An initial coin offering (ICO) is a fundraising method that trades future crypto coins for cryptocurrencies which have an immediate, liquid value.
ICOs and token sales became popular in 2017. There were at least 18 websites tracking ICOs before mid-year. There are 235 ico projects and totally raised $3,700,682,293. For example, Kik had previously issued $50 million in tokens called “Kin” to institutional investors, and sought to raise an additional $125 million from the public. In connection with this ICO, an unidentified third party executed a phishing scam by circulating a fake URL for the offering through social media.
However, how to assess the ico project? Maybe we can analyze it from the following tips:
1. The background of the ico project
By understanding the background of the project, the nature of the project and the laws and regulations within the scope of the ICO’s issuance of tokens, it is possible to effectively determine whether to evade legal regulatory risks.
Countries beginning to impose new regulations on this type of fundraising could impede a lot of progress for the company.
2. Take a look at the backstage
The first thing to do when evaluating an ICO project is to look for the people who started it. You should check their professional background and their previous experience. Visit their LinkedIn profiles. Look for famous names among the advisory board of the project. Find out if the team has any crypto experience and more importantly – in which projects, or ICOs, they were involved with and the impact they had.
3. Evaluating ICO’s market potential
Each ICO campaign has a different purpose. Your job is to analyze the entire plan, especially whitepaper as the project’s core document. This way you get to see what kind of problem will this product solve and does it have enough potential to make a breakthrough. You should compare it with similar projects and determine what makes it so different from others, both positively and negatively. Once you’ve done this analysis, you’ll have a much better idea about its overall market potential.
4. Token Distribution and allocation
ICOs mean the creation of a new dedicated token for the project. One of the most important questions each project needs to answer is what is the token for? Why isn’t Bitcoin or Ethereum enough to serve as the project’s token? Yes, many projects just make up a scammy story. Hey, an ICO can’t be an ICO without a dedicated token. The same question needs to be asked regarding the use of the blockchain technology behind the project.
Watching for the token distribution stage. Some projects just release their tokens hours after the ICO has ended. Some projects need to develop a beta version before sending out the tokens. If you look at the percentage gain of Etherium (one year between ICO and token distribution, around 500% gain), Augur (1+ years, 1500%) and Decent (8 month, 350%), sometimes this break creates a very positive hype around the project.
5. Evaluating the Whitepaper and quality of code
Most typical investors actually don’t read through the whitepaper, even though it contains all the necessary information about the upcoming project and the ICO.
Don’t hesitate to read it, or at least the majority of it. Note the strong and negative aspects and add in some of your own research. In the end, the whitepaper is the silver platter to potential investors.
The quality of a developer can be understood by analyzing some of their code. As a non-techie, it is still possible to evaluate their quality by looking at the consistency of the code. Another good indicator, is the usage of proper commenting.
Next, the length of a function is another indicator. A function containing more than 50 lines of code should raise a red flag. Modularity is important and makes the code more readable and maintainable.
6. Check the trial version
Reading about the product is not the same as seeing it in action. Serious entrepreneurs should be able to present you a working tested product to strengthen the credibility of their project. Alpha version is supposed to be developed to some extent, enough to convince investors that it has enough potential to advance quickly. At the same time, it allows you to compare real work with whitepaper plans and determine if everything is being done as planned.
7. Community and Media
It is crucial to have a wide open supporting community like a public Slack for all investors. Openness is as crucial in gaining our trust as the Github code. Try to grasp the atmosphere within the community. Look at the size of the community and its activity.
However, we should not ignore the risks of ico project. ICOs are a high-risk way of fundraising. Never invest anything you can’t completely afford to lose. Keep in mind that due to a lack of regulation, you will have difficulty getting back your lost money in case of any failures.