What to be on the Lookout for in an Upcoming Initial Coin Offering (ICO) & Avoid ICO Scams
With more recent news breaking from the Securities and Exchange Commission (SEC), ICO scams are back in the spotlight. The SEC recently filed charges against the co-founders of the Centra token (CTR) for fraudulent behavior. But what does that mean for us? Because of all the bad press surrounding ICOs, it can be difficult to remember what good they offer companies as well. Let’s take a look at some of what we should avoid when considering an ICO to keep us on track for the good projects.
5 Red Flags
First, we need to understand what is actually going on with an initial coin offering (ICO). Once we have a firm grasp on what the function is, then it becomes much easier to recognize potential red flags. A “red flag” is just some type of warning sign to investors. Red flags come in all different shapes and sizes, but the important thing to know is that they’re indicators for what may potentially be a risky investment or one of many ICO scams.
Anonymous or Non-Transparent Development Team
Remember that an ICO is a crowdfunding tool before anything else. Just like when a traditional company is seeking funding, a blockchain-related company should be acting similarly. “Green lights” (the opposite of a red flag) are normally found with a strong development team that’s active in the community. Whether that’s posting on various forums, answering questions via Telegram or Twitter, or staying up-to-date on LinkedIn, it’s important. Investors don’t want to have to place bets when it comes to giving strangers money. Having an open, well-established team shows potential investors that the project is being taken seriously. Additionally, a team available on social media and in the community can respond to questions and concerns much faster.
Empty or Inactive Repository for Open-Source Projects
One of the major selling points for many crypto projects in the market is their nature of being open-source. Open-source projects are great for many reasons, but one of them that’s most important for investors is being able to check in on them to verify that it’s not another one of the ICO scams making its way through the market. If a project is open-source, then the development team typically has a GitHub page setup where other developers, investors, and enthusiasts can go to get a feel for where the project is at. If the repository is empty, hasn’t been updated in a long time, or is non-existent, then there’s a major red flag for investors.
Overly Aggressive Marketing
As anyone involved in business knows: marketing is important. That’s true. However, there are times where the marketing can go a bit overboard. If the marketing has gotten so out of control that it’s affecting the project, then we’ve got another red flag for potential ICO scams. When checking an ICO’s website, always take a look at the “team” section. Is the team only marketers with no developers? Then we’re dealing with a red flag. On the other hand, having absolutely no marketing department can be equally as bad. After all, the success of the project is dependent on public reception. If the team doesn’t get their project out there and known, then we have problems as well. We need to find a good team mix with developers, marketing specialists, and important advisers to increase the chances of a successful launch.
Weak Website and Whitepaper
As with any business, projects need a plan! Typically, the team responsible for the platform and ICO will have a website and whitepaper available for viewing. The site serves as both as an informational resource as well as an opportunity for marketing. Check with the official site and see if the project has a developed road map. Do they have a schedule? Goals? Time frame for executing? All of these are important to take into consideration. On top of that, what does the site and whitepaper look like? Does the whitepaper contain a lot of broken English (or whichever language it was published in). Is a large portion of the paper plagiarized? Is any of it plagiarized? While poor English skills are not a predictor for project performance, they do signify a lack of attention to detail and professionalism. These are all red flags that should stick out to investors.
Does it Sound ‘Too Good to be True?’ (It Probably Is)
This last point is some of the oldest advice in the book, but that’s because it’s true. Chances are, if an investment opportunity sounds “too good to be true,” it most likely is. One of the things investors are always on the lookout for are unsustainable goals. For example, if we look back to BitConnect and their impressive promise of guaranteed returns every single month, red flags pop up all over the place. In the case of that project, well, we all know what happened there. Just like with any other industry, investors should always keep an eye out for some of history’s most basic red flags in ICO scams.
Common sense plays a crucial role when it comes to evaluating the legitimacy of a team and project. Though it may sound nice to earn “1,000% every month!” do you really think that’s possible? And even if it was possible to accomplish via a Ponzi scheme, how long could that last before you get burned? At the end of the day, common sense is King. Your money is being invested to work for you, not them, so choose wisely and always do your research.