As said above, high liquidity has pros, but also many cons. Many tokens issued during ICOs will only be exchangeable on (relatively small) DEX’s (decentralized exchanges) for the first couple of months, and sometimes for the first couple of years. These DEX’s provide the project teams with the ability to (secretly) sell the tokens of the project thus ‘leaving’ the project before anyone else notices.
There have been plenty of debates about how to regulate ICOs, but so far no proper universal measures have been taken, making ICOs prime territory for scammers. Since most countries have dealt with ICOs in their own way, it is difficult to conduct an ICO that is fully compliant with the rules in all countries which is why the legality of many ICOs is often questioned.
Scams and poor projects
IPOs are usually only accessible to a small, certain group of people. These people are usually seasoned investors who know which things to look for in new projects.
There are going be lots of great investment opportunities, but with that will come lots of scams. This is not kindergarten, there is no teacher to run to when you get in trouble. -Sharif Bouktila, Stop The Maddness
ICOs however, are accessible to anyone and easy to conduct, meaning almost everyone can conduct an ICO with ease. This has lead to an abundance of funds ending up in the hands of inexperienced, undeserving project teams, or even worse, scammers.
ICOs are very risky, speculative investments, with often nothing more than a whitepaper and a common believe that the project will succeed to keep the price of the token stable. More than 90% of all startups fail, and blockchain startups are by no means an exception to this rule.
While some ICOs are insanely successful and get hundreds of millions of dollars, most successfully conducted ICOs get much smaller amounts of money. Making it ‘easy’ for certain people hold significant percentages of the token supply, which they can then abuse to manipulate the market, through insider trading for example. Due to the lack of proper regulation it’s also relatively easy to get away with such malpractices.