As recently as this past spring, Simon Yu was your quintessential tech startup founder. He was a few years past his graduation from University of Washington, hustling for funds among venture capitalists and angels, skipping meals, and running a side hustle to pay the bills — in his case, a Korean fusion food truck and catering business in Seattle, Bomba Fusion.

This month, Yu and his start-up company — formerly named CakeCodes, recently rebranded as StormX — are a hot commodity. Venture capitalists that turned him down in the past are reaching out, he says, asking for a chance to invest. Early presale backers committed $16.5 million this summer, he says, and he expects an additional $20 million or so will be raised during November.

The secret: Yu has tapped into the frenzy around initial coin offerings, or ICOs.

While they’ve been around for years, ICOs are a controversial subject in the financial world this year, as cryptocurrency values shoot through the roof and mainstream investors start to take notice. Described as a mix between the crowdfunding of Kickstarter and issuing shares on a stock market, they are increasingly used to fund companies in the fast-growing world of blockchains, as an alternative to traditional fundraising routes.

Yu’s coin offering, titled “STORM Token,” goes on sale to the public today, and is meant to finance his company’s expansion. He spoke to GeekWire from the Cayman Islands, where he says his company is established so it can “have global IP.”

“On Kickstarter, you have all these backers for a new shoe that’s about to come out, and it helps them develop the shoe,” says Yu. “You can think about (ICOs) in a similar way. You help a product grow, and at the end of it, you get these tokens, which are like the shoe or product itself.”

But this doesn’t quite explain why Wikipedia founder Jimmy Wales calls the ICO space full of “absolute scams,” why China and South Korea banned them altogether in September, and why the Securities and Exchange Commission began to prosecute some ICOs in October, and has issued warnings to potential investors.

It also doesn’t explain why celebrities like Floyd Mayweather and Paris Hilton are promoting them, and why startups have used ICOs to raise over $3 billion this year.

What kind of companies are ICOs funding?

There is a wide range of startups attempting to use ICOs to fund their ideas, tied to everything from marijuana to cloud storage. Most share one claim in common: they are proposing to use blockchain technology to revolutionize a specific sector of the economy, whether it’s the medical industry, banking, or virtual reality.

Cryptocurrencies like bitcoin use the blockchain as a distributed ledger, in which records of all transactions are public, and stored on many computers instead of a central place.

Skepticism rages over the value of cryptocurrencies like Bitcoin and Ethereum — JPMorgan CEO Jamie Dimon recently called them “a fraud” — but the conventional business community is starting to warm up to blockchain technology.

By decentralizing things, many industries now believe the technology could be used to make their processes cheaper and more efficient — wire transfers of money, for example. Advocates believe blockchain could revolutionize the economy eventually, and create what Yu calls an “Internet 2.0.”

Daniel Li, senior associate at Seattle-based venture capital firm Madrona Venture Group, said, “We are very optimistic about applications of distributed ledger technologies that obviate the need for intermediaries and/or create more efficient markets.”

Mainstream investors like Madrona have been largely hesitant to dive into the world of cryptocurrency, which can be complicated to understand, and still carries cultural connections to drug dealers, contract killers, and hackers. ICOs, therefore, have been used to finance companies that swim in those waters.

When most ICOs are announced, the company also provides a “white paper” to describe in technical detail what it will attempt to do with blockchain technology. Unlike a traditional IPO, in which many regulatory hurdles must be cleared, there is very little a company is expected to do, beside set up a website and ask for investment. Many times, even the white paper is a rushed, copy-and-paste job full of jargon.

Compared to the companies that engage in traditional stock offerings, the ICO market is the Wild West.

What are ICOs actually selling?

The idea behind ICOs is they’re selling you a stake in a company, or access to a service. You give them money or a more mainstream cryptocurrency like bitcoin, and the company gives you digital tokens in return. When the company or service rolls out, you use your tokens for it. As on Kickstarter or the stock market, you hope to get in at an early discounted rate, and the tokens become more valuable or costly after the ICO.

But in a market in which bitcoin has shot up by several thousand percent in just the last year, the froth is building. For many buyers, ICOs simply represent a speculative investment, a form of lottery ticket.

While many people may believe in the service or company that the ICO is based around, more are likely hoping their participation in the ICO represents a winning get-rich-quick scheme. Because of that, the lack of regulation, and the exploding interest in cryptocurrencies, ICOs are attracting a lot of amateur investors and companies who are easy prey for scammers and hackers.

“We would warn the average retail investor that is trying to profit from ICOs that buying tokens in an ICO is not like buying stock in an IPO,” says Li. “Companies raising ICOs are still very early stage – they are experimenting with not only new technology and business models, but also new funding models, and the degree of difficulty and likelihood of failure will be even higher than for traditional startup investments.

Or as Jackson Palmer, the creator of the Dogecoin currency, told Wired magazine in September, “People are worried they won’t get in before the whole thing implodes. So projects are rushing to get their thing out the door and collect funds before the market has some sort of correction. There isn’t a lot of due diligence being done and there will be a breaking point.”

How risky is ICO investment?

Combine the unregulated nature of the ICO market — which does not provide protection to investors — with the fact hackers regularly pull heists of millions in untraceable cryptocurrency, and you’ve got a perfect storm of scam conditions. There are numerous examples of hackers syphoning millions from both investors and companies during ICOs, and as the craze continues, they’ll undoubtedly continue.

There are also signs that authorities are beginning to crack down. In early October, the SEC announced for the first time that it would prosecute two ICOs, essentially for being sold under fraudulent claims. In addition to China and South Korea’s ban, other countries are starting to impose restrictions, such as Britain and Canada.

If you look at the number of companies (offering ICOs), it’s definitely oversaturated. There is a lot of companies, and there’ll probably be more, but only the best will survive.

As for Yu, he supports additional regulation, in hopes that the crypto market might move further toward into legitimacy. Compared to many other offerings, Yu’s STORM Token ICO could be seen as a sort of mainstream crypto offering, though Chief Operating Officer Arry Yu is insistent that it not be called an “investment,” preferring the word “experience.”

Formerly known as CakeCodes, now rebranded as StormX, the company rewards users cryptocurrency to try services from its sponsors, including Uber, Hulu, Dollar Shave Club, and Blue Apron. The company claims 250,000 users in 187 countries, and has been working with blockchain technology for years.

The STORM Token ICO is to finance plans to eventually also reward users to watch certain videos or perform small jobs from a blockchained database of “gigs,” similar to TaskRabbit or Fivver.

Simon Yu admits that his company is competing on risky terrain, however. Beyond attacks by hackers, he says eight out of 10 ICOs don’t hit their token sales goal, and their companies therefore lose money. STORM Token originally planned to sell $43 million worth of tokens during their crowdsale, which they scaled down to $20 million worth this month.

“If you look at the number of companies (offering ICOs), it’s definitely oversaturated,” says Yu. “But at the same time, what tech (space) isn’t? … It’s becoming similar to the traditional tech base. There is a lot of companies, and there’ll probably be more, but only the best will survive.”