ICO Pools under the lens

Published in

Coin Governance System

9 min readJul 25, 2018

***Disclosure****: this article doesn’t represent any investment advice.*

If you are starting to invest in cryptocurrencies, you’re probably overwhelmed by the amount of ICOs that appear every day. ICOs can be great opportunities if you find the right one and even better if there is a big discount for participating in the pre-ICO stage. With the evolution of the ICO ecosystem, ICO investment pools have emerged.

To get more insights on how ICO pools work and their vision on the future, we have reviewed 64 ICO Pools and Permian Syndicate Pool, IcoPools.io, ActionPool, CryptoCreeps ICO Pools, Cryptoinvest and Primablock actively collaborated on this article. Let’s check out the insights!

What’s an ICO investment pool?

An ICO Pool is a group of experts or individual investors that join together so they can participate as a group in pre-ICOs. Where ICOs have usually big communities with more than 10.000 users, ICO Pools are based on smaller communities: from the analysed ICO pools, 80% have under 800 members.

The main advantages of ICO pools are:

Discounts: the pool can participate in ICOs under the same conditions as the big hands (known as “whales” in the sector), including high discounts in pre-ICOs.
Dealflow Screening: the members of the pool are constantly searching for promising ICOs to participate in.
Analysis : In a pool, several eyes are analysing the project and discussing its potential.

From the conversations we’ve had with ICO pools, the main motivation of their members is the advantage of being able to participate in pre-ICOs with reduced amounts (69% of the pools said this was the main motivation of their members) followed by “amount of deal flow, analysed deals and lack of knowledge”.

It is also important to mention that some ICO pools denominate themselves as “pools” but technically they only act as a community or network to discuss ICOs. In this type of communities, the members don’t pool together to participate in the deals of an ICO. Nevertheless, it’s a great way to get feedback on upcoming token sales. Nearly 20% of the interviewed ICO pools are actually communities without pooling funds.

How do ICO Pools operate?

The management of an ICO investment pool is really important in order to achieve great results. In order to operate, most of the pools follow a sequence of 3 stages:

1. Scouting

The first step is finding the deal: a promising ICO to invest in. Almost 60% of the pools state that finding good ICOs is the biggest challenge they are currently facing. How do they find good deals?

Pools usually have very active communication channels mainly based on Telegram or Discord where people discuss about different ICOs that seem to have potential. Some launchers pitch their ICO directly to the pool.

The best ICO pools require proactivity from their members. Usually, a member of the community brings to the group the proposal of an interesting ICO that’s going to launch soon. After this, the admins normally reach out to the ICO itself and negotiate how to enter the pre-ICO with discounts and the minimal required amount of funds coming from the pool.

On the other hand, smaller ICO projects usually reach out to admins of ICO pools in order to explain their project hoping it will get analysed by the pool to then enter.

As Santiago Velasco, leader of Permian Syndicate Pool, explains: “Our pool is only focused on advanced ICOs that we scout when they are just becoming public. We have a big network that keeps us updated on what’s happening and before they start promoting we speak with the founders to be able to participate. Only in 2018 we have contacted around 140 interesting ICOs and scouted many more, and we have created pools for 15 of them. We are partnering with an investment fund to strengthen our regulatory framework.”

2. Analysis

When analysing an ICO there are many factors that pools take into account. The 5 main factors are:

Team: founders need to have a solid background being capable to deliver an awesome product or service.
Business model: disruptive models that bring changes to the way things are being done.
Market size: pools usually look for opportunities where the business can expand.
Use of technology: decentralized systems using blockchain are of their interest and it is definitely a plus if there is an MVP or testnet already developed.
Discounts: one of the factors that pools analyse when participating in an ICO are the discounts that are offered, which can go from 10% to 70%.

After the analysis is done, the admins decide if they are interested in the opportunity and they open the pool for the community or they reject participating in the ICO. Usually, the most conservative Pools invest in every 2 out of 100 deals. However, some pools are more flexible and accept almost 30 out of 100 ICOs.

