You want to know the biggest reason why most ICO’s suck? It’s because the old system is stifling new technology. If startups would be allowed to offer equity through ICO’s, they wouldn’t have to invent those stupid reasons for why their tokens must exist. We’d just use Ether to transact on most new platforms, and the tokens bought in the ICO’s would provide equity and dividends.
If you’re planning to invest in a cryptocurrency-related ICO, then make sure you do your due diligence because even though the number of scams is lower than people suspect, many of the projects are still bad enough that the risk is not worth the cost. Just as buying equity in most startups would be like throwing money away, investing in an ICO can be the same. Right now, the best ICO’s are those set up in jurisdictions that allow them to sell equity through tokens. When this will be a more global phenomenon, the quality of ICO’s will raise dramatically. Right now, just make sure you do more research than usual, and while you’re at it… being a bit paranoid is fine. Here’s what to ask about each potential cryptocurrency-related investment, before taking part in its ICO:
- Does it solve a problem or alleviate friction anywhere?
- Does it really need decentralization and other such properties?
- What is their current tech? (check repository code from all branches, check gitter chans, do a static code analysis, compile and run code, etc.)
- What is their future tech? (check whitepaper, research, milestones, repository pull requests)
- How close to ready is it?
- How is the dev team? (check their open source contributions, etc.)
- Do they have a funding scheme? What kind? (community donation, venture capital, institutional investment/buyouts, ICO etc.) Is it a good fit for what they’re doing? (for example if they’re doing a cryptocurrency with low network effects because of a badly chosen funding scheme, it’s best to just wait for its first fork)
- How are they organized? (dev-lead like Bitcoin, or non-profit like Stellar, or company like Ripple, or cooperative like Rchain etc.)
- What is their track record?
- Do they have any institutional or prolific backing?
- Does it have competition, and where does it stand within that?
- Any plans to create, stimulate, and maintain adoption?
- Does it have a good media presence? (articles, reviews, feedback on Reddit, etc.)
- Does it have a good marketing team? Does it have a solid bounty program that has gathered a large community?
- How is the community? (count on Telegram, objectivity, etc.) Are intelligent people interested in the project or just gamblers?
- How is the accesibility and the liquidity of their tokens?
- Growth potential based on current price and supply, and also considering supply that will be coming from inflation, or lockdown? (for example private sale participants that have their tokens locked for one year will surely take profit when the lockdown is over)
- Is it an interactive coin offering? If not, what protections are there that the token distribution will be fair?
- Do the investments go into a DAICO? If not, what protections are there that the milestones will be reached?
- Can it survive or at least get around the regulatory hammer? (for example if they’re based in US, but they’re selling security tokens or utility tokens that are expected to go up in value, it’s too risky)
- Has the ICO contract been audited?
- Do they have a bug bounty program for their code?
- Did they employ any kind of censorship (on Telegram, on Reddit, etc.)? (On Reddit, for posts it can be discovered with https://ceddit.com/r/iota/new, or by opening with the same tool controversial threads and looking for removed comments. )
- write other positives that you can think of
- write other negatives that you can think of
Recommendation: (what’s the probability that this is a good buy?)
- write your final recommendation
If planning a sizeable investment, get a third party assessment. (from Amazix, Multicoin Capital, etc.)
To understand what is a fair ICO structure, read https://github.com/Thetta/GitBook_ICO-Approaches
Some of the advice given in this article was copied from here: https://www.reddit.com/r/CryptoCurrency/comments/7n3fxk/im_truly_disappointed/
Good luck! There’s money to be made by the people who choose well, but ultimately you’ll also need a bit of luck.