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5 Tips for Investing in an ICO*
When evaluating an ICO investment first apply the same principles you would to a 'traditional' investment. The company’s decision to use an ICO to raise funds does not change the fact the company must have a clear business value proposition, qualified team and solid execution plan.
EVALUATING AN ICO PROJECT: 5 STEPS
1. The White Paper & Underlying Project
A legitimate ICO White Paper (WP) will clearly explain the underlying project and the company’s business strategy.
Do the Problem and Solution make sense to you?
Does the Team explain how their technology/ solution solves the problem?
Does the WP set out in detail Technology and Tokenomics?
TIP: White Papers are sometimes copied – especially when a team does not possess expertise or the project is not legitimate. It’s easy to do a search of a couple of key paragraphs to see if the WP has been copied – a clear warning.
2. Team and Project Credibility
The team should have the business and technology credentials necessary to execute the project and develop a successful business.
Review social media and blockchain community forums for buzz on the ICO.
Review the LinkedIn profiles of the founders and senior team members to confirm expertise in the project being proposed.
Check if profiles are newly created. If so, be wary.
Reverse image search can help determine if photos are fraudulent.
TIP: Companies seeking to ICO know the power of social media, so be aware of 'shilling' – a practice where people create buzz by personally endorsing an ICO in public forums with the pretense of objectivity, when in fact they receive payment from the founders.
3. Verifiable Technology
If you are technically astute, check the code repository. If not, look for an independent assessment of the project’s code repository by a third-party.
Code repositories allow programmers to assess an ICO’s development process and determine whether the underlying technology supporting the blockchain solution is valid and functional.
Tip: If an ICO does not provide a means to assess their code repository, or if the repository is empty upon review, it a strong indicator of weakness in the project, if not of fraud.
4. Show me the Money
When you invest in an ICO you will not receive your coins immediately, and all coins will not be made available to the public.
Trusted Escrow. Make certain there is a trusted escrow arrangement for safeguarding your funds until the coins are issued Escrows are usually multisig wallets where funds can only be moved by the project team member with permission of one or more of the independent key holders.
Pre-Mining. Confirm the amount of coins reserved for Pre-Mining is appropriate.
Pre-mining is the practice of offering tokens to a small group, usually founders, initial investors, and developers, before the public sale. It is common practice, however:
If a significant amount of coins is reserved for the team be wary as it could indicate the objective of the ICO is to make the team rich rather than fund an actual project.
5. Team Responsiveness & No Promise is a Good Promise
Contact the team with legitimate questions. You have a right to know and they have an obligation to answer.
A trustworthy ICO team will have at least one public communication channel, often slack, Telegram or Discord, in addition to a website FAQ and contact page.
An ICO should not guarantee or promise an exorbitant return on investment. If it sounds too good to be true, it probably is.
Governments are creating legislation. The private sector is developing products and services to help weed out fraud. Filtering the buzz of ICOs is difficult, working with a trusted advisor will help you identify legitimate investment opportunities.
Much success, Stacy
5 KEY THINGS TO KNOW ABOUT ICOs
1. What does ICO stand for?
Initial Coin Offering.
2. What is an ICO?
A method of raising funds for a business using a digital coin or token rather than via stock (equity ownership) or debt (loan). The coin is not money it is digital cryptocurrency,
3. Is an ICO regulated by authorities?
- ICOs are generally not subject to regulations – yet.
- As most ICOs do not fall within the definition of securities (usually be choice of the
issuing company) they are not subject to these rules.
- Many countries are creating a regulatory framework specifically for ICOs.
4. Is a Coin like a stock?
If the coin is a 'utility token' it will not grant you ownership rights in the company and there may not be a relationship between the success of the underlying business and the value (price) of the coin – which is generally expected with a stock.
'Equity tokens' behave more like a stock but are generally not offered in public ICOs.
5. Why do people invest in ICOs?
They want to use the coin to access the service or platform being created by the company; and/or
They believe the price of the coin will increase as more people use the platform or services of the issuing company.
Tip: The underlying purpose of the coin or token in a project is a key consideration when considering an investment. The "Tokenomics" should be clearly spelled out prior to the ICO.