“The most important question is “How does the company make money?”. It has to make sense. Then we focus on the team, it’s really important. I invest in the teams because they are the ones that are going to make the money, they are pushing for the company. It’s kind of a struggle to find good projects. Our investment ratio between the ICOs that we analyze and we finally invest is around 1%.” Chris Schofield, leader of ActionPool
“We have turned down deals with ICO’s in the past due to lack of transparency when communicating with the team. Most ICO’s we’ve turned down have been because of how the team reacts to questions regarding their whitepaper, token metrics etc. After studying 100’s of ICOs in the last 6 months, we have only chosen 5 to invest in” Darren, Co-Founder CryptoCreeps ICO Pools

3. Pooling and distribution

There are different ways money is being pooled together: it can be done by having each member sending the desired funds to contribute to the admin (centralised) or using a smart contract to organize the process (descentralised). The majority of ICO pools we’ve analysed use Primablock to manage the pooling, using smart contracts. Let’s take a look at how Primablock works:

Leader creates the pool for the ICO in Primablock. He can include a whitelist so only selected addresses can send ether.
Members send their individual contribution to the address of the smart contract. While the pool is open, the participants can still withdraw their funds from the pool.
When the target investment amount is achieved, the leader sends the funds to the the ICO.
The ICO sends the tokens to the smart contract of the pool.
The tokens are distributed from the smart contracts. It can be configured to be done automatically but this usually ends up in higher network fees or manually, in that case the members have to redeem the tokens from the smart contract.

Matthew Brauer-Marzio, head of customer service at PrimaBlock, has some suggestions for newbies when operating with their pooling system:

Don’t change the data fields or delete them!
Use mycrypto, myetherwallet, or metamask as they make your life easy.
Remember to use a hardware wallet, this is important as software is much easier to hack than your Trezor or like device.
The most important: Don’t contribute to a pool where you don’t trust the creator. While there are security features that can enhance trust, there is no replacement for an excellent syndicate leader or pool admin.
If you get stuck, don’t be afraid to ask for help from the community or from the team at PrimaBlock, we are very active so finding one of us (PrimaBlock admins) around the clock isn’t difficult.
Patience when doing transactions among other things on the network solves so many problems, good communication and patience are some of the most valuable tools both in crypto and in life.

We have conducted a study based on the latest operations done by pools to get an idea of the quantity that is being pooled usually. Based on the latest ICOs in which they have participated, 85% pool less than 1,000 Eth and 47% pool less than 200 eth per ICO, which means only 15 out of 100 deals are higher than 1000 eth.

One of the advantages of ICO Pools is that the minimum individual amounts to invest are low: 71% of the pools have less than 0.2 Eth as minimum cap per participant.

Post ICO Governance

Even though this is not a feature that is currently part of the pool itself, it can help ICO investors a lot. There is a growing trend related to post ICO governance models to protect ICO investors against scams and bad executions. Solutions like these are needed to make ICOs work in the long run. Several propositions have been made to solve this problem, such as DAICO and CGS, that allow investors to recover their contributed funds in case a project turns out to be fraudulent or is not delivering.

What to look before joining a pool?

To participate in a pool, you should analyse their evolution first. Max Neuhaus points out 6 ways to avoid an ICO pool scam that are very useful. Some questions to you ask yourself before participating in a pool:

Is there information about the admin of the pool?
Are the deals managed using smart contracts?
Does the pool provide a clear framework when analysing deals?
Is there any previous information on the deals in which the pool has participated?

“Before entering any ICO pool crypto an investor firstly should always estimate its reliability. We believe that pool’s trust is based on the following main criteria: number of token distribution rounds, participation in Top ICOs, amount of raised and distributed money, having healthy community. So we would strongly recommend to carefully analyse the history of the pool. It’s very risky to rush into a brand new pool tempted by high bonuses and some super top project. There are many good, reliable pools with long history.”
Anton Moss, Co-Founder and Partner ICOPools.io

What’s the future of the ICO Investment Pools?

This is a tough question for most of the pools. One of the biggest concerns of the pools has to do with regulation. Many of the ICO pools we’ve interviewed think that pools will either have to incorporate as investment vehicles or if not, eventually disappear, this is due to increasing KYC requirements for ICOs, which makes the use of pools more complicated.

What do you the founders of two ICO pools think?

Darren — Co-Founder CryptoCreeps ICO Pools, explains: “We’ve decided to slow down our pooling until regulations come in or until we fully comply with current financial regulations. ICO’s have had to return pooled funds because of not knowing where the funds have come from. ICO’s are harder to pool now because of this lack of KYC/AML solutions”
Josef Salcman, Co-founder and partner of CryptoInvest, explains: “The pools have emerged as a solution to face the minimum contribution amounts that some ICOs require in the pre-sale stage. However, the participants of the pool aren’t usually identified, which is contrary to anti-laundering regulations that ICOs must comply. If the ICOs have to identify 500 participants in a pool, it is questionable that they should obtain a pre-sale discount. In the medium term they will only have 2 options: Regulate their activities as an investment vehicle or become pseudo-VCs with an uncertain future. What I am certain aboit is that all pools will be private sooner or later.”