ICOs—An Intro for Beginners
What Amma Gunnado?
In this article, I will touch on some of the philosophies and basic strategies to consider when analyzing ICOs and blockchain projects from a perspective of investment.
Investment Philosophy
When investing, one should first consider their approach. Is one investing à la cut-throat Machiavellian style, or with a more idealistic strategy? Is the focus quick flips on lack-luster ideas with flashy partnerships/hype, or projects with a longer time-frame but with fair potential to actually change the world? These two approaches represent the two ends of the extreme, with benefits and disadvantages to each style.
A pragmatic strategy of dumping hyped projects could yield gains in the short-term, but become quickly exhausted and obsolete. As game theory is a real thing, this could lead to situations where a majority of investors contribute not out of genuine interest for a project, but invest only with the purpose of dumping. In these cases, the value of the ICO could quickly plummet out the gates. Quick flip strategies investors to such eventualities.
A more idealistic approach could yield a higher potential for ROI, hunting for the Amazon or Google of tomorrow. But, this strategy could entail waiting many months and possibly years for an ROI, and in a market of uncertainly could mean even greater risk.
These approaches represent the two extremes of crypto investing. One is never limited to a single side of the spectrum. Rather, it may be best to regard aspects of all approaches and to find a strategy that is best suited to one’s individual needs.
Finding Gold
Ventures which embody the best of both philosophies are the gold standard. Projects with great concepts and high disrupt potential, experienced personnel and leaders with the relevant talents, and the advisors and partnerships whose networks and industry weight can scaffold development and assist in quick market penetration. These, these are called unicorns. So when you find one, don’t tell anyone. Make sure to email me and never speak of it again.
The Current Reality of ICOs and How to Approach Them
A large portion of ICOs launch without a minimally viable product. Many launch with only a concept or prototype. Post-ICO, a majority of projects are still undergoing development — having yet to achieve their full vision or anything close to mass adoption. Value in the current market is then determined primarily from the potential for utility and hype, and not from the current viability of projects. This is largely the reality of the current investment market, so keep this in mind as you do you research.
In the interest of educating the community, I will outline some basic strategies to apply when researching ICOs — from both a Balina-ian outlook and a techno-utopian-futurist-Muskian perspective.
Market Opportunity
Something to first consider, is the market viability of the project. Is there or will there be a market opportunity for the cryptocurrency/DApp? What is the size of the potential market? Is it an indie space or a mass consumer market? Are there pre-existing businesses, either traditional or blockchain?
These factors can determine the potential scale and viability of the project, and serve as an initial check to see if the ICO is even worth considering.
Trends
Something else to consider are market fads. Recently, anything AI was the hottest ticket, which then moved on to digital identity. Trends can act as multiplier on the hype of ICOs, which can impact the price of tokens as they go out to market.
Solution, The Concept
Next, one should consider the core concept of the project.
Is the concept novel? Is it unique and innovative? Has the concept been proposed before or is this the first instance? If it is a concept that’s been re-hashed a dozen times and dressed up as something new, despite only a few minor additions. This can be a warning sign for potential investment. Be mindful of fraudulent projects created only to capitalize on fads (like AI or digital identity, etc.). Put in the research to weed out the legitimate from the fake.
Does the concept solve a need? Is it a large and vital need for humanity or only the need of a niche market? This relates back to market opportunity. The size of the need may determine the potential girth of the project.
Next, evaluate whether the proposed solution is actually capable of solving said need. Read through the mechanics of the concept. Does the white paper clearly lay out, step-by-step, how the concept will work to service said need or does it only offer a vague idea? Reading through a white paper can give you a quick impression of how developed the concept is, as a well-developed idea is generally reflected with a clear and detailed whitepaper.
Protocol or DApp?
As infrastructure for decentralized apps (DApps), protocols may offer a greater potential for financial growth than DApps.
Decentralized Applications serve specific use cases. Their potential is limited to their intended utility and their success is entirely dependent on their own performance.
Protocols are the frameworks on which DApps run. The market potential of a protocol is capped only by the number and and overall success of the DApps that operate on its network. Protocols then have a greater capacity for market growth.
Though, it’s important to note that protocols > DApps is only a general notion. It’s certainly possible for a stellar DApps to outperform a crappy protocol.
Development Progress
Evaluate the developmental stage of the project. Is it only a concept without code? Or is there a prototype? An MVP? Investing in a project with only a concept could mean waiting a long time for a development, tokens release and ROI.
