5 top things to consider when participating in an ICO
Token Generation Events (TGEs) — sometimes referred to as Initial Coin Offerings (ICOs) or token sales — were among the tech innovations that demonstrated meteoric growth in 2017, transforming from near-obscurity to a major boom. All-time cumulative ICO funding totaled $295 million at the start of the year and surged to over $3.5 billion by November 2017, according to CoinDesk. According to Coinschedule.com, more than 1 Billion USD has been raised in ICO’s projects from only the beginning of 2018, Comparing to almost 4 Billion USD in the year before. You can see that the most popular projects are Trading and Investing Startups, they raised 18% of the overall amount raised in ICO projects from 2018.
However, what are ICO’s exactly, and why are they attracting such interest?
Without delving deeply into the technical details, ICO’s involve the sale of tokens in exchange for funds, usually in the form of digital currencies such as Bitcoin. They are similar to initial public offerings, but do not typically involve the sale of securities and are mostly unregulated. If you are planning on participating in an ICO, it is important to ask some questions throughout the process:
1. Who is behind the ICO?
The lack of information on the company’s team is the first red flag to look out for. Members should have expertise in cryptography, blockchain technology, payments systems, and banking. Their track records and career milestones should also be well-documented.
2. How active and engaged is the team in its community?
An ICO is nothing without buy-in from a community of supporters. The company’s community presence should be rife with status updates and detailed answers to questions regarding emerging technologies and industry trends. A good sign is an active Telegram chat that ICO participants can field inquiries to and follow for breaking news and announcements. Beware of any speculative language referencing spikes in token prices.
3. How well-documented is the team’s product?
No one wants to invest in vaporware. It’s essential for investors to have access to a technical white paper cataloging its developmental timeline, along with the problems it plans to address and solve. This white paper, and a more general overview document, should also chronicle the professional backgrounds of each team member and provide a comprehensive look into the operations of the network’s token mechanism.
4. What is the token’s utility in the network?
Successful token networks, from Bitcoin to Ethereum, are optimized for growth that in turn fuels appreciation of the token’s value. ICO participants can only get a sense of the project’s potential by having the token’s utility defined to them from the outset. Relevant data points for this purpose might include distribution details, value formulas, and governance models.
5. What market opportunities the ICO helps to address?
Given the immense interest in ICO’s, there is inevitably a great deal of competition for founders, as well as a high variance in the quality of opportunities presented to them. Ideally, an ICO will address a large and well-defined market, such as the massive e-commerce payments sector. Moreover, it will have a clear roadmap for capitalizing on specific opportunities.
ICO’s are still in the early stages of acceptance. Selecting one that is worthwhile can seem daunting unless you are equipped with a checklist of your key requirements. Each ICO’s will be unique, but the five principles we have put forth are broadly applicable when it comes to evaluating a token sale.