The current craze for ICO (Initial Coin Offering), of which there are many, unsurprisingly attract a growing number of unscrupulous or not severe enough people, eager to take advantage of this new mechanism to raise more easy money. To avoid falling victim to scams or wobbly projects, a checklist of essential things to consider before investing in an ICO can be particularly helpful.
The team
It is the crucial point: who is the maneuver behind the ICO in question? The answer to this question will depend on the degree of confidence that will be granted to the project, before going further in the analysis. First, the team’s stakeholders — and especially its founding members — must be publicly posted, with links to learn more about each. The possibility to go on their profiles Linkedin and Github (for the professional profiles) is appreciable if it is essential to get a better idea of their experience.
For example:
- Linkedin profiles, even if they only rely on declarative information, allow us to see, for example, where the founding members of the project worked until now. Have they been in the blockchain ecosystem for some time or have they been there very recently? There is nothing wrong with the introduction of ICOs by ‘newcomers,’ but some caution is legitimate in a ‘gold rush’ context that attracts many opportunists.
-Github profiles allow seeing which languages are mastered by developers, which is another exciting information.
- A very active Github profile is not the best sign for the key developers of the project. Conversely, an active profile, which has been around for some time, inspires more confidence.
Twitter accounts can be fascinating to browse for points of interest, viewpoints, connections, and founding members of the project — and watch their evolution over time. Do they post on blockchain topics for some time? What do they post? With whom do they exchange (publicly)? Etc.
It is not a question of rigid reasoning on each of these elements (the absence or the non-activity of a Twitter account, for example, is not crippling!), But the sum of these checks put the end at the end allows us to draw up an overall picture which is itself revealing.
Note that sometimes ICOs are worn by recognized personalities of the ecosystem blockchain, which of course changes the deal. Thus the ICO of the EOS project (launched at the end of June 2017 and still in progress) has so far proved to be very successful. Mostly thanks to the reputation of Dan Larimer, Blockone’s CTO who runs the EOS project, and who has already established his ability. This ability is to create compelling blockchain projects: he was in fact at the origin of BitShares, valued at hundreds of millions of dollars, and Steemit. In this type of case, it is apparently easier to trust the project, since one of the founding members already has a recognized ‘CV.’
Also, an essential criterion of the seriousness of an ICO or rating of ICO, although difficult to evaluate, lies in the degree of involvement of its members. A full team, who ticks the right boxes, and who can count on a robust Advisory Board, is not enough in itself: it must have several key members fully involved in the ICO process.
2. The Role of the Token in the Project
‘The blockchain is the solution, but what was the problem?’ in the same way that was evaluating a blockchain, the project requires asking whether it answers an existing problem, assess an ICO project requires checking that the token being issued is of real use. Will it be used as an intended use? Could the plan work? It is common for projects running ICOs to have no need to create a new token.
Also, it is essential to check that the token complies with the ERC-20 standard, which has become a recognized standard.
3. The Terms of the ICO Itself
How will the ICO be done concretely? The most significant transparency is involved in this area, with the risk of unpleasant surprises afterward. It is therefore essential to know how many tokens the company plans to create and how they will be sold, etc.
4. The Roadmap
The Roadmap is a crucial element that concerns both the transparency of the project and the seriousness of the work of its members. Investing in an ICO requires knowing the steps that will follow the fundraising, which must already be planned by the company, and posted publicly on its site, at least in part. A fuzzy and poorly detailed roadmap may hide a lack of strategic vision … or the risk of a scam. Besides, it is essential to try to evaluate the credibility of the roadmap and to be wary of projects that would promise months and wonders quickly…
5. Funded Money Will be Used
How does the company intend to spend the funds raised at the ICO? What will be the distribution of the use of this money? This information cannot be evaded and must be consistent with the roadmap.
6. The Code
It deserves being cited first, and yet … it is often difficult to assess the strength of the code, including for an insider. We must, therefore, rely on what we can, according to his level of technical understanding. In any case, we must make sure that the code is public, and see if a trusted third party has audited and validated the code (which does not always prevent, that said, some hiccups).
Without going so far as to study the code in detail, which is not within reach of all, it is at least essential to go and look at the white paper published by the project team. The white paper is the original file of a blockchain project, which lays the groundwork. As such, it must be very rigorous and to present at least the technical basis of the project. A white paper that would evade technical issues and put forward or even abuse of flashy terms (‘revolution’ or ‘disruption’ …) is a bad sign.
7. The List of ‘Advisors.’
Recognized and renowned personalities in the blockchain community are in high demand and should be part of ICO’s advisory boards. Most often, their presence is an excellent sign — at least when it comes to professional profiles. Be careful though: it has happened that some projects show personalities who had in fact never agreed. It was after such a case that Vitalik Buterin (founder of Ethereum) announced that he would not accept being an ICO Advisor. Therefore, if you meet an ICO advisor who says he’s on advisory board, is a lie.
Who-is-more, if the list of reputable advisors of an ICO can be a great plus in the credibility of the project, this criterion should never be self-sufficient. Let’s not forget, for example, that the most prominent fiasco of all blockchain projects, TheDAO (victim of a resounding attack in May 2016, following a loophole in its code), counted several great personalities of Ethereum among its Advisory Board, and supposed to have checked the solidity of the code…
The absence of Advisors should not be a stumbling block to not participate in the ICO. In the end, their presence should instead be seen as the cherry on a cake already provided…
8. The Community Surrounding the Project
Is there a dynamic and growing community around the project? Does the Slack of the project, if it exists, have many active members — is it boiling (it was, for example, the case of Tezos the weeks preceding its ICO), or somewhat quite sleepy?
These questions are essential for two reasons:
● First, an active community is, on the one hand, a good sign on the interest in the project, on its ability to attract enthusiasts.
● And the second on the openness of its team to build an efficient robust network.
9. The Reputation
What does it say about the project on specialized forums (Bitcointalk.org) on Reddit, in blockchain meetups…? If we have to beware of false positive comments (posted anonymously by the project team in question), a review of the comments on different forums and social networks allows us to get some idea of the general opinions.
The reputation of the project is measured by the number of exchanges (cryptocurrency marketplaces) having decided to trade the token created by the project — that is to say on which it is possible at the ICO of buying and sell the token. Projects that are unknown or considered far-fetched will not be accepted by all exchanges. The number of exchanges should not be the only criterion of evaluation: the best is to go to see if the main exchanges have made a choice to trade the token or not.
10. The Legal Aspects
An ICO project with one or more legal specialists in its team earns a lot of seriousness and credibility. Otherwise, having the support of external legal experts is important.
The situations are very heterogeneous depending on the project, depending on their seriousness, their ambition, the nature of the project, or the operation of their token … Sometimes, some ICOs do not even have Terms and Conditions on their site!
Disclaimer: this article does not constitute investment advice, and is not exhaustive.