Imagine that, as you read this, the doorbell rings. Your neighbors (or the people from the company that works next door) stand there. They start telling you about their exciting new project. They will take your money and use it to turn their revolutionary idea into reality, and somehow at the end of it, you will profit.
‘Sounds very vague,’ you reply.
If they actually have a good business plan and are likely to succeed, they will now begin to tell you all about their project. If they cannot, you probably should not invest.
As with your neighbors, many projects raising money for ICOs are vague in their descriptions.
The successful ones will be the opposite: trustworthy and transparent, with a proven and innovative concept, real use cases for the tokens you acquire, a reasonable financial plan, and security measures in place to protect investors and their ecosystem.
In ICO projects, do not just look for something you expect to go price-crazy quickly, but instead see it as a project investment that will provide long-term value.
1. Trust the right people
For any ICO you plan to invest in, look at the people who stand behind it. If the website does not offer background on their biographies and expertise in the field, that is a red flag that should alert you.
Promising teams are groups of people with experience in crypto and in the application that their project is aiming for. Ideally, the project leads should show examples of past successful projects similar to their endeavor.
A reliable team should also be transparent about their operations and communicate with potential investors frequently before their token sale.
Lastly, a good sign for a trustworthy team is a well-designed website without spelling mistakes and which directs you to their whitepaper that explains the project. Read the whitepaper to see whether it present a serious business model and explanations of how and why their product will work. Do not fall for generalized buzzwords like ‘decentralized,’ ‘secure,’ or ‘improvement over traditional.’ These factors are found everywhere in the market. Instead, look for additional ideas that show a proven concept.
2. Understand the value of the concept
This brings us to the second significant predictor of success: a product or service idea that provides a workable solution to an existing market need.
You should be able to find explanations about the value that the project provides in the parts of the whitepaper that dive into the technological side of the project. Ideally, the concept should be something that the team has shown to work in real use cases.
To evaluate the potential value of the proposal, look for numbers on the industry and reasons why companies or individuals should adopt the technology. If they have a strong case for fast adoption and a large, international need for their product or services, things are looking bright.
3. Consider why they are selling tokens
Once you understand the concept, ask yourself why the project needs to launch an ICO. If the company just wants quick cash and is selling tokens purely to raise capital they could not get anywhere else, this might indicate high ‘token velocity.’ The term indicates that investors will not have use cases for their tokens and will just turn them into bitcoin, ether or other coins as long as the project token still has value. However, this selling-out destroys the token’s value and speeds up your loss.
On the contrary, strong use cases for token sales are ones where the tokens are not just there to raise funds but because they have built-in utility in the ecosystem of the project. You should have an incentive to hold on to the token beyond the crowdsale. For example, ether is useful because you need it to buy ICO tokens, but you will not get very much real life utility from owning Dogecoin apart from a few laughs from your friends.
4. Make sure the numbers match
After looking at the value proposition and its viability, also make sure that the soft cap — the minimum investment amount the project wants to raise — seems reasonable as a budget. If the project runs out of cash before accomplishing its huge ambitions, your investment might never actually have value. On the other hand, if the team wants to raise way more than necessary, they might be up to something suspicious.
While looking at the tokens that will be distributed, also scrutinize the plan for distribution of tokens after the ICO. Compare the distribution to the roadmap laid out in the white paper and decide whether each stage gets sufficient funding. Also, watch out for projects where the team just wants to keep most of the tokens for themselves — another definite red flag.
5. Be aware of security
Lastly, look into the project provisions for security. The cryptographic backing for many ICOs today is the ethereum-based ERC20 protocol. It makes sure that reliable blockchain technology will guide the project ecosystem and you will be able to send and store the tokens safely. If the project has a different protocol, try to find out more about it and make sure it is secure.
If you are sure that the project has potential and seems reliable, find out how you can invest. Usually, you will have to buy bitcoin or ether on a cryptocurrency exchange like Coinbase or Kraken. Make a wallet on one of the exchanges and find the correct receiver address and dates for the ICO.
We hope you will find many convincing projects you would like to invest in. But beware; as with any volatile market, only a few ICOs will succeed. Even a promising and professional project is vulnerable to market pressures and has no success guarantee.
Keep an eye out for the successful ICOs Zerion is launching to make sure you are part of the most promising projects powering the blockchain revolution.
Want to work on the future of blockchain? Join the Zerion team now! Email us at [email protected]