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10 Steps to Evaluating Initial Coin Offerings (ICOs)

Evaluating ICOs or token sales as investment opportunities is a delicate process. There are several variables that come into play. The industry is young, and the process of raising funds through an Initial Coin Offering is a even younger. The market environment is changing everyday, and it can be difficult to determine which projects are legitimate, which are scams, and of the legitimate: which will be successful. Evaluating these projects is also my job.

Note: I use ICO and token sale interchangeably here, I’m referring to the same thing. I also refer to cryptocurrencies as: coins, tokens, and projects.

I’m a partner in an token sale/blockchain project accelerator called BlockchainWarehouse. A part of what I do is evaluate projects that apply to our program. We open a lot of doors for the companies we work with and sink in both significant time and capital to help them reach their token generation event, and token sale goals. So, it’s extremely important to perform heavy due diligence into the tokens we’re considering.

When I’m examining a coin or token as a potential investment, or as a potential client for BlockchainWarehouse, I draw up a scorecard with the following items.

What is an Initial Coin Offering?

An Initial Coin Offering, commonly referred to as an ICO is a sale of cryptocurrencies by a startup in order to raise funding for their business. Let me preface this next statement by saying, I believe that several ICOs that raised last year were for legitimate projects that plan on fulfilling their promises in attempting to disrupt their industries. However, ICOs also became extremely popular in 2017 when people began to realize that through issuing their own cryptocurrency, they could raise capital in an unregulated environment. Initial Coin Offerings typically refer to selling of securities, while Token Sales or Token Generation events typically refer to the sale of utility tokens. This differentiation is key because securities fall under much stricter regulation than utility tokens.


The team is arguably the most important factor in evaluating an ICO or Token Sale. A company could have the best product or service in the world, but if they don’t have a team competent and experienced enough to execute it, it won’t matter.

I look for projects that have founders who have come from other successful cryptocurrencies — or, teams that have been endorsed by/are advised by the founders of other cryptocurrencies I respect. For example, Ethereum is one of the largest and most successful cryptoassets on the market — there are billions of dollars worth of projects that have already launched their ICO’s on the Ethereum network, and smart contracts were the second great innovation to come from blockchain technology (with distributed ledgers being the first).

So when I see, for example, that Vitalik Buterin, the founder of Ethereum, is endorsing a project, for example — that’s a huge positive sign. Vitalik has proven himself as a founder and I doubt he wants to associate with projects that aren’t top tier.

Again, it’s a huge plus if the founders have previous experience with Blockchain/ICO’s. I meet a lot of teams that have incredible backgrounds, are extremely experienced in their fields, but with little-to-no blockchain experience. This makes it 1) extremely difficult to work with them as BlockchainWarehouse and 2) makes it less likely that they will succeed. I’d rather invest in a young and hungry team with no blockchain experience than an older more experienced team with some blockchain experience.


You can’t teach an old dog new tricks. If someone has found success in their own industry working a certain way, they probably think their methods are superior. They’re set in their ways. This is detrimental to the token sale process because, well, it doesn’t always work in the manner that traditional businesses are used to. You have to constantly be on your toes as a blockchain founder and more importantly than knowing the best steps forward, is knowing when you don’t know enough. Founders who are already successful from other ventures are sometimes unwilling to compromise their perception of what “good business” is, and traditional “good business” doesn’t always align with crypto “good business”.

That’s not to say I don’t value experience! I always gravitate towards founders who have worked on another project (preferably a cryptocurrency), but I am weary of teams who come from businesses or industries that haven’t seen a lot of innovation. Cryptocurrency founders need to be willing and able to adapt to change rapidly.

If only one part of the team can have experience with cryptocurrencies, I’d want it to be the development team. The languages used to generate tokens such as Solidity (used for dApps on the Ethereum network) are extremely young. It’s easy for developers to underestimate the learning curve ahead of them. Someone who’s been coding for 20 years might look at Solidity and think they can become an expert blockchain developer in no time, but nothing beats experience. You don’t know what works, what doesn’t and how far you can push the limitations of a system until you’ve actually played with it. I look for developers who have had some time to play.

