As a blockchain or fintech investor, you have to keep up with the pace of the ever-changing market and investment opportunities. Two years ago, ICOs had dominated the fintech industry, especially the blockchain/cryptocurrency space. Any blockchain startup could easily raise funds through an ICO as long as the development team came up with a convincing whitepaper that proved that the underlying project was viable. The startups benefitted by acquiring the capital needed while investors benefitted by making profits from the sale of the tokens at a later stage or using the tokens in paying for services connected to the project.
However, since 2018, ICOs have continually become less attractive to investors, especially due to scammers taking advantage of the lack of proper regulations on the ICOs. Instead, investors are now running for IEOs since they have some degree of safety. Though STOs are safer, they are yet to pick in the industry probably due to their strict requirements and IEOs have stepped in to fill in the gap.
But how do you go about investing in IEOs to ensure that you make the most profits? How can you be sure that the IEO is profitable or not?
Below are the number of things that you should consider as an investor before commit yourself in an IEO:
- Do thorough research about the IEO
You may wonder why the research and the project have already been Okayed by the exchange platform that has better experts than you. But remember, the Exchange does not look too much at the end result of the project. The exchange is only concerned with whether the project is genuine and whether its users will be attracted to the IEO token sale. The exchange is in business and it has to find something that will be well received by its customers. Therefore, it is paramount that you do in-depth research about the project itself to find out if it is a viable investment opportunity.
As you do the research, you could try to find answers to the following questions:
- Does the project seem to attract the interest of the general public?
- Is the project a new concept or just a copy-paste?
- Who are the people behind the project offering the IEO?
- How experienced are the members of the development team?
- Is the exchange listing the IEO reputable?
- Is the exchange secure?
- Has the exchange been involved in any malpractices?
- What is the history of the exchange in line with IEOs?
Always remember that the exchange is also looking for profits from the IEO token sale. Therefore, don’t just rush to buy the tokens, do a background check on the project first.
- The work that the development team has done so far
You have to look at what the team behind the project has done so far. You can’t just invest your money into a project that is not yet started; it might end up not starting at all. The software should be completed. You should be able to look at the program to verify if it will indeed be applicable.
You should invest in a project that has already started and the team can show some commitment to the project. This shows that the team behind the project is serious about the entire project.
Things like a whitepaper, well-designed websites, and the development team must be there.
- The exchange that offers the IEO
Once you are convinced that the project behind the IEO is viable and looks to be profitable, you have to consider the platform where the IEO is launched. For security reasons, you have to look at the reputation of the exchange platform.
In addition, you have to consider the onboarding processing that the platform requires for you to participate in the IEO. Remember, different exchanges have different requirements for you to become an investor in an IEO. But most importantly, you have to be a registered member with the exchange for you to participate. You have to go through the entire registration process, including the KYC/AML process.
Since it may take some time depending on the exchange that you choose, it is important to do this some days before the actual IEO.
The common exchanges with IEO Launchpads are Binance, Huobi Global and Gate.io.
- How the payments are made
This is a very important factor. You cannot participate or invest in an IEO unless it allows you to buy tokens through a means that is accessible to you. Again, you have to consider the asset that the development team together with the exchange sets as the accepted currencies to buy the project tokens. Some of the most used currencies include Bitcoin (BTC), US Dollar (USD), Great British Pound (GBP) Euro and Ethereum (ETH).
You should also look at the processing time. How long does the processing take after making a purchase?
- The IEO tokenomics
You have to closely examine how the tokens are distributed. You have to clearly understand the number of tokens available. You also have to see what percentage is assigned to what.
One of the things that you should carefully look at is the percentage of tokens given to the development team. If the development team is given the majority share of the tokens, then that is a red flag. Most of the tokens should go to the investors so as raise sufficient funds for the project.
You should also closely look at the distribution of the funds that are raised through the IEO. How does the development team intend to distribute the funds? The development team should not be the one taking the lion’s share of the funds. Most of the funds should go to the project development.
