ICO Red Flags You Don’t Want to Miss
Why is it so difficult to determine which ICO’s are good investments? Primarily, this problem stems from the vast amount of data required to research an ICO in depth, coupled with the urgency to make quick decisions. But social media also plays a role. Information, accurate or not, spreads like wildfire and leaves many people to wonder who is legit and who is just a passing pile of fluff. When comparing ICOs to make your investment determination, be on the lookout for these ICO Red Flags.
Expedited Founder Liquidity
For startups planning their ICO, the founders, who are essentially creating a new cryptocurrency, are able to determine what amount of tokens they will receive and when. If they planned for delayed founder liquidity, this means their token payments are received over a long period of time, such as 2 years. This helps to ensure that those directly involved in the startup don’t cash out and leave investors high and dry. If there is no mention of delayed founder liquidity, then conceivably the founders could reap the rewards during the ICO and shortly after, simply move on to the next big thing.
Website Weak Spot
When researching any new ICO or cryptocurrency startup, many people will check out the website first. Of course, you want to see an interactive and professionally designed website that gives visitors a clear roadmap for finding out everything they need to know.
Most ICO websites include many links leading you to, for example, their press coverage, their advisors, and the partners with whom they’ve aligned. Some sites will display logos for press services and partners, and LinkedIn icons for the advisors. But if they are not linked to anything (which I have found), beware. Furthermore, double check the advisors if you have any suspicion, as even a seemingly prominent ICO might make up fake advisors to beef up their investment pitches.
Press coverage, prominent advisors, and partners can all represent a huge boon to a fledgling start-up, so these items will be prominently displayed on an ICO website and properly linked – unless they are fake.
A Ghost in the GitHub
This is perhaps one of the easiest ways to determine if an ICO is a genuine business. It’s helpful because it gives you a glimpse into the ongoing open source development of the blockchain code. Most of us may not have a clear (if any) understanding of the code involved. But we are able to easily see the number of contributors and their individual contribution activity. If an ICO doesn’t share their code in an open source environment like GitHub, then it’s an instant red flag.
If you’re looking for a company that has long-term potential, they will need to know how to service their users successfully. Maybe you have a question as you are reading their white paper. Contact them to ask it. If you receive no response at all, this can be a sign that systems are not in place to handle problems.
During an ICO, many things can go wrong. ICOs that don’t respond to simple questions may fall short when a larger problem arises during the ICO.
Glaring White Paper Flaws
When speaking of white paper flaws, the omissions are the most common and most glaring. Omitting core pieces of the business model, such as a risk analysis, security procedures, and a market breakdown, leave far too many questions as to the validity of this company.
A Lack of Legal
An expert on legal issues is a must have for any reputable enterprise. This is especially so in the ICO marketplace because of its decentralized nature and the lack of geographical lines. Different countries are developing unique sets of rules and regulations. These must be considered by a legal expert well versed in digital currencies. No legal person on the team and/or no legal budget allocated = major red flag.
ICO Shows Limited (or No) Team Transparency
Studying team transparency is a quick and easy way to weed out the scammers from legitimate businesses. Each team member as shown on the Website and white paper should have a LinkedIn profile attached to their bio.
In LinkedIn, you can:
- Scan their previous projects
- Check out their recommendations
- See if they even list this ICO on their profile. If they don’t, you may ask yourself, why?
All team members and advisors might not have their links listed. But the majority should. If they’re not on LinkedIn or any other social media platforms, they can be eliminated from your research.
Token Usage Too Limited
ICO’s that demonstrate only a single use for their token, that is only tied to one kind of activity, will not attract and hold onto enough users. Therefore, their chances of building demand are reduced. If you create a service and use a token within your business model, the token must be dynamic. Even more importantly, it must have the ability to be used in multiple ways. TruDex scores according to Mougayar’s Benchmark, a 20-point system that thoroughly dissects the ICO’s token strength. ICOs creating an ecosystem for users with multiple use-case scenarios have a better chance of making the long haul.
A Black Hole of Crowdsourcing
Decentralization is a prevalent feature of blockchain startups and a major reason for mass appeal. People are ready for peer to peer investments. But most have not yet reached the knowledge base necessary for investing wisely in the decentralized marketplace.
Crowdsourcing not only plays to the idea of decentralization. It also encourages investor feedback throughout and beyond the development process. Finding ICO’s that have a vibrant community, creating content and discussing pros and cons, will provide another tool to help investors choose. Look for discussions in GitHub, Bitcointalk.org, Reddit, Investfeed, Disqus, Slack, etc.
Investing in ICO’s is quickly becoming a mainstream investment option. Hordes of new cryptocurrency investors are coming in. With a wide open ICO marketplace and hundreds of new businesses to evaluate, how do you come to grips with all this information and come out making a sound investment decision? Join us at TruDex.io. where empowering investors with the data they need is our number one priority.
By Mary Thibodeau