As Initial Coin Offerings (ICOs) grow in popularity, a relevant question remains. Is every ICO worth your time and, more importantly, your money? There are some critical aspects of every initiative or project that need to be thoroughly studied before making a substantial investment.
In short, Initial Coin Offerings are fundraising projects that essentially trade future assets in the form of crypto tokens for presently-usable, impactful cryptocurrencies. The latter are liquid. Usually, ICO’s receive investments from people that hope the future value of the token will be significantly higher than when they acquired their shares.
How can newcomers and beginners in the crypto investment universe know when to trust a new ICO project? Here are the 10 key points to evaluate:
1. The team behind the project
If you are at the supermarket or grocery store, you want to purchase goods and items made by reputable, well-known brands, right? A similar occurs with ICO projects: investors look for accountability and track record when they seek new opportunities, and that is why the team, staff, and founding members are one of the “tiebreakers” listed here.
If the project is full of highly decorated, academically accomplished people with vast experience in blockchain-based projects and crypto ventures, then the probabilities for success are considerably higher. These people know the highs and lows to be experienced during all ICO phases and are prepared to go through them.
If the ICO’s stakeholders and their profiles are public, the project will be more accountable, and people will feel a higher degree of confidence in their investments. Links to the founders’ profiles in networks such as GitHub or LinkedIn are almost a must.
If the founders and people holding the most important positions (CEO, chief of engineering, computer science specialists, blockchain experts, and others) have had recent ventures in blockchain projects, it will attract more newcomers and savvy investors.
All in all, the right team will most likely take an ICO to the grounds of success, because they can handle adversity with more clarity and have more solutions at hand.
2. What is the role of the token in the project?
It would be better for all parties that the token used in the publicized ICO platform or network had a clear use or function. There are numerous legitimate questions that need to be asked regarding this.
For example, what kind of token is it? Is it a utility token, or a security token? In the case of the former, it would be preferable if it was an integral component of the application environment. For the latter, the best scenario is that the underlying technology represents a competitive advantage in itself.
Tokens that are the project’s main payment or value unit are attractive, as are those that can return immediate or mid-term dividends for holders. If the token is unique, that would be enticing, too (more on that later).
Numerous times, we find ourselves reading whitepapers that say time and time again that the blockchain technology is the solution to all problems. But savvy investors need to really understand what the specific problem that a blockchain-powered initiative would be solving is.
Of course, it goes without saying that it would be far better if the token in question was ERC-20 standard compliant. However, tokens will find value as they fill a void or help solve a specific, critical problem.
3. The roadmap as a tool to add clarity and transparency
If a person invests in a specific ICO, he/she will surely want to know what is next, or what comes after the fundraising phase. The dates and the short, mid, and long-term goals are important to lure investors.
A specific, detailed roadmap will project seriousness to the ICO, and people are drawn by it because they need transparency to put their trust and their money in the team’s hands. A responsible company plans ahead.
A generic roadmap that does not get into details or specifics is seen as a potential red flag because it shows people that it lacks strategic vision. A roadmap is a fantastic tool for interested people to assess whether the project has reached its goals in their proposed timeframe or not.
A good roadmap is a useful resource that shows where does the company plan to go and to get a hold of how realistic is the vision. For the staff, it is important to publish doable, achievable goals in the instrument and to link the token distribution to the roadmap.
4. How will the raised money be used?
If people are going to invest in a project, it is more than fair for them to know exactly how the money they contribute is going to be used. Of course, it is a common pool of resources, since the ICO is a fundraising event, but the validity of the point remains.
The token distribution is a crucial aspect of ICOs. If there is not enough clarity regarding the destiny of the tokens, it will definitely smell bad. Remember that scams are an ever-present possibility. The ideal scenario involves a sizable percentage of the funds going to the ICO public sale, another portion reserved to incentive the development community, another to the company, early contributors, and advisors, and a final piece of the “cake” locked for a couple of years as future reserves.
Of course, if you see in the token distribution that more than half of the tokens will go to the team members, that is an absurdly high number that will, at least, captivate your attention for the wrong reasons.
There are initiatives or ventures that release their tokens shortly after the Initial Coin Offering has finalized, whereas others need to have at least a beta version to send the tokens to their owners.
5. The quality of the code
The strength or quality of the code is one of the most important elements of an ICO project. Generally, this would be a part best suited for tech experts and specialists, but there is some basic language that a person with elementary programming skills should be able to understand and assess.
