How to analyze an ICO?
Sorry for not writing any post for the past few days. Been busy with programming.
Before starting my article, I would like to invite you to join my channel Texploxe (In Telegram). I share my ICO Analysis, News, Blockchain Tech, etc.
Anyways, today let’s dive into a more general topic of how to analyse an ICO.
For any ICO, we can break it into smaller topics to verify and check. And I highly advise anyone who invests in ICO or takes part in any ICO to check these parameters along with your own set of checks, if they are a newbie or even a pro.
For any ICO, better to do due diligence initially and refuse the offer rather than to accept the initial offer and then later regret.
So, let’s start. The first part of any ICO to check is the idea!
Some of the ICO projects seems to be so excited and being supported by so many influencers that we jump on it due to FOMO. I want to advise that if you trust that influencer that much that you are willing to put your hard earned money on what he is promoting, then go forward. But if you even have the slightest doubt, please don’t invest in that. It turns out; your instinct is right most of the time.
But even if you find a project, which is not supported by any influencers or so, but you understand the project. And you see a team which is both “capable” as well as are “true to their words”, then I would advise you to go forward and chip in some money. It would be much better to invest and lose to have some experience in that ICO, rather than invest and gain for once from a stupid ICO, to fail later. Long-term wealth building should be the key, not a one time profit.
NEED FOR BLOCKCHAIN
Need for blockchain mostly comes as a topic of debate if we consider that in different aspects such as technology, trust, transparency, etc.
For the technical people, blockchain can sometimes be considered as a distributed linked list with open access to all to improve the network.
Don’t worry if you don’t understand the above part. Half of the people don’t have a technological background who are continually creating an ICO. But if you are putting up your money, better spend some time to understand what the technology is that you are supporting or why the project needs blockchain. Why? That is being answered in the next part.
UTILITY OR SECURITY
As said above, if there is no need for blockchain in the project, then that only means it is a security. Now there are many people out there who think all the tokens and coins are security in one way or the other. While there are others, who believe some tokens or coins are indeed utility, while the majority is a security only.
Why did I say that above? Because to let you know that, this is a very subjective matter. And if you are not sure about the nature of the token, then I think you can help yourself with the below question:
- Does the token in the system is only for payment of service or product
- Does the token is only accepted in their system only?
- Does keeping the token gives you no special privilege other than the $ value?
If you answered “yes” to all question, that means it is security I believe. As I said, this is a subjective matter, so please understand that this is just my thought.
These days almost all the projects have started getting some UI/UX, Prototype or even an alpha or beta project up and running initially when they begin an ICO.
So, if you are still investing in an ICO without any of these, then better that be some protocol or a new blockchain, etc. Else, if it is related to some product, then I believe they should at least have some prototype or UI/UX.
TEAM & THEIR EXPERIENCE
This is one of the most important fact to be checked and verified for an ICO Project. As Guy Kawasaki has said:
“Ideas are easy, implementation is hard”
So, even if someone got an idea miraculously. It is not necessary that he will be able to implement it. And if he/she can do that is to be verified by yourself.
What are the things to be checked?
- Relevance of Experience
- Background Check
- Knowledge of Blockchain
The above are the few things to be checked. More can be added to the above list.
And if you think that this team won’t be able to execute, then remember this quote from Dhirubhai Ambani:
“Ideas are no one’s monopoly”
Now the next thing to verify is that, whether these team members are actively present in the project. There are some projects which list many members, but only a few are active and even fewer which does the work.
Nowadays, it has become a necessity to have advisors in an ICO Projects to showcase, though I don’t think that is a necessity. Well, that’s a debate for another day.
Though there are still many advisors, who are keen on working on the projects they advise. There are many advisors out there who are mass advisors or just photo advisors.
You may or may not get an advantage from them, but if you hire an advisor who has experience in the field of your project, then that will surely help you in one or the other way.
So, check for projects who hire advisors relevant to their project and also those who may help that project regularly. Check for their presence online w.r.t. the project.
The last check is whether the advisors know they are listed as an Advisor for the project mentioned. If not, please announce the same and alert other members as well.
