Any small investor who cannot become accredited investor is not allowed to invest into private securities.
https://en.wikipedia.org/wiki/Accredited_investor
Also small investors have difficulty participating in IPOs.
https://www.sec.gov/fast-answers/answersipodiffhtm.html
So businesses cannot raise capital from small investors without registering with government as public offering of securities.
Registering with government as public offering is hard and undesirable for small startups and is hard for small people to participate.
So they resort to their last option - issue tokens that have 0 guarantees of return, which makes them non-securities, and let investors take risks donating their money hoping for returns. This is how ICOs were born and became popular.
The reason why there are so many scams is that small investors cannot distinguish a scam ICO from a good ICO because none of them give any guarantees. Normally, in a free world, scams would not do contractual promises as freely as honest startups, which would make it much easier for public to find good startups and for law enforcement to extinguish scammers, especially those who decided to do contractual promise to deliver something in exchange for investment.
Public should be aware of this and put pressure on regulators to do at least one of the following:
- allow small investors to invest into any private or public offering
- stop considering crypto tokens as securities
- decrease burden of registration and relax requirements for a legal IPO
It's time to abolish securities laws that help rich become richer and force poor to risk their money investing into tokens with zero contractual guarantees, feeding scammers. Regulators need to do more about how to enforce contracts rather than how to prevent people from entering into contracts.