An ideal development would be making sure that the code of the ICO is public, and if it has been validated and audited by a trusted third party, then even better. In this industry, everything is centered on the trust level that an ICO can provide.
If you don’t feel you have enough technical expertise to correctly identify the code as a quality one, at least make sure you visit the whitepaper of the ICO project. It should explain the code language for tech veterans and for those that don’t master the craft.
The usage of proper commenting and the consistency are viable indicators of the quality of the code for those that don’t specialize in the matter, as are modularity and the length of the code. For example, try to avoid functions that have more than 50 lines of code.
6. The quality and knowledge of advisors
The team of founders and developers is a critical indicator when deciding in which ICO to invest. However, the list of advisors may have a similar relevance in terms of looking for factors to decide. People prefer projects advised by some of the “big guns” in the blockchain and crypto universe, those who have the expertise to provide guidance and enough resources to inject capital into the venture.
You must see what kind of benefit do the advisors offer to the project, whether it is advice, strategic connections, or any other. Also, the level of involvement of these people with the initiative is a clear indicator of how committed they are. Look for those projects whose advisors publish links and news about the ICO on their LinkedIn, Twitter, or Facebook accounts.
The best ICO projects have advisors that discuss the project publicly and recently and are involved in the engagement of online communities. Be always alert, however, with possible scams and lies made up by some irresponsible projects that claim that a certain blockchain expert is on the advisor’s team when, in reality, he/she is not.
7. The community and social media acceptance
When we talk about community, we refer to the broad term involving the people that have anything to do with the ICO project and those that can be potentially associated or related in the future. Investors are already committed, for example, but the community includes followers and subscribers in social media as well. People commenting in community forums can also qualify.
The community is important because the larger it is, the broader the project will be, and the foundations will be much stronger. When an ICO initiative is backed by thousands of followers in social media outlets, and when the general consensus and acceptance are positive, then it is trending in the right direction.
An active community is a perfect symptom that the venture is well-accepted by the people. Also, it speaks volumes when the staff and founders are so open to discussing details with enthusiasts. It projects openness and transparency.
The reputation of the ICO is also important. There are specialized forums in which these kinds of projects are discussed, like Reddit or Bitcointalk.org, that are indicative of current and future acceptance if you read the comments and reviews.
8. The whitepaper
The whitepaper is arguably the most important document that an ICO project will publish. It contains all the key elements and information about the initiative; with a background, executive summary, introduction, the problem to solve, the technical aspects and details of the protocol, the token ecosystem, the public sale, the dates, the token distribution and allocation, and more.
Typically, all the questions you may need to answer about the project are in the whitepaper, at least in the best ICOs. If you read the whitepaper and you finish with the same doubts or more than before having a peek at it, it does not speak well about the brand.
Unfortunately, most investors don’t read the whole white paper. They claim it is too long and that they would rather find answers elsewhere. However, critical issues should be addressed by directly looking at the source.
The whitepaper often shows the best and the worst; the positives and the negatives about the project and the ICO. Before deciding whether to invest in the venture or not, ask yourself what kind of value does it bring to the world and to yourself, in particular.
Uniqueness is a deciding factor for people looking for reasons to invest in a particular ICO project. If the venture encompasses offerings that can be found in numerous more platforms and environments, then what is the real value in contributing your hard-earned money?
The community tends to prefer projects that offer real, unique solutions to a specific issue. You may ask yourself if the project benefits from being on the blockchain and if it even needs to be there.
It may have competitors, but the real thing you should look for is if the ICO can dethrone its competitors within the blockchain. Look for core technical or product advantages that can derive from competitive differentiation.
Sometimes, uniqueness can come from outside the ICO and not from within. For example, look for projects with strategic partnerships with trustworthy sources. The involvement of firms with a strong reputation can also provide that competitive edge.
10. Technology and utility
ICOs usually involve an ecosystem designed to solve one or more problems with the help of the blockchain system. To function properly, the team of founders, staff, and developers come up with applied technology.
You should be looking at the type of technology used, whether it is a Decentralized App (DApp) or a currency, and what blockchain is it running on. Is the ICO in question developing its own infrastructure instead?
Also, prioritize ICOs with difference-making technologies that contribute to the evolution of the blockchain, especially those that solve relevant problems.