Which ICOs Are Scams? How We Dig Into This Oft-Fuzzy Question
One question we ask ourselves as part of the research process here at Token Report comes up when we list a new ICO: Is this a real project?
In the world of ICOs, information is often unverified, scattered, outdated or just plain inaccurate. Individual investors can’t keep up and don’t have the time to comb through the noise in forums, white papers and social media to verify a project, and even when they do, the answers are often unclear.
When discerning whether an ICO is a scam or not, it begins with our initial judgment at face value; usually, if something seems “sketchy,” for any reason, we flag it for further research. From there, we look at a number of aspects before determining whether something may be fishy or not. Below are the things we look at:
Team
The first place we look is the team page on the ICO website and in its white paper. Having immediately recognizable or well-known people on the team is not a requirement for ICO trustworthiness per se; so we know to look deeper. First the silly question: Do these seem like real people? We then look at the team members’ biographies. ICO projects will always inflate their team members’ qualifications and accomplishments, so we look for them online. A quick Google search usually suffices. Conducting a reverse image search of a team member’s headshot on Google can also bring up results.
We find it very important that team members have a presence on LinkedIn or similar professional social network such as Crunchbase or AngelList. For developers, a Github profile that’s active with a number of repositories and stars works. If they are on LinkedIn, how much of their profile is filled out? How many connections do they have, and are those connections real? We’re looking for ties to real companies and people. Are the team members who they say they are in their website biography — in other words, do the skills and accomplishments match up?
If there is absolutely no information about a person and they remain un-Googleable, we take that as a yellow flag. There have been several ICO projects we’ve come across with team members with very little to no internet presence.
Transparency and Updates
We screen ICOs based on how transparent they are in updating the community on development, changes, project road blocks and responses to feedback. How active are they on social media? On those social media accounts, what kind of communication are they facilitating? It’s not only important how frequently a project posts updates, but also the quality of those updates and how they conduct communication with people on Slack, Telegram, Discord or Twitter.
A component of transparency that we’ll always check for is an open-source code repository. This gets formulated into our risk score for ICOs that we take a closer look at in Token Clarity, our Telegram bot that queries our database of ICOs (it’s currently in private beta). Granted, many projects holding ICOs do not have products yet or development on the product has not yet begun. But a nicely active Github repository signals an extra layer of legitimacy for an ICO.
ICO Economics
The terms of sale and some of the economics of the ICO are good indicators of trustworthiness, particularly future trust. For example, do the tokens held by the founders and team have a lock-up period before they can be traded and sold? If so, for how long? What are their escrow conditions like? What is the cap on their token supply, or is there no cap?
It’s worth it for us to take a closer look at how the funds raised will be used in the development of the project an ICO proposes in its white paper. Of course, it could all be fake news, but taking into account the other rubric components we can determine if something smells fishy.
Forum Activity
Lastly, we take a look at the communities themselves. What does the ICO community think of these projects? A search on BitcoinTalk, Reddit, CoinFund’s Slack, Steemit and users’ comments in our Telegram forum will often bring up any scam allegations if somebody has made them in the past. We’ll look for an announcement post on BitcoinTalk and scroll through the comments to see what kind of activity lives on the post. If the comments are substantive, it’s a good indicator they’re not paid shills or sock puppets. We’ll take a look at any allegations we come across and do some further research.
Sometimes in our research process, we’ll find that an ICO we had listed on Token Tracker — our free ICO listing — disappears off the radar: Website down, social media handle down or not updated for months. We’ll call the ICO canceled if we have enough reason to believe that the project has gone indefinitely cold, and take it off the Tracker. This doesn’t necessarily mean it was a scam — some of them turn out to have scam allegations made against them, but others don’t — though we make sure to take note of the last status of the project.
In Token Clarity, we only gather complete information on a select few ICOs based on its public profile, social and forum buzz, and if lots of users have shown interest in one. We do not go through the process of thorough data hunting for an ICO if it appears untrustworthy after our standard research process.
What do you take a look at when determining if an ICO is to be trusted or not? Let us know in our Telegram group. If you’d like to take a look at Token Clarity, request access to our private beta here and let us know your thoughts on the ICOs we have in our database.
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Token Report is an independent financial information service founded by Galen Moore and Peter Vessenes. Galen is a financial journalist with a background in startups, venture capital and launching news sites. Peter is a co-founder of the Bitcoin Foundation, and launched the first VC-backed Bitcoin company in 2011. He is managing director at New Alchemy, a boutique consulting and investment group based in Seattle, Wash., that is making a pre-seed investment in Token Report.
Nothing contained in Token Report materials or posted at tokenreport.com constitutes an offer or a solicitation of an offer to buy or sell a security, financial instrument, or other category of asset, or investment advice or recommendation of a security, financial instrument or other category of asset. Tokens involve risk and are not suitable assets for everyone. Token Report believes its information was obtained from reliable sources but does not guarantee its accuracy or completeness and accepts no liability for losses arising from the publishing of this information. The information provided by Token Report is not a substitute for financial, legal and other professional advice. Each individual should always consult his or her own financial, legal or other professional advisors and discuss the facts and circumstances that apply to the individual.