Another reason I value teams with past experience in the blockchain industry is the relationships they have. The blockchain community is small, you see the same familiar faces at most of the big events. Founders who have been around the block a couple times can bring immense value to their projects in the form of the people they’ve met along the way. This can rapidly increase the speed of processes when a team is attempting to get their coin listed, get top-tier media coverage, and form strategic partnerships.

White Paper

A white paper is similar to a public facing business plan. It’s a document that outlines the problem being addressed, the market the company is deploying in, the solution they’re providing, a technical overview of their product/service, a description of their token and its’ utility, and finally — details of the actual token sale event. The paper should clearly define the problem and solution, it shouldn’t be difficult to understand why this product/service is a great idea.

If you don’t want to take the word of others by reading reviews of projects from different online sources, the best way to get a complete understanding of a new ICO is by reading their white paper. When you’re reading a company’s white paper, make sure they’ve done their homework.

They should display extensive knowledge about both the industry they intend to disrupt, and why blockchain is necessary for their project to succeed.

That last point is one of the most important aspects of an ICO, does it genuinely need to tokenize and use blockchain? If not, it could fall victim to regulations once governments decide exactly how they want to address cryptocurrencies. If a project is just throwing a little blockchain into their concept so they can take advantage of the fundraising capabilities of ICOs — chances are they’ll be a bigger target for regulators in the future.

Token Utility

A company with a great team, a large marketing budget, and a large community might hit their hard cap — but it’s the projects that have unique, and disruptive token utilities affecting a large demographic that last.

Token utility means: what the token can be used for. What utility it has, and in general, what the the overall point in holding the token is. Some tokens hold transactional utility within a platform they’re being built for, some tokens power networks they’re built for, and some tokens, typically securities, display their utility in their ability to be used as a transfer of value — such as Bitcoin.

When you’re evaluating token utility, there are a few questions to ask:

  • What about this incentivizes potential token holders to hold onto their tokens?
  • Will this increase the value of my investment?
  • Would I use this token? Do I know people who would use this token?
  • If you removed the token from the business completely, how much would it change?
  • Could this business be run by implementing an already existing cryptocurrency such as Bitcoin or Ethereum? (If yes, they don’t need to do a token generation event)

As an investor, you want to find projects that have built in systems and incentives to reward holding the token long-term — at the very least, you want to see some aspect of the token utility that makes you believe the value of the token will increase in the future.

Binance for example, their token utility is pretty genius.

The token is used to pay fees on the platform, in that sense its utility is in creating transactional value within a platform. Users who pay fees with the token pay reduced fees compared to when paid with other cryptocurrencies, another incentive for people to hold the token.

The aspect of Binance’s token utility that makes me believe it’s a solid project, and that $BNB will be a strong coin for the foreseeable future, is how other coins apply to be listed on Binance. In order to list your own project on Binance, you have to pay a multi-million dollar fee, paid in, wait for it…


So every time a coin is added to Binance, there is a multimillion dollar purchase of the coin, increasing the price. The $BNB is purchased from Binance from companies hoping to be listed, and then sold back to Binance to pay for their listing. This means that not only is the price of $BNB going up when the listing fee is purchased, it also creates a liquidity loop providing Binance with a steady inflow of their own coin which they can then sell on their exchange — creating liquidity.

Disclaimer: I’m not invested in $BNB, I just think Binance has a genius business model.

I focus heavily on token utility when I’m evaluating companies, because in reality, if there isn’t a strong need for tokenizing — then the company is just making it more difficult for themselves to acquire customers by forcing those customers to use a specific currency to do so.

One of my favorite fellow Medium writers, Kenny Li, wrote an article where he described businesses who implement tokens for the sake of raising funds in an unregulated environment, to Chuck-E-Cheese.

If you’re an internet company, you’re goal should be to acquire as many users as possible. If you want to acquire as many users as possible, you should make sure there aren’t any roadblocks for users to access the platform. If you don’t want to have any roadblocks for users, why are you forcing them to buy a cryptocurrency to interact with your website?

