On the one hand, excellent ideas and products have benefited from an unparalleled system to raise cash in order to develop a company, giving risk tolerant investors the opportunity to cash out impressive profits. On the other hand, an awful lot of ICO-funded initiatives have failed, investors have lost money, or even worst, got scammed. It is a stormy sea out there, but as traders say, choppy waters make good sailors. How can we make this turbulent environment more safe for investors? In the following article we will develop 10 points that all ICO investors should study before jumping into an ICO.
This is the first thing an investor should analyze. It goes without saying that projects that do not give information on their team are an absolute no. A strong team is the most important indicator of a legitimate project and dramatically reduces the chances of an ICO failing. Investors should always do a thorough background check. It is important to see if they were part of successful businesses before. Blockchain experience is not a norm, since it is a very recent technology. The CTO might not have previously worked on a Blockchain project, but if he has a proven track record of success, whether on a personal project or on a tech firm, chances of success are higher. External advisors are also something to keep in mind, and those are the ones that should be blockchain experts.
The timeline of a project is also a very important consideration. Projects should always have a defined and realistic roadmap with set milestones. Additionally, investors should know if the project is in an alpha, beta, or prototype stage. A project just having a whitepaper even after the ICO has started, is not the best sign. We recommend most investors to look for ICOs that have an MVP or some similar demo/prototype that proves that the product will actually work.
3. Media and Community
Any reputable media attention about the project is important to consider. Many projects might not have a lot of media attention, and in these cases, it is important to check for online discussions and forums that judge the project in a more objective manner than self-produced content. Social media communities in sites like Reddit, Twitter, and Facebook can provide us with the objective view we mentioned. If a project is already having negative media coverage causing fear, uncertainty or doubt (FUD), investors should take extra caution.
4. Code Samples
It is important that samples, demos, or MVPs that show parts of the product’s code are available. If a project has not published anything on Github or some other place to share code repositories, investors should be more careful. Once an investor gets to see the code of a project, he or she can tell whether the project uses professional code or if the work is sloppy and cheaply put together.
A project’s white paper should always mention the regulating authority that will overlook the ICO. Many investors tend to favour ICOs approved by US governing bodies, but this is not a necessity. As long as the project specifies which regulation they will be governed by, many countries can be interpreted as a good sign to go green on a project. In general, countries that already have an ICO regulatory framework, like Switzerland, or that have a reputation as legally and financially transparent places, are good.
This point refers to the amount of tokens distributed to the public during the pre-sale against the locked amount that is kept under control by the development team. When a team is withholding an unfair majority of tokens, you can predict that once the token is listed on a free-market exchange, prices could be manipulated. This does not mean that teams should immediately release all the tokens to the market during or after the ICO. The point to be made here is that the roadmap or whitepaper should detail the distribution of the tokens, and the team should have a clear plan to release the majority of the tokens to the public in order to guarantee market fairness.
The investor should always question whether the project actually needs blockchain technology. This does not refer specifically to the need of a token, or an own blockchain; but the need for the added security and decentralization that blockchain technology would offer, or benefits to existing blockchains. If the product does not solve any problem of the blockchain world, or if it aims to tokenize some industry that could already use any other crypto as a form of payment, the “blockchainization” of that project is pointless.
8. White Paper
This is where the central idea of the project is presented. Investors can note if the project makes actual sense. Good writing and a clear presentation of the idea is essential. White papers do not have to be very technical, specially if the team is publishing some of the code, but an oversimplified white paper that does not clearly present an idea and a business plan is a red flag.
9. Global Potential
It is important to assess the expansion potential that the project has. If it is aiming to solve an issue in a local way or for a small audience, chances are it will not grow a lot. If the project has a roadmap that extends for years and the project aims to solve an issue that affects at a global scale, chances for exponential growth are higher.
10. Circulating Supply
This final point doesn’t necessarily reflect how good a project is, but it is a good point to keep in mind when investing and speculating. A small amount of tokens circulating makes the price more sensitive to buying. This last point can be taken as the cherry on top of the cake. If your project fulfills all the previous points, it is already a great ICO to invest in, but if it also has a small circulating supply, your are up for some good percentage gains!
Keep these points in mind next time you invest on an ICO, and keep them in mind even more if you are planning on developing your own token. Here at Pool of Stake, we have taken all these points into consideration from the start. We focused on building a team with solid experience, not only on IT and Blockchain, but also on underlooked areas that are fundamental for successful distributed ledger projects, like governance, operations, branding, content and marketing. At the start of the project, we devised a clear roadmap and business plan in order to have set goals to meet. We also took our time to comply with regulation, informing our potential investors in this article; and we published the code for our MVP on Github. The rest of the points, like token distribution and circulating supply changes are clearly described in our whitepaper. We hope you found this article useful, whether you are an investor, looking for a good return; or a developer, ready to disrupt the blockchain world!