ICOs – Initial Coin Offerings – are becoming the new vehicle for raising funds. It is truly revolutionizing the process of crowdfunding and is disrupting the traditional way of raising funds from a venture capitalist.
The concept of ICO has introduced to the world with the advent of Blockchain and the token economy just a few years ago.
Initial coin offering (ICO) is a controversial means of crowdfunding via the use of cryptocurrency, which can be a source of capital for startup companies. In an ICO, a percentage of the newly issued cryptocurrency/token is sold to investors in exchange for legal tender or other cryptocurrencies such as Bitcoin or Ethereum.
Early token sales were held by Mastercoin in July 2013 and Ethereum and Karmacoin in 2014, but “mainstream” ICOs began with messaging app developer Kik in September 2017.
For a more detailed understanding, read my post on ICOs.
ICOs are definitely a good tool or vehicle that open up the way for decentralized crowdfunding but it would be naive not to talk about its shortcoming and challenges.
Decentralized, as is the core nature of such ICOs, there are high chances that investors might lose their money to market reactions or a scam. However, it doesn’t imply that all ICOs are scams or will fail but believe me most of them are going to fail sometime in future.
Therefore, investors like us who are putting our BTC or ETH in such ICOs need to do it in a smart way. Follow these 5 tips for evaluating an ICO before investing in it.
5 Smart Tips For Investing In ICOs
1. Read the whitepaper and evaluate the use cases
Reading the whitepaper and evaluating the feasibility of the use case that the ICO team is claiming should be the first step.
It is always good if the project has an MVP ready but it won’t be the case always. Hence, it is best to thoroughly understand their concept and try to ask as many questions as you can.
Next, you can join their various social media channels like Reddit and Telegram to interact with the concerned teams and polish your findings quietly without making much noise in their group. This way you will get a good understanding of whether the project is worth looking into or just a money making scheme for them.
Once you have done all this and taken a feel of the project, search for potential competitors that the ICO project in question can have. Educate yourself further and frame a self-made case study comprising of all positive and negative aspects. I will tell you what to do with this study further in the article.
2. Find out everything about the project team
Thoroughly investigate their website to find out about the team members.
Check the LinkedIn, Twitter, Facebook and other profiles of the team members to confirm if they really exist. You can then verify each of the teammates via random google searches and also try to find relevant stuff on forums such as Bitcoin Talk and Reddit.
You need to do so in order to find out whether or not the project team members or founders have a questionable history.
I did the same thing when I was evaluating the CoinDash ICO and finally, after finding out about the founders, I decided not to participate.
You can also do so if you find anything questionable about their business or working history. Also, try to grasp the quality of the team to understand if they are a good fit for the project.
3. Watch their announcement on various forums
You must always keep an eye on their first announcement on various channels about their ICO.
You will mostly find such announcements on Bitcoin Talk Forum where a huge project thread will follow.
Try to read and gauge the sentiments of people in the thread and also note the behavior of the representative team member taking care of the thread.
Use that self-made case study and ask relevant questions on the forum. Also, see how different people and the team moderator of the project are reacting to those questions.
Are they proactive and interested? Are they dodging your questions? Have they banned you from asking questions?
If you are banned, congratulations! You have just saved yourself from a SCAM ICO. If not, continue the interaction.
Following these exercises, you will understand more about their project and will also clear your doubts.
4. Follow that particular field’s experts related to ICO
Also, follow expert people in the same field.
By the same field, I mean blockchain and the field in which the tech of blockchain is being applied.
For example, let’s suppose the ICO project is trying to solve some problem of supply chain management for seaports. In such a scenario, you should find an expert who has some knowledge of blockchain too!
You should follow such people to get their insights on the application part which will also enable you to judge if it really makes sense in applying this tech to that particular niche.
5. Understand their coin distribution matrix and total supply
Last but not least, understand the project’s token economics.
I believe huge coin supplies and huge pre-mines projects are usually questionable. However, you can dive deep to understand and analyze further.
But if their token supply is gargantuan and there is no market-model around it to really help it thrive, you should definitely think twice before investing in it.
Also, if their massive token supply is continuously inflating at a huge rate, I would recommend against it.
You should also check whether the coin supply is fixed. Understanding the sharing ratio and finding out where the control for the rest of the funds lies is also very important.
Questions like whether or not they are escrowed or secured in a multi-sig tech should also be fired at the real project owners to get more clarity.
Conclusion: Investing in ICOs
ICO scams are only increasing and the nature of these scams is also evolving.
Hence, it is highly recommended that one should not invest until one is sure. Not just that, one should also not invest more than what they are ready to lose.
Moreover, if you find anything unsatisfactory while analyzing an ICO based on the 5 pointers, I would recommend you stay away from it.
Some of you may brush it all away terming me too safe. But trust me when I say that things may go wrong despite following the aforementioned tips.
See the story of Tezos ICO– it raised approximately $232 million but the investors and stakeholders are in deep waters because it failed terribly despite a highly successful ICO and a good team.
I hope that gives you a better insight.
That’s all from our side in this article. We would love to hear from you in the comments section about the strategies that you follow before investing in an ICO.
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