Another giant is coming up in the cryptocurrency arena; by the name of Initial Exchange Offering (IEO). Following the unprecedented rise of fame of ICOs in 2017 and the subsequent turmoil surrounding their regulations and scamming incidences, developers seem to have found another better way of raising funds for their blockchain and cryptocurrency projects through Initial Exchange Offering (IEO).
What is IEO?
Initial Exchange Offering is an ICO that is run through a Cryptocurrency Exchange Launchpad. Therefore, the Launchpad act as the intermediary that conducts the token sale.
Compared to ICOs, IEOs have succeeded in raising staggering amounts of funds in very short time spans. For instance, BitTorrent was able to raise $7.2 million in just 18 minutes through an IEO conducted via Binance Launchpad. Fetch.AI also raised $6 million in just 22 seconds via Binance Launchpad.
From statistics like in the examples highlighted above, investors seem to be more confident buying tokens via exchange platforms like Binance because they are certain that the exchanges are regulated and any activity that the exchanges are involved in must be legal and well analyzed by experts.
But how does the Launchpads work?
Launchpads are basically platforms that cryptocurrency exchanges have fostered to enable blockchain projects to offer their tokens for sale directly to the exchanges’’ customers. In the process, the buyers (Investors) of the tokens end up buying tokens from projects they are sure they are not scams.
To be allowed to use the exchanges’ launchpads, the blockchain developers have to enter an agreement with the exchanges so that their tokens can be initially placed on the exchanges.
Then, before any token sale is done on an exchange, the exchange performs a thorough audit on the project to find out its viability and potential of the token. The exchanges also directly manage the token sale.
The main participants of IEOs are the project developers, Exchanges and investors.
Through the IEOs, the exchange platforms get revenue from a listing fee for the token placement and also attract more customers since people will join the exchanges to participate in the IEOs and eventually stick in the exchange for other trading activities.
For investors, they get a reliable investment opportunity. It is hard to get a scam token sale being conducted via an exchange platform. Therefore, the investors can rest assured that they are investing in a genuine project that is well vetted.
Benefits of investing in an IEO
For the project developers, they are assured of a more legitimized token sale since they get the backing of the crypto exchanges who investors are sure to have done their due diligence on the integrity of the project. On the same hand, projects have their tokens exposed to a larger customer base since exchanges already have a wide customer base. The large customer base makes it possible for the projects to raise very large sums of money within a short timeframe.
Investors, on the other hand, get an opportunity of investing in a token that has immediate liquidity. They can also pay for the token through a variety of methods that are already established in the exchange platform.
Despite the fact that IEOs are not scams, it is good to remember that the investors are the ones left with the short end of the stick. They are the once that face the most risk in IEO. They can only trust the exchanges to be good at what they do.
The IEO policies also differ from one exchange to the other and the problems faced in one exchange may not be similar to those faced on another exchange platform.
There are thousands if not tens of thousands of ICO projects out there. Blockchain developers have identified a simpler way of raising capital to implement their blockchain projects. And at the same time, investors have also gotten an opportunity to rip big from the blockchain projects through the ICOs.
However, not every ICO is worth investing in. ICOs are known to be poorly regulated and chances of landing into the hands of a scammer are very high. Actually, whenever you are investing in an ICO, you are only gambling on the value of the crypto token issued to you. You only have your fingers crossed that the project will gather momentum and attract customers in line with whatever solution that the blockchain project is trying to solve. Otherwise, if the project doesn’t pick, your money goes to waste and there is no way of claiming it back.
Nevertheless, despite the risks involved, there are still very great chances of ripping big from ICOs. If you correctly identify the best ICOs, then you shall earn yourself some good money when the project picks and the value of the issued crypto tokens rise.
But how can you identify an ICO project that will give you good returns? What is the secret? We shall go through some factors that you should consider when choosing an ICO project to invest in.