FUNDS TARGET, TIMELINE & PHASES
This is a subjective topic as the funds required for each project is different based on the usage of the fund for development, infrastructure, marketing and for personal gain. Yes, the last part is critical as that is why more than half of the projects are present in the first place, rather than for the technology or project.
So, go through the financial section of the whitepaper and get acquainted with what they have written there and the requirements. If there is no financial section and just a pie chart with some % for each part, then ask the team for more in-depth details on how they came to a number like this. If they give you a satisfactory answer, go forward with the rest of the analysis. If not, then move forward to find a new ICO to invest.
The timeline and phases are also important. If there is a private sale for the ICO and the price in the private sale is 100–200% less than the last round of the public sale. Then, please avoid those ICO’s. As soon as these get listed, the initial buyers may offload their bag, which lets the price go even further down. A combination of this, along with bounty hunters and FUD, the token price becomes less than the ICO Price, which will result in loses for the last one entered, kind of like a Ponzi scheme.
FUNDS USAGE, DISTRIBUTION & VALUATION
Another thing about funds to be checked is the usage of the same. It should be clearly written how each and every crypto (penny) is to spend if they can raise till soft cap, hard cap or if they are not able to raise the required money, then what happens to the investors. Whether they get a refund or not. And if they get a refund, then are they refunded the same amount of crypto or would they be refunded based on the price of crypto at the time of raising funds, or something similar.
The next things about token are how they will be distributed. Things to check are:
- Whether the team tokens are vested for some time?
- Whether the advisor’s token is vested for some time?
- Whether the rest of the token kept for sale is burned or not?
- Whether the token apart from the token sale is locked or not?
- Whether the funds raised is kept in a multi-sig wallet or not?
- Whether the bounty hunters token are released after exchange listing or not?
- Whether the private sale investor’s token is vested with some cliff or not?
The above are just a few things to check.
Another factor of the debate is the valuation. Is the soft cap and hard cap required by the company justifiable? Is the team, the MVP (if any) and any other relevant factors equivalent to or near to the valuation the project demands from the public? If not, it’s time to move on to check another ICO to invest.
SOCIAL MEDIA ACTIVITY & ENGAGEMENT
Though this is not mandatory, I believe there should be a constant connection with the crowd and investors and should do some level of update every week or month, based on the situation.
Also, for a project with 1000s of followers and members in the chat, no likes/retweets/shares along with no talk is a flag for you that the project has bots and fake crowd than real followers.
Any project or business, it required people to be successful. So, raising funds is the only aim for a project who wants to be rich, while growing a passionate community along with raising funds is the aim for a project who wish to acquire that market they are doing the project in.
This, though is a technical parameter, it is made much simpler by sites like Etherscan (if Ethereum token).
Nowadays, you can check terms like total token supply, token holders, etc. by merely looking at the contract/token address of the token you are buying.
And if you want to dive deep, then you can go to “Read Contract” to see much more details. Though many of the terms you may not be able to understand, some you might guess.
And if you have a technological background, or have a friend or family who might wanna help you, show them the contract written and they might be able to decode what all have written in that.
The other thing to look at smart contracts is the vested token schedule for the team, advisors, etc. If it is not listed, then you are just trusting on the words from a person you may/may not believe. So, the choice is ultimately yours if you want to invest in a project like that.
These are the things which may not come under any of the above factors, but still is a prominent thing to be checked and verified before investing.
Sometimes you might find something disturbing about the product. I would advise anyone who finds details like that to talk to the team and clarify the same. And if they don’t give a satisfactory answer, please publish it online and let everyone know about this.
Now the final moment, whether to invest or not!
Check on all the things you have found and make an informed decision. And if you are moving forward with a risk, I would advise you to build a calculative risk rather than trusting blindly on someone or something.
Please let me know if you want to give me some tips or want to correct me on my findings or even want to share some secret regarding the companies I would be writing in time.
The above was just a few steps you should follow if you are going to invest in any particular ICO. But please don’t consider this as investment advice.
For the readers:
Thank You for reading till now and hope you like what I wrote.
For anyone who would like an ICO to be analyzed
Please send me a message in Telegram with the name and website.