How to choose the right ICO project for investment which will bring income or at least will return invested funds? How to identify a fraudulent ICO? How to understand which of the ICOs you are interested in are the most promising? Everyone is asking these questions when they want to invest in an ICO - economy sector that can make you either a millionaire or leave you without a penny in your pocket. Similarly to all revolutionary economic phenomena, ICO is not regulated yet, and only you can guarantee safety of your investments.
Below we will briefly describe ICO’s key characteristics, which should be carefully evaluated before making investment decisions. This list is unofficial (like entire modern ICO industry) and is based on advices of financial analysts, experts and simply experienced cryptocurrency users who had a successful (and not very) investied in ICO. Let's just call it "Five Steps to choose a high-quality ICO".
Increasing number of fraudulent ICOs complicate tasks of bona fide ICO projects. Many of those who have suffered from fraudsters or who have witnessed collapse of ICO-scam have become sceptical and cautious about crowdsale.
Therefore a number of officially registered ICO projects as legal entities has increased recently. For example, eSports platform ”FirstBlood”, “SingularDTV”- blockchain platform distributing digital content, trading platform “ICONOMI” - all these projects have established legal entity and publicly announced rules for token sale for investors they should agree to before buying.
When legally formalized ICO project is registered in a country with transparent legislation rather than in an offshore jurisdiction, it provides certain level of trust for investors. However, it is well to remember that when you invest even in a legally regulated project, you should still carefully study documents which define investor’s rights and project’s founders liabilities.
Some ICOs hold raised investors' funds on a special escrow account which is controlled by an independent financial operator. Project’s founders can withdraw funds from this account only after fulfilling certain publicly announced obligations. Existence of an escrow account is a serious argument in favour of bona fide ICO.
Many ICOs raise significant amounts from investors, without providing any documents or public commitments. Information about such projects is limited to a small website where you can find White Paper and Roadmap, and several paid publications and topics in relevant sources and forums. Investing in such projects is extremely risky as project’s founders are not legally responsible at all. Essentially investors of such projects make voluntary and grant donations to founder’s wallet.
Fraudulent project’s White Paper sometimes can be entirely or partly taken from bona fide ICOs. Simple check on anti-plagiarism services will immediately show whether it’s original document or basic compilation.
Apart from declarative statements and development plans, bona fide ICO projects prepare other documents too. If project is legally registered then such important documents for participants as ‘Token Sale Agreement” or “Token Sale Conditions” will be available on its website that regulate investor's rights and token issuer’s liabilities. Documentation of a serious ICO will include conditions or a disclaimer for project's founders – “Disclaimer of Warranties” and limitations of their liability – “Limitation of Liability”.
Often there is no clearly defined legal regulation of relationship between investors and project’s founders within ICO. That is why reputation of founders, their partners and VIP investors is of great importance to the project. If they are well-known figures who have been involved in IT projects and businesses for many years, then their projects will clearly unlikely be fraudulent. Why would successful people risk their reputation, fortune and freedom? Of course, this doesn’t exclude possibility that bona fide project founders can become victims of fraudsters or hackers. Moreover, bona fide ICO project doesn’t mean "successful" or "profitable".
Real founders of project and invited stars, who are hired for its promotion must be considered separately, as “stars” are not responsible for future of the advertised ICO.
Detailed and reliable information about an ICO project and its team in social network is a good sign. Fraudulent ICOs are the most anonymous and always offer fake information about founders and the team. Recently, one scam ICO posted a photo of one of the project’s alleged founder - actor Ryan Gosling. Modern technologies of information and photographs retrieval allow everyone to investigate whether published information about an ICO is reliable.
Your concerns may be discussed on relevant websites and forums (e.g. “Reddit” or “BitcoinTalk”) that bring together cryptotechnologies’ enthusiasts. You can discuss with them those aspects of an ICO project which you don’t understand, e.g. an ICO product code or its prototype posted on a public resource such as “GitHub”.
Generally, bona fide ICOs are interested in maximum openness - you can chat with members of their teams in social networks or messenger channels and ask them to clarify any uncertainties of the project. Product code of bona fide ICOs will be available on public resources for independent evaluation.
Suppose you went through all previous points and made sure that ICO project you are interested in is bona fide and its founders are serious about long-term and successful development, which should bring profit to investors. However, statistics show that most ICOs don’t evolve rapidly for objective economic reasons: an ill-considered business plan, organizational problems, reassessment of the demand for project’s product and so on.
If you understand industry in which ICO project will be developing, you can make self-assessment of prospects for its development and potential cost of purchased tokens (project tokenomics). In most cases, however, investors are forced to simply risk and invest in projects that just seem promising.
To assess investment attractiveness of ICO projects you can use services of independent (or relatively independent) fee-charging and free experts and also rating platforms - see article "ICO for Dummies. How not to lose your funds and perhaps make money? ". You can also try to develop your own ICO’s rating system. Experts for example advise to choose those ICO projects whose tokens have the highest number of use scenarios. It’s considered that such projects would be the most stable, because even if some application cases fail, others may succeed.
Another filter option for the most promising ICO is to use platforms in which ICOs selection is on "collective intelligence" basis which excludes possibility of sponsored or exaggerated rating and minimizes risk of errors in choosing promising ICO for backing.
An example of such project is Rocket DAO platform - an accelerator of ICO-projects, a platform for backing opportunities and home to an expert community that selects the best projects.
More information about Rocket DAO is available on our website