Initial Coin Offerings (ICOs) are still very hot, despite the recent downturn in the cryptocurrency market, with some investors making up to 50,000% returns. Below are some essential questions you should ask before contributing to an ICO:
What does the project do?
The purpose of an ICO is to fund the development of a decentralized project or application. The first thing you need to do is find out what exactly this DAPP does, which is also the first description you’ll see about any ICO. You can quickly and easily filter projects based on what their goal is and whether you not you believe there’s a market for what it proposes.
How does it benefit by being on the blockchain?
Once you understand what the creators are trying to do, and how they propose to implement your solution, ask yourself whether you think a blockchain is the best solution. A blockchain is not a cure-all and should not be treated as some sort of business panacea. A lot of companies these days are just looking for the funding aspects of an ICO vs having a real blockchain backed solution.
How good is the team?
Do the founders have the technical acumen necessary to develop and maintain the project? Do you think the team will stay on and keep developing the project after they raise the funds necessary to cash out? Do the advisors have a lot of industry experience? Are they real, check them out on linkedin and other social profiles.
Are they offering a pre-sale?
A pre-sale means that the company is selling tokens at a discount prior to the actual launch of their ICO. There has been a lot written about pre-sales, both good and bad. Some say that if the company warrants an ICO, they shouldn’t need a pre-sale. On the other hand, ICO campaigns are expensive and to run a proper one could cost in the millions of dollars. Without early funding, running a successful ICO is difficult.
What are the funds being used for?
Make sure that there is a clear outline of what exactly the money is being used for. A large portion of the funds should be used for product development and getting the product to market.
How are tokens being allocated?
Wha’s the plan for tokens and distribution? How many tokens issued, how many are being offered? How many are going to founders, developers and advisors? Do they have lockups in place so founders don’t dump shares?
What is the pricing model and what value is being assigned to the company?
Most ICOs feature a hard cap that sets some amount of US dollars they want to raise and how many token they are offering. The actual contribution rate is determined at the start of the ICO which automatically gives the project a market capitalization that the founders choose, not the investors. Make sure that you agree with the price the tokens are being offered for and determine whether you think it is actually worth it’s implied market cap.