It may be best to consider projects with MVPs which would allow more swift market deployment. Crypto moves fast and projects without substance can be quickly out-competed.
Pre-Existing Business/Clients?
Note if the project is a blockchain continuation of a pre-existing company (ex: PolicyPal) and the number of pre-existing clients. Having a pre-existing business with connections and customers can drastically improve the chances and rate of adoption for any blockchain project. Such project could be considered more attractive investments.
Team
Next, evaluate the project team. What is the quality of their leadership? How about the rest of the team? Do they have relevant industry experience? Have they had successful exits through past business/startup ventures? What is the technical ability/education of the team? What is their marketing experience?
What is their experience working with blockchain? Do they have professional experience in blockchain development? Or do they at least have relevant coding experience which might suggest the capacity for working with blockchain?
Consider team members who have worked for high profile clients/companies. Such individuals could have connections which could offer significant advantages to their project like technical and financial support. Also consider team members who have worked together previously, as it could indicate some good quality synergy.
Phonies
Don’t believe everything on the internet. Yes Billy, people lie. Always be weary of what is presented. LinkedIn accounts can be faked, supposed partnerships fabricated. As an investor it is prudent to practice due diligence and put in the work to verify the legitimacy of claims.
Advisors/Partnerships
Similar to evaluating the teams, consider the past experience and potential connections of advisors.
When looking at partnerships, consider the industry weight of said partner. Are they a big player in their respective market with a ton of clients? Or are they just some niche business with only a few minor customers.
What do these partners offer that increases the chances of success for the project? Does this partner have experience with technology/blockchain? Put in the work to verify if said partnerships are actually legitimate. Is their an official statement on their website from said partner, describing their relationship with the project?
Social Engagement/Hype Factor
Telegram, BitcoinTalk, Twitter, Reddit, Slack, Discord. Analyze these platforms to get an impression of the level of community engagement in the project. Engagement could suggest interest, which could suggest the number of potential investors, which could give you an idea of hype and how well said project might do out the gates.
Another huge factor is the exclusivity of token sales. 32K person wait list for the public offering? That could be a early sign of pent-up demand.
Token Metrics
Hard Cap — The maximum amount of money raised via the ICO. A smaller hard cap leaves more room for market growth and the potential for a greater ROI.
Individual Caps — From what I’ve witnessed, the most successful projects coming out of ICO are those which limited public investors to smaller contributions. This can preemptively put pressure on the supply. Having capped contributions restricts whales from accumulating in the ICO phase, forcing them to purchase from the market if they wish to accumulate.
Vesting Strategy — Consider the lock-up strategy on the tokens controlled by the team or partners/advisors of the project. Token lock-ups are meant to prevent parties from quickly dumping coins out the gates for a quick flip.
Tokenomics
Consider factors which will drive the economic value of the token.
How is the token used? Is it a utility token, whose value is dependent on the demand for platform utility? Consider the amount of tokenizable events, the potential instances in which the token is paid or earned, which could affect potential volume of transactions and demand for tokens.
Or, is the token a full-on cryptocurrency whose value may depend on the pure volume of transactions?
Is there token burning? Is there mining, staking or masternodes? Is there a value to actually holding the token? Or is the token used solely as a way to pay for the services? If the token is used only to pay for services, is it really any different from tokenized fiat?
Gauging the tokenomics of a project can a be a tricky thing as there are a great many factors to consider.
Metcalfe’s Law
Cryptos aren’t quite like traditional businesses. One method to find valuation of crypto to regard them as networks. Proposed by the inventor of Ethernet, Metcalfe’s law is a formula which states that the “value of a telecommunications network is proportional to the square of the number of connected users of the system (n2).”
Through this philosophy, the value of a blockchain project would be proportional to the number of users. So a project with high potential for many network users should translate into the potential for exponential value.
Parting Words
I have outlined some of the basic philosophies and strategies to consider when analyzing ICOs. Ultimately, this is your hard-earned money at stake and it’s up to you do your due diligence.
Kevin’s Law states, “that your ROI will likely correlate with the amount of effort you put into the research, so put in the damned work you fool!” Remember folks, keep them peepers open and trust in no one, except of course me and John McAfee.
This article was presented to you by TGO Network.
This is not financial advice. It is intended only as an educational resource meant to aid the community. Always do your own research.
