Quick reminder:
So what is an ICO / Token sale / crowdsale ? Think about it like a Kickstarter, people have an idea for a technology, and they use a coin or a token to raise money for it. Usually you get X token in exchange for other cryptocurrencies such as Ether or Bitcoin.
Outside of the weird and exciting world of crypto there is something called IPO (initial public offering), which is when a private company or corporation raises investment capital by offering its stock to the public for the first time.
Here you can take a look at the main differences between an ICO and IPO:
Pros of ICO over IPO :
Democratize investment opportunities. In the traditional world, investments in Startups are restricted to only accredited investors (net worth over $1 million), meaning they get better deals from early stages or seed rounds.
Minimum investment is super low, which means pretty much everyone can participate in the “IPO of internet money“.
It creates community around the project.
Main problems within the ICO system:
No regulations (yet).
Scams and frauds, scammers running away with all the funds raised.
Lots of ICOs didn´t get their code audited, so a hacker could easily steal funds.
Overfunded. There is no reason for an ICO to ask for tens of millions.
Some projects don`t really need blockchain technology to work, and mainly want to exploit the hype around it.
So keeping in mind the main advantages and issues of ICOs / Token Sales / Crowdsales, etc, how do we sort the wheat from the chaff?
1- Look for projects that show, and don’t just tell.
Are they promising to be the next killer dapp or the protocol that will overcome Ethereum with just a whitepaper ? Are they doing an ICO without a MVP ( = minimum viable product tested in the market )?
Those are really big red flags. Only consider to get in those ICOs that actually have an MVP proven in the market. This will lower the risk for an early supporter.
2- Look for projects that eat valuable aspects of human nature.
Are they trying to solve a "hair on fire" problem? Do people really need this kind of dapp?
For example, unbanked farmers in many regions (Mexico, Central and South America, South Asia, Africa) pay extremely high interest rates of 100% or more due to lack of liquidity of loans (we could say that money is “expensive” over there). On the other hand people in Europe or other "low interest" markets get very little from their savings in a bank account. So if we were able to create a symbiotic relationship between them through a crowdlending platform, we would kill two birds with one stone. And by using blockchain technology we could even avoid the banking system, lower the costs of these transactions and decentralize the power that is currently in the hands of the financial sector.
So that`s how EthicHub was born.
In a nutshell, you should look for projects that offer services or products people clearly need or solve their problems, rather than projects that just sound interesting, but aren’t important at all. Many projects just die in the initial phase because they had a great idea, but nobody needed or wanted it.
3- Fair Cap.
As I wrote above, one of the main disadvantages of the ICO system right now is overfunding. This creates a huge risk in managing those funds. What if you fail to deliver? What if you get beaten up by the market?
And more importantly: What is your motivation of making your project grow and economically sustainable if you and your team are already millionaires by just doing an ICO?
These small tips could make a huge difference in your due diligence. At EthicHub, we believe that ICOs are the future of fundraising and we hope that the ICO system will become more efficient and rational than nowadays.
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There is surely a need of education for these many new individuals coming in and investing blindly. Thanks for your post ;)
Greetings from Germany
Agree on that. It is also our responsability as a project within the weird world of internet money to teach people to prevent scammers to take advantage of them.
Thanks for your comment!