While not as strong as in 2016–17, the initial coin offerings (ICOs) still continue to catch the interest of many investors in the industry. Multiple past success stories of ICOs encourage various crypto startups and even large corporations to come on board and try to convert their revolutionary blockchain ideas into reality. In comparison with the IPOs, which encompasses issuing shares to accredited investors to raise funds, ICOs possesses many advantages. For instance, projects can raise funds more smoothly with no entry challenges and don’t own the shares of their hard earned business perspectives to their investors. Investors, on the other hand, can obtain a potentially skyrocketing income with the popularization of the coin/token. These two facts strongly appeal to both parties and endorse mutual, profitable cooperation.
Although the ICO market has recorded a sizable decline in the industry, the results of the current year show some essential recovery attempts in comparison with 2017. According to CoinSchedule, the ICO market was smaller at the beginning of 2017 than at the beginning of 2019. Despite the fact that the ICO market is extremely volatile, the wider exposure and keen interest in initial coin offerings do not stop.
While all seasoned crypto enthusiasts are aware of what an ICO is, let’s take a minute to appreciate the presence of the readers, who are beginners in this field and give a short explanation: ICO is a type of crowdfunding where the main tools to raise money are cryptocurrencies. The allocated funds can serve as a capital for startups while presenting some outstanding benefits to their investors.
Numerous investors and crypto bulls are sure that the crypto hype is gone and the SCAM ICOs have fewer chances to raise the needed capital by fooling the investors. Space is open for true crypto enthusiasts to establish an excellent and outstanding crypto infrastructure.
Alexis Ohanian, the co-founder of Reddit and a well-known crypto enthusiast, is sure that the wild speculation is gone giving way to real innovations.
“Now, it’s still to be seen. But what’s a strong signal to me is still some of the smartest people I know in tech are working on solving these problems. They’re building companies that are built on the blockchain. The hype is gone. The fervor is gone. But I think that’s a good thing.”
The term SCAM comes to describe a situation where a person cheats another individual or group by providing false information during the business offers. In every industry, there is a strong need to be conscious of avoiding fraud, and the crypto world is no exception. On the contrary, crypto investors need to activate their inner Sherlock Holmes by paying close attention to every detail, if they want to succeed. In an attempt to help you avoid SCAM, here are the critical Red Flags that can help reveal the real purpose of an ongoing ICO — legit or fake.
The team is one of the crucial aspects of any project. However, there are some cases when various ICOs present fake team members. There were even some cases when the past ICOs like Benebit faked the entire team. To avoid falling for such tricks, thoroughly consult the LinkedIn accounts of the team members. Check if there are any blockchain experts in the team, whether they have relevant experience or are just beginners.
The whitepaper is the core of any ICO project, which helps investors to understand the essential points, and how their money will be utilized to implement the project procedures mentioned in the whitepaper. However, there are some cases, when whitepapers lack relevant research, references, and information about the project, technical description of the technology the team is working on, and the crucial aspects of conducting business. This comes to indicate that the founders probably lack a proper understanding of their field and how to grow a successful business, have little experience, and may not be able to deliver what’s promised — even if they don’t intend to rob investors.
The RoadMap provides useful information about the critical dates of the project development. It should illustrate detailed insight on how the team is planning to use the raised funds and estimate the delivery date of a working product to the public. If this information is missing, it’s a severe Red Flag.
Company address and contact information
There have been numerous cases where investors couldn’t find a piece of appropriate information about the company, be it the location or the origins. Why is the location so important? The thing is that there is a strong bond between the identified entity of the company and the legal protections that the company can afford. Put simply, if the company does not have a valid geographical location, it means there is no legislation and rules it obeys to. Thus fundraising activities are unacceptable and are most probably a scam.
The problems and possible solutions offered by the company/project
Investors should keep their eyes peeled while gathering the needed information about the companies for the intended investment. The essential aspect of any company is to suggest appropriate and realistic solutions for a particular existing problem. If this aspect is absent, there is no clear answer as to why this business should even operate. Another hint is to monitor competitors’ markets. There might be other applications offering more beneficial solutions for the same problem.
Various tokens have various qualities and economic features. They are all unique in their own implementation fields and purposes. It’s essential that the whitepaper provides all the details and corresponding information about the issued tokens: type, quantity, where and how coins can be held, the token distribution details with dates and all the purchase terms.
Accessible Token Economics
Before heading in first let’s understand what token economics is. As mentioned above, cryptocurrencies are an effective method for fundraising. However, cryptocurrencies don’t limit themselves merely by that mission. Token economics explain the ecosystem and infrastructure of the underlying environment where the token is circulating. Its main objective is to explain the value of the token and how exactly it’s being used by users and token holders. Based on this information, one can understand whether there is a chance for the token’s price to increase over time, and how realistic that chance is.
Investors should have an eye whether the tokens are going to depreciate because of the greediness of the issuer. For that, they need to compare financial projections of the product behind the ICO to the token economics. The basic indicators are:
- hard cap
- soft cap
- token price
- the number of tokens being sold and held for founders
- token valuation
- expected vs realistic market capitalization
- expected vs realistic user base
Most commonly, the higher the hard cap is, the more promising/revolutionary/innovative/explosive the product should be to justify those numbers. Also, if the founder holds too many assets there is a higher deprecation level on the tokens investors hold once those tokens are released to the market. If the soft cap is unrealistically low and there is no objective reason behind it, then the money invested into the project might just vanish during the development process and investors will be left with nothing, or in other words, SCAMMED.
To sum up, the ICO model is establishing new business perspectives and puts new economy branches forwards. Obviously, the era of scam ICOs is fading with outstanding speed. Still, all investors should be cautious to avoid any kind of fraud or speculations by following at least the above-mentioned several simple steps and indicators to minimize risks. We hope the tips provided in this article will give you more confidence to make educated decisions and enjoy the perks of blockchain technologies.
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