As you all have known by now, ICOs are a popular form of investment among personal investors. USD5.6 billion was raised by various startups in 2017 despite news of ICO bans in different parts of the world. ICOs carry great risk. Statistics show that out of 902 ICOS, 142 had failed before fundraising, and another 276 failed after fundraising. Back in 2016 The Dao famously raised USD150,000,000 and Kumo ICO raised a meagre USD8,800 both of which failed. Many ICOs ended up being scams and people lost their hard earned money. There have been countless incidents where scammers ran phishing campaigns and engaged in social media manipulation to pose as legitimate firms that conducted ICOs.
The process of ICOs are not a scam on their own, but as with many ways for people to get rich quick, there are always people that want to abuse the system. ICOs are a revolutionary method by which companies can raise money to fund their ideas and it greatly democratises the investment scene. The traditional way for founders to solicit investments has been pitching ideas to VCs or family and friends.With ICOs, startups can now issue digital tokens and they can receive funding real fast. Some of the successful ICOs include those conducted by SALT Lending (US), Polkadot (Switzerland) and Ten-X (Singapore).
SALT Lending platform allows holders of blockchain assets to leverage their holdings as collateral for low-interest cash loans without having to sell their collateral.
Polkadot allows independent blockchains to collaborate, exchange information and conduct transactions via the Polkadot relay chain.
Ten-X is a firm which allows customers to use their cryptocurrencies to make purchases in the real world through a debit card.
What kind of ICOs to avoid
Failed ICOs are there as a warning for potential investors. Here is what you should have a keen eye for :
Poor website – If a website is filled with spelling errors and recurring technical issues, it is surely a red flag. This was the case with Onecoin whose team had cheated investors for an amount of USD350 million.
Shady promises – Promised returns are something that personal investors should steer clear of. Bitconnect turned out to be a ponzi scam where lots of people were duped and never got their money back.
Lack of actual product – Even though there have been firms that have built the product or service long after an ICO has successfully ended, firms that raise money just for an idea are extremely risky.
What kind of ICOs to look out for
Success leaves clues. Similarities can be found among successful ICOs. Some of them are :
Use case – Ensure that there is a real use case for coins/tokens and that they are not just a replacement for cash. For example ERC20 tokens created by Ethereum are used by other developers to integrate into their projects and operate their platforms.
Working product – Ideally you should already have a product of proof of concept before you launch your ICO. This will set investors minds at ease that you can actually deliver on your promises.
Transfer of tokens – After an ICO is finished, the goal of firms generally will be to get the token listed on exchanges. When this happens, ICO participants can then buy or sell the tokens and profit. However, who has access to these tokens, where are they stored, are they in a cold wallet, is there an escrow service, are there 3rd parties that can have access to the tokens, are their multiple private keys required to transfer tokens. All these need to be considered.
Expenditure plan – Understand the team’s plans on what they will be doing with the money raised should make sense. Find out the total number of tokens to be released, how many will be sold during the pre-sale and the ICO and how the raised funds will be used to scale the company.
Founders – Look out for founders and team members who have been in the space for a reasonable time tend to have more credibility when launching new projects. There was a startup whose CEO claimed to have worked in companies such as eBay, PepsiCo and Zalando and disappeared with USD375,000 after the ICO had ended.
Communication – Teams which interact heavily with the community. Key employees usually post on the coin’s official or unofficial Reddit, Slack or Telegram channels to provide updates or conduct AMA sessions.
The above pointers are just a few among various factors one should look out prior to identifying a good ICO. Always remember to do your own research.
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