From a traditional business standpoint, it doesn’t make sense. Forcing users to use your own token to use your platform adds several steps for user acquisition.

Which is why I brought up this question earlier: If you removed the token from the business completely, how much would it change?

If you can remove the token from the business, and it still operates, remove the damn token! Why are you making your life harder as a business owner. Forcing someone to use your token means that either a) you’re limiting your demographic to people who already hold crypto and can easily exchange their existing holdings for your token, or b) you’re forcing your customers to: figure out how to convert fiat to crypto, figure out what exchange they can buy your token on, sign up for that exchange, go through the KYC/AML process most exchanges have, wait for approval, then FINALLY n get the coins needed to use your platform. What’s to say they don’t lose interest during this process? Why force your potential customers to jump through hoops to use your platform if it isn’t absolutely necessary?


How strong is the tokens community? I wrote an article solely on this subject a few months ago — there are a few key elements to check off your list when judging the strength of a community.

  1. Telegram/Discord
  2. Reddit/BitcoinTalk
  3. Twitter
  4. Medium

Telegram/Discord communities are the most important item on the list. This is where you can see a coins community interacting with the team. Pay attention to how active the users in the group are, is everyone solely asking when the coin will hit an exchange, or are people discussing the coin and its merits? If they only care when it hits an exchange you might see a huge sell-off as soon as its possible to sell.

Pay attention to the mods, are they active? Do they answer questions quickly and politely? A companies ability to moderate their community extends to their ability to manage a business, if they can’t handle questions from retail investors — what will happen when they start doing PR at serious news outlets?

Sidenote: there are also plenty of telegram and discord groups dedicated to identifying promising projects, check out Cosmic Trading if you want to learn more about technical analysis.

It’s extremely important that founders make themselves available to the community, it may seem silly, but to the people in an ICO telegram, the founders are like celebrities. If they don’t understand how valuable showing face can be for their community they might be missing the bigger picture. No task should be too small for a founder to get their hands dirty, and no telegram message is too silly to not warrant a response.

The second places I look to judge the strength an an ICO’s community are Reddit and BitcoinTalk. I really like Reddit as a barometer for the strength of a community because it’s extremely difficult to manipulate or “growth hack” Reddit.

ICO’s can launch bounty campaigns and pay users in their token to retweet on Twitter, like on Facebook, clap for Medium articles, etc — but Reddit moderators are so cutthroat that if someone on Reddit finds out you’re paying for up-votes, you’re going to get called out, and its going to get ugly.


Having strong strategic advisors are key for any business. With blockchain companies, I’d argue it’s even more important. With the market being highly sentiment driven, having strong advisors can sometimes make or break a project. Unfortunately, a byproduct of the sentiment-centric market, is the fact that having an advisor with vast experience isn’t always as valuable as having an advisor with vast social reach.

While getting an influencer from Crypto Twitter can increase chances of a successful raise, they don’t necessarily increase the probability that the business will have longevity.

I write this section with a bit of hesitance, like I said, I believe strategic and experienced advisors bring value and longevity — but I also believe that getting over the first roadblock is pivotal for ICO’s. That first roadblock is a successful ICO, and having some influencers on the board of advisors definitely helps get over that roadblock.

My only caveat to this is, if having strong influencers as advisors is one of the reasons your contributing to an ICO, make sure the influencers don’t sell their name to every project that comes across their plate. There are plenty of influencers who are also blockchain experts out there — while they actually have to be interested in your project to take part, companies shouldn’t be working with people who don’t share their vision anyways.

The best additions to an advisory board are founders from other successful cryptocurrencies, c-suite level members of a potential partner company, someone on the team of a popular exchange, rockstar developers, and anyone who can calm the


Roadmaps can be extremely revealing. Especially if the company has already passed some of its milestones. Pay very close attention to an ICOs roadmap as a token sale progresses, check back on it to see if they’re changing it to give themselves more time.

