How to evaluate ICOs
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I get asked rather often to help with evaluating the viability of ICOs. I should tell you that I participate in ICOs from time to time however I don’t consider it investing. I think of it more as crowdfunding and I help fund projects that I believe will make the cryptocurrency world a better place. I have a method that I call the 4T’s. Tech, Timeline, Team, and Token.
Tech
The Tech is the most important aspect of the 4T’s. Here we evaluate both the technology used in the project, but also whether or not the project is actually solving a worthwhile problem to begin with. Whether or not it’s worthwhile can be judged on the same very simple metric that the general public unconsciously uses to decide whether or not to use something. Is it faster, cheaper, less pain in the ass to use, have a better UI than what’s currently available? (rather than is it more technologically advanced, is it decentralized, or is it private) Is the market for their tech growing? If not, then I pass on the project.
Timeline
Next is Timeline. Do they have a prototype available? When will they have a prototype available? When will the product be released? I personally do not participate in any project that doesn’t even have a prototype. A project without even a prototype is basically a concept on a napkin.
It’s very important that the team works well together. Most ICO teams are formed for the goal of having a successful ICO rather than actually achieving their goal of completing the project, and therefore may have never worked together and have not actually shipped any code. Having a prototype gives me some peace of mind knowing that the team has at least some history together.
Team
Typically when researching the team I look through LinkedIn profiles. However LinkedIn is not widely used in China, Japan, or Korea. In Japan for example, Facebook is more often used to connect with business contacts. LinkedIn is not properly localized in Asian languages, and from my experience, real rockstars don’t use LinkedIn since they would be inundated by messages from recruiters.
I click on the LinkedIn profile links of the team members, looking for entrepreneurs. Then I search the company that they founded and try to find current team members that they worked with in the past. That’s an indication that they work well together. I then search their Facebook/Twitter/ profiles for more information that gives me clues as to whether or not they can execute on their strategy.
This whole process takes 3–4 days.
Token
This information is most likely listed in the project’s white papers but since white papers don’t have a standard format, you may have to do some digging.
How many tokens are they creating?
How many tokens are they keeping vs how many are they distributing to the community during their crowdsale?
What use will the token have to drive demand?
I don’t care if their project ‘needs’ a token or not. There’s a strong business case for making a token even if there are possible technical alternatives.
- Having your own token gives you some control over the value of your network vs Ethereum. If your business is doing well and you starting making media buzz, your token can increase in value even though the Ethereum prices is stagnate or is trending downward.
- You may need to provide liquidity for your network, and having your own token allows you to do so.
- Apple packs white earbuds with all of their iPhones even though you probably have a pair somewhere lying around. These white earbuds allow Apple users to show that they are part of the Apple ‘tribe’. With your own token, fans of your project can be part of your tribe.
- Airdrops*. You can easily identify and reward members of your ‘tribe’ by airdropping them tokens.
*An airdrop is like putting money in an envelope and sticking it in someone’s mailbox.
“Why do you need your own token?” That’s like asking why do we need cryptocurrency when we have the dollar, NEO when we have Ethereum, why do we need two types white bread, why do we need 31 flavors of ice cream? (mint chocolate chip just in case you’re wondering..)
Why do we even need ICOs when we could crowdfund and hand out securities to the same effect.
..”Why don’t you have a working prototype?” or “Why are you building a decentralized exchange without having anyone that’s worked at a financial exchange on your team?” are more relevant questions in my opinion.
So there you have it, my 4 main criteria for evaluating and participating in an ICO plus a bonus little rant at the end.
I hope you found some of this useful.
