Should you trust ICO ratings at all?
This is not a question you can answer with a simple yes or no. Some ICO rating platforms take it seriously and employ analysts who perform meticulous research into token sales before they share their conclusions. These ratings are indeed valuable sources of information on a specific project’s ‘health’ and feasibility — the key criteria for potential investors. Other ICO rating solutions offer features that you can employ in individual research.
That said, not all of these magical services remain impartial towards market players. Some websites may act as covert advertising platforms and encompass an expert rating system where the experts are financially engaged, which leads to questionable assessments.
According to a recent report by a Swiss startup Alethena, buying a favorable rating at an ICO rating spot is a no-brainer. Markus Hartmann, Co-Founder at Alethena, reported that he was approached by nefarious ‘sales people’ in Telegram right after he’d registered at ICOBench (Picture 1).
We can’t be 100% sure to what extent the ‘sales’ guys were associated with ICObench, but this is definitely a red flag for anyone dealing with this rating platform. Another example of false rating by ICOBench was revealed by ICOAlert. They discovered that ICOBench gave a 4/5 rating to an ICO under criminal investigation with the SEC.
While discussing the best ICO rating platforms, BitcoinTalk forum members also noted that ICOBench had published many dubious ratings lately (check the thread here). Long story short, think twice before consulting ICOBench and do your own fact checking..
Whatever stance you take in this regard, it’s hard to dispute that ICO rating experts are human beings. As such, they may not be as independent as they claim. Companies endorsed by celebrities, experts, and/or influencers shell out for that sort of promotion. Newcomers may be lured into investing in more or less unresearched ICOs backed up by trusted figures. Looking for examples? Think of Lil Uzi Vert promoting DripCoin, or DJ Khaled supporting Centra. ICOAlert, for one, reported that Dripcoin didn’t even care to build a secure website, not to mention a decent whitepaper.
This does not necessarily cast a shadow on a specific listing’s credibility, yet the ‘open’ review system in itself is vulnerable to fraudulent assessment. In fact, the community can help ICO analysts by reporting suspicious activity attributed to their brands. Michiel Mulders, Blockchain Dev at TheLedger, mentions that his team would contact the channel scammers ‘represent’ and inform the platform owners of their identity being abused (Picture 2).
Some due diligence services, forums and websites may have a potential conflict of interests due to their complex nature. Once there is demand, there is supply. The thing is, startups are willing to pay to boost their ratings or find shortcuts to greater exposure. Inevitably, rating platforms get biased and driven by cash flows since they can’t ignore the market shaping up around them. Rating services may also combine exchange, intermediary or advertising functions under the same umbrella.
In 2017, Kript made an effort to summarize the prices and services offered by most celebrated ICO rating ventures and came up with a bouquet of commercial opportunities in the field. ICO rating sites are now a vital part of the crypto ecosystem. Just like their ‘traditional’ siblings — Standard & Poor’s, Fitch’s, or Moody’s’. The latter are tremendously influential. Remember the housing market slump of 2008? The fact is: rating platforms played a crucial role in that mess-up; that’s how affluent they’ve grown to be.
A 2011 Financial Crisis Inquiry Report directly blamed the big troika of credit rating agencies for acting as “key enablers of the financial meltdown.” If this could happen in a regulated market what can you possibly expect from the chaos of ICOs? At the notorious crises times, there was just one business model that actually worked: ‘The issuer pays’. That is: the company issuing a security purchases its auspicious rating. The model is still up and running in the traditional financial sector, and it reverberates in the ICO rating as well. Nothing new under the sun.
Now, what should you do as a potential investor? Compare what multiple ICO rating platforms have to say on a specified ICO. Do your own research. Do the results match? Is there something that bothers you about the whole thing? Use common sense and don’t ignore your hunches. After all, it’s your time and money at stake, not someone’s transient reputation.