatory landscape is evolving with MiCA in Europe and potential SEC changes in the US, potentially making ICOs viable again.

He emphasized that alternative quality control mechanisms exist, including algorithms that can "extract expert opinion from wisdom of the crowds." 

O'Connor stressed that ICOs can be customized to project goals (like "vesting length auctions"), while VC incentives remain rigid due to their "2 and 20" fee structure.

In his view, individual ICO investors have incentives directly aligned with project success, unlike VCs who may prioritize paper gains.

Haseeb Qureshi's Rebuttal

Qureshi began by pointing out that Legion itself raised from VCs rather than conducting an ICO, questioning why they didn't follow their own advice. 

He challenged O'Connor's historical claims as "revisionist history," stating that "every single one of the projects mentioned (Avalanche, Chainlink, Cardano, Solana, XRP, BNB) raised VC money first before doing their ICO."

He emphasized that retail investors lack time for thorough research, so they rely on VC backing as a quality signal. 

Qureshi defined VCs as "specialists in underwriting projects with limited public information," solving the discovery problem for retail investors. He argued that the free market consistently chooses VC funding for early-stage projects because founders find value in what VCs offer beyond capital.

The Verdict

In a dramatic conclusion, the audience vote shifted from 57% favoring ICOs before the debate to 51% supporting VC funding afterward: a narrow victory for Qureshi and the VC position.

The Evolution of ICOs in 2025

While the debate showed the strengths of both funding approaches, it's worth noting that ICOs themselves are evolving significantly in 2025. 

Legion, co-founded by debate participant Matt O'Connor, represents one of the cutting-edge companies working to address the historical weaknesses of ICOs while preserving their community-building benefits. 

As Matt stated in his Tokenomics Guide, modern token distributions have moved beyond simple fundraising to become sophisticated coordination mechanisms.

The new generation of ICO platforms is transforming the landscape in several key ways:

• Merit-based systems: Legion has developed a reputation-based scoring system that tracks users' on-chain and off-chain activity to evaluate potential value they could bring to projects, moving beyond the "first-come, first-served" model of early ICOs.

• Regulatory compliance: New platforms are designed to operate within frameworks like the EU's Markets in Crypto-Assets Regulation (MiCA), providing clear legal pathways for token sales.

• Customizable mechanisms: Modern ICO platforms allow projects to tailor their token distribution based on specific objectives, including vesting length auctions that attract long-term holders.

• Anti-Sybil measures: Advanced algorithms help prevent bot activity and ensure allocations go to genuine community members rather than speculators.

• Enhanced transparency: Improved disclosure requirements and standardized information help investors make more informed decisions.

Key Takeaways from this discussion

1. Hybrid Approaches Win: 

The most successful projects often combine strategic VC backing with thoughtful public distribution.

2. Stage-Appropriate Funding: 

VCs may be more valuable at the earliest stages, while public sales become important for community building later.

3. Incentive Alignment: 

Projects need to carefully design token distribution to align incentives across all stakeholders as flawed tokenomics can doom valuable projects, as pointed out by Matt in one of his Tokenomics guides.

4. Regulatory Evolution: 

Changing regulations in major markets may open new possibilities for public token sales.

5. Distribution Matters: 

Regardless of funding source, how tokens are distributed ultimately shapes a project's community and success.