Factors to consider when choosing an ICO
- Gather facts to prove that the ICO is not a scam
This can be very hard since no scammer will portray himself as one. Actually, scammers are very good at concealing themselves and using very attractive advertisement language that sweeps you off your feet very easily. But as a serious investor, always take your time before investing your hard earned money. You don’t want to lose that which you have labored hard to acquire to some person sited in an office waiting for you to give him the money and then vanish.
A genuine ICO will have a real website that isn’t duplicated anywhere else. Also, the contact and location of their head office are normally well indicated on their official website. Before launching an ICO, any serious developer knows that they should have a whitepaper to explain what they intend to do, what they have done so far so that they can convince the investor why they should give them money. Your main attention should be on the development team.
Go through the information on the development team very carefully looking to see if you can spot any misplaced information like if they went to school which cause they took and what role they are playing in the project to see if they match. Of cause, someone can’t do something they aren’t experienced in and you expect that project to be a success. The best ICOs are those where the development team has given links to their social media since you can be able to follow up on them.
- Look at the ICO community
You don’t want to be the only person interested in the ICO. If that is the case then there is a problem. A promising project attracts as many investors as possible. Actually, this is a way of gauging to see if the project has any prospects of picking or not.
You should also look for an open supporting community. There should be a social group like a telegram chat group or Facebook, Reddit or Twitter where you can interact with your fellow investors. That way, you will be able to identify any concerns raised by other investors.
You should also ensure that the ICO project does not have bounty threads or posts since they could be used to spread propaganda information which does not give the clear picture of the entire blockchain project.
A genuine ICO project will have the development team send out press releases and take interviews in the media houses to try and sensitive the people about the project and explain to them what they want to do so that the people can get interested in the project. There is no need for bounty threads or posts.
- Confirm the stage of the project
Any serious blockchain project should have a roadmap that clearly outlines the timelines for achieving the various milestones along the development stages.
Before asking for funds through the ICO, the developers should have done something. They don’t just ask for money to start everything. No! There has to be proof that the project is indeed a serious project and that it has already started and it has reached a certain stage.
If possible, find an ICO that is as close as possible to the launch of a fully functioning blockchain project.
You should never invest in a blockchain project that hasn’t written its source code. The code should be ready waiting for implementation.
- Look for Venture Capital (VC) Investments
VCs will never invest in a project that has the slightest signs of being a failure. Therefore, if you invest in an ICO project with an established VC, you are guaranteed that the project will pick.
And any blockchain that gets a venture capital investments will gladly display it for everyone to see since it gives other investors’ confidence. But also be careful to confirm if the VC is well established.
- Carefully read the white paper
The white paper will enable you to know exactly what you are investing in. by reading through the white paper, you shall know what the entire project is all about.
If you find the project viable, then why not invest? However, you should take your time and even do research into what the blockchain project claims they want to tackle. Is it something that will interest the community? Will it gain the attention of the intended audience?
A good white paper will outline the legal framework between investors and developers. It will also outline the team behind the project and their contact. You should also look for information on the token distribution. The token distribution should be in line with the roadmap. This is because a certain amount of funds will be required for every phase of the roadmap.
For security reasons, you should also ensure that the funds are stored in a cold wallet or in an escrow wallet.
- Analyze their source code
The source code should be open source code. If it is not open source code, then that is a red flag. A genuine ICO project will be careful to put everything in a transparent manner.
Go through the code or find an expert to go through it and identify if it is able to meet the challenges being addressed by the blockchain project.
After evaluating the ICO project based on the above factors, you should be good to go.
However, you should remember that ICOs are poorly regulated and it could be hard to ever get your money back in case the projects fails. Therefore, it is advisable to invest an amount that you are ready to part with. You should not have too much attachment to the money that you invest. If that is the case, you better not invest since if the project fails, then you will be very heartbroken and you could easily be depressed.