Do investors and ICO projects need Escrow?
We present to your attention Questions and Answers for ICO-projects and investors.
Do investors and ICO projects need Escrow?
FAQ for investors
1. What is Escrow?
Escrow is people or services that act as a trusted third party in a transaction between an investor and a project. They control the withdrawal of money after the completion of the ICO and transfer them to the project or return to investors.
2. How does escrow work?
Escrow can be translated from English as a conditional deposit of a money amount from a third party. On the Internet escrow-services work as follows: the investor’s funds are transferred not immediately to the project, but to the independent third party — the guarantor-service — and they are saved until the project fulfills the declared obligations. Only then the project team receives the funds.
3. What is the main function of escrow?
The main function of escrow is the proper provision of the obligations stipulated in the Whitepaper and Terms & Conditions of the project.
4. How does escrow work?
The funds are collected on a Multi-sig wallet, access to which is only available from escrow agents and teams. Usually 2 agents are assigned. The Escrow agent checks whether the project fulfills the requirements governed by promises, whether certain terms are observed, etc. If all requirements are met and obligations are fulfilled to investors, the start-up will be able to use the funds on the Multi-sig wallet. The money is issued in stages, for each period of the project.
5. Give an example of using Escrow?
In practice, it looks like this: for example, the project within the ICO has raised $ 1 million. The business model implementation plan is divided into 10 periods. The first $ 100 thousand project receives from the Multi-sig wallet immediately after the end of the collection phase. Next, the escrow agent oversees the fulfillment of the stated conditions, the integrity of the issuing project, the compliance with the deadlines and, in the event of the successful completion of the plan phase, issues the next part of the amount.
6. If the project uses escrow, is it reliable?
The fact that the project has a mechanism provides additional protection. The team can not independently spend the collected money without the digital signature of the agent. Agents also decide whether the money collected during the ICO is spent properly.
7. What happens if the project does not collect the necessary amount for ICO?
If this is prescribed in terms of fundraising, the funds will be frozen, and then returned to investors.
8. How will the funds be returned, what mechanism of identification of investors and who specifically returns?
Typically, investors are identified with the help of the KYC system (with English Know Your Customer — know your customer). As part of the procedure, the investor provides a scan of passports, a communal account and other documents. The funds are returned by agents-escrow to specified investors’ purses.
9. Is the availability of an escrow 100% guarantee of investment safety?
Unfortunately, there is a great potential for fraud in escrow: this is only a tool, and it can be used for different purposes.
10. Can I refuse to invest in the ICO and return the funds if I have deposited funds through an escrow account?
It depends on the project that conducts the ICO, and the conditions prescribed in the Whitepaper. Most often, funds can be obtained through escrow, if the project has not collected the necessary amount for the ICO, and the team is slowing down with development, that is, it does not fulfill its obligations.
FAQ for the project that conducts ICO
1. What is the advantage of using escrow for a project?
The presence of escrow increases the degree of investor confidence in the project. However, many successful ICOs did not use escrow. This is a paid service, its cost is about 3% of the project fees.
2. What should I look for when choosing escrow agents?
You need to read reviews about agents or services, look at their pages in bitcointalk, linkeldn, study with which projects they worked before. It must be a person or service whose reputation is impeccable.
3. Will not escrow hinder the development of the project?
When issuing an escrow, the funds are on the account and are issued to the project in stages, as steps are taken in the Roadmap. You can not use the whole amount at once, so immediately take this into account in planning your finances.
4. Can escrow agents disappear with collected funds?
If agents doubt the integrity of the project and the fulfillment of all conditions, they can temporarily freeze funds. In this scheme, the unscrupulous agent can not independently use the money from the account of the transaction; He needs another key (second agent or project developers). This does not negate the possibility of collusion, so the choice of escrow agents should be approached with caution.
5. What happens if one of the escrow agents loses the key to the wallet?
Usually, the key to the purse is in two escrow agents, as well as with the developers of the project. Sometimes more keys are issued for reinsurance.
6. How is the process of approving transactions through escrow?
When the project has fulfilled the stated conditions, the team informs the agents about it, and the agents sign the transaction for transferring money to the project account with their key. The project’s founders still have to sign the same transaction with their own key, and then the network will consider it complete, and the money will go to the wallet.
7. How to negotiate with escrow-agents about the delivery of funds from the wallet?
The project developers together with escrow agents make a plan for transferring funds from the multi-sig wallet to the project account in accordance with the developed project implementation stages specified in the whitepaper and roadmap.
8. Is it possible to change the conditions for issuing funds after an agreement with escrow agents is reached (increase the amount, reduce the time frame, etc.)?
If the conditions are spelled out in a smart contract, then, as a rule, you can not change the terms of the issuance. If we are talking about agents, the conditions can be revised and an additional agreement is created for the contract with the agents.
9. Is there an automatic escrow system that eliminates the human factor?
One of the new ways to protect investors with assets that were sent to the issuer under the ICO is a decentralized escrow. This method eliminates the risks associated with the dishonesty or lack of security of a particular person used as an escrow agent.
10. How is the protection of funds when using decentralized escrow?
In the case of a decentralized escrow, the owners of tokens themselves control the redistribution of tokens by the majority of votes, take and execute decisions on the future fate of the assets (continue financing the project or stop it, or generally make a return on investment in case of complete loss of confidence in the issuer).