Being able to hit the milestones you set for yourself as a company founder or development team is arguably one of the most important abilities a startup team can have. If you can’t execute after all, what can you do? Blockchain is filled with idea men and women, hence the ICO boom of 2017, and the resounding silence we hear from most of the companies that raised money in that time frame.

If a project can’t hit the milestones on their roadmap, it’s an instant no-go for me personally.

Check out the company’s GitHub and see if they’re actively updating their codebase. Most projects are extremely transparent (if they aren’t that’s another red flag).

Use Cases/Market Opportunity

How large is the demographic of people this company is offering their product or service to?

Does the amount they are raising seem equitable with the size of the market opportunity? Tackling a larger demographic can require more funding: if an ICO is asking for 50 million to create a dating site for potato peelers in Idaho between the ages of 18–24, it might give me pause about the level-headedness of the startup team.

Future Revenue

Shockingly, something I see far too often is ICO’s that don’t have a sustainable business model. If a company has a business model that can’t sustain their project with consistent revenues, what are they going to do when their ICO raise runs out? If there isn’t a business model clearly outlined, that says to me, either:

a) “We don’t know how we’re going to make money but we’ll figure it out after you give us all of yours!”


b) “We don’t really care if this succeeds in the long run, we just want to build it, launch it, and abandon the project”

It also shows a huge lack of foresight. How can any business function without revenue?

Something to keep in mind here is that revenue streams aren’t always easy to identify if you’re coming from a traditional business background. I’d argue that the mining fees Bitcoin pays out to miners in its network are revenue that sustain the business. I’d also argue that Ethereum network fees (Gas is used to facilitate transactions) is the revenue model. It also helps that Ethereum built a network that other cryptocurrencies can build on top of- increasing the value of the founders holdings every time a new project launches.

Long story short, when I say future revenue, I just mean: is there going to be capital generated to sustain the ecosystem and increase the value of the project in the long run? Are all of people required to interact with the platform/product/service properly incentivized to do so, does this aid the longevity of the project?

Soft Cap vs Hard Cap

In initial coin offerings and token sales, a soft cap is the minimum amount of capital needed to be raised in order for the company to launch, and the hard cap is the maximum amount of capital that can be raised. If a company hits their soft cap, they don’t have to return any of the money contributed.

If a company has a soft cap of 5 million, and a hard cap of 10 million, and they raise 4 million, they have to return all of the investments to the token contributors. If they pass 5 million they get to keep it.

I mention this as an item to pay attention to because the gap between soft and hard cap is sometimes surprisingly large. If a company sets their soft cap at 1 million for example, and their hard cap at 50 million — something smells a little fishy.

Don’t get me wrong, there are plenty of amazing projects that have had large gaps between their soft and hard caps, but they better have a damn good reason. Some companies claim that the additional money beyond the soft cap is how much they’d need to grow at an accelerated rate and outperform their competitors. Sometimes a large amount of infrastructure needs to be built, and they can either do so with profits they generate from their running business, or from hitting their hard cap.

Public Relations

What kind of press attention have they been able to garner? Again, the cryptocurrency and cryptoasset market is extremely sentiment driven — the media has a lot of power here. If a founding team is able to get significant press coverage in large media outlets, that can bring unparalleled results when compared to other industries. An article in a strong publication might just be another accolade for a traditional business, but when conducting an ICO, the same publication can translate to millions of dollars in additional capital raised.

Post ICO Valuations

If a company you’re looking at as a potential investment has already launched, check out my Complete Beginners Guide to Investing in Cryptocurrency, or the 10 Crypto Commandments to get a better grasp on how the data avilable post-ICO can be used to determine investment strategy, entry/exit points, and risk management.

Final Thoughts

The most common mistake I see traders and investors making is not performing enough due diligence. Reading tweets from your favorite crypto influencers doesn’t count as conducting research.

Don’t take other peoples’ opinions on coins or tokens you want to invest in: take their opinions into consideration, but come to your own conclusions based on your own research.

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Reza Jafery

Ops @ PubDAO / Community @ Reflexer / Product @ Decrypt. Trying to change the rules and create a positive sum game.