How to identify a good ICO project

An initial coin offering (ICO) is plainly a method of crowdfunding projects and presents blockchain-based businesses with a new way to access startup capital. ICOs provide a means by which startups avoid costs of regulatory compliance and intermediaries, such as venture capitalists, banks and stock exchanges, while increasing risk for investors. Its critical to understand the risks associated with each investment and especially when it comes to alternative digital assets. In this article you may find an outline as to how to identify a good ICO project.

The problem being solved via applying blockchain technology - Idea

Always check the scale of the problem that the coin is going to solve. The problem should ideally affect as many people as possible, otherwise no one will ever notice the project and it will fail. The White Paper should include information as to what research has been conducted and what insights have been obtained. It should also clearly explain how blockchain technology and its application will solve the issue through the creation of the specific token and project. One of the most important questions each project needs to answer what is the token for?

MVP - Stage of the Product

Evaluate the stage of the project. Has the product been tested and is working or has it launched with limited capabilities and functionality? How many users are getting value out of it? Is it in Alpha, Beta stage or does it only have a White Paper? Have they at least reached their funding soft cap as to develop what is needed? The more developed the product is and the more familiar is the market with it, the lower the potential risk of failure for an ICO but on the other hand there is also a lesser need to have an ICO to fund the development of the project as they could be the target of an angel investor.

Team, Developers & Advisors

You should careful read about the qualification, expertise, skills and experience of the team members. The founding team, advisers and developers behind the ICO can make a significant difference to its success so it is strongly recommended to do research on them. Check each team member for relevant experience, look for influential personas in blockchain among the advisory board of the project. Check for their credentials and other signs of expert status. Make sure that the team have relevant blockchain and crypto experience.

Whitepaper

The whitepaper is the primary document that clearly describes what problem the token is going to solve and how. Similar to a company prospectus it should address a new venture’s goals and strategy, and all the important information about the ICO project. Without one, you should definitely stay away from the “ICO”. Make sure that the goals described can be achieved and are realistic given the information in hand. After reading it, you should be able to understand the value it brings to the market and whether the opportunity is worth the risk

Token metrics

A rule of thumb says that with a small number of circulating coins or tokens, then the smaller the actual supply is, while on the other hand, if the project performs well, then we should expect increased demand that will result in an increased price and increased multipliers for the crypto-asset investors of the particular project. Also, check whether the team is being too greedy with the token distribution, if they have too much they can easily abandon the project by dumping the tokens in the market and burning investors. Interests must always be aligned for the good of the project in the long term! A good project will link its token distribution to the roadmap and will address how each milestone of the project will be funded. Check for the token distribution stage as some projects release their tokens just hours after the ICO has ended while Others need to develop a beta version before sending out the tokens.

Hype in the communities

If there is a lot of hype and discussions around an ICO, then the chances that it will be successful are increased. Check the social media groups of the ICO and see if people are actively engaging with it before it really goes live. Each ICO to be launched has a launch date and fans tend to be over excited about crypto projects even before the launch. The more people are liking some coin or token, then most likely it’s going to survive when it goes out on the exchanges as it will have support from its community. Check BitcoinTalk.org thread, Slack channels, Telegram, as well as Reddit, Twitter or Facebook. Check all the venues and ask questions to the moderators. How many followers do they have? If they can create a lot of hype and get support it means that they also know how to market themselves, so the greater their reach the better the chances for success.

Exchange Listings

The number of exchanges that the coin/token will be listed is extremely important. Providing access to traders and investors alike as well as liquidity for the underlying helps build confidence in the token and the project. New exchange rules like in Japan, require that exchanges strictly conduct their own research and due diligence before listing a token on their trading platform. So, a reliable exchange will also help investors screen and evaluate ICOs while further regulation is expected to help improve the crypto landscape.

Soft, Hard cap or No Cap

Maybe in 2017, the difference between open and hard cap didn’t have the same impact as today’s ICOs. An open cap allows investors to send unlimited funding to the project wallet. As ICOs become more mainstream, enormous amounts are collected. For example, Bancor, a project that raised an incredible $150 million in just three hours and as a result provided no returns to its investors. On the other hand, if the project is not able to raise considerable amount of funds, then they cannot get easily listed on exchanges. It seems that a new trend arises where any new ICO soft cap above $5 million nowadays raises suspicions but that is with a pinch of salt as it is always dependent on the scale of the project. We can perhaps see a relationship between the size of the project, the funds raised and the potential risk to reward ratio in this case. The smaller the project, the riskier it is, with greater potential returns while huge projects might appeal safer with lower potential returns.

– The Necessary Tech stuff

Ask yourself why the project chose to run on the specific blockchain. Recent months have shown the rising popularity among the ERC-20 Ethereum based smart-contract ICOs and it seems that liquidity is abundant for these ether-based tokens. Check if they are deploying their own blockchain? Who is building the code, has he done it before? Were there any independent audits conducted, and what were the results? Is there an open source proof of concept? Are they also conducting airdrops to promote adoption? How is it received from the community of developers? Are there details on Github available? If you cannot understand it and visualize it, perhaps it’s not meant to be and it means that you should look for the next promising project.

Partners and Adoption Plan

Were there any significant partnerships announced with other organizations? Are there any pre-orders or is there a clear plan as to how the project intends to penetrate the market and through which venues? How does the project create more opportunities and incentives for participants to engage actively with it?

Conclusion

ICOs are becoming more and more popular as a method for raising funds while at the same time governments and regulators are looking for ways to monitor and control the situation. Without governing guidelines and as the number of projects and information increases, it is increasingly difficult to pick out the real winners and separate the bad apples. It is crucial to do thorough research and study as much information as possible, in order to understand the risks involved before making an investment decision. Hope that you find this guide valuable through the course of your research.