It’s been about 2 years since ICOs became a thing, but you can still be amazed by the substantial lack of due diligence and thorough research in the approach most investors follow. What’s even more surprising is the fact that, there are no good all-in-one guides on researching ICO projects. Thus, I have decided to fill this hole in the blockchain ecosystem by providing the most substantial and in-depth initial coin offerings research guide. Without further ado, let’s begin.
As noted in the title, this guide will be of the step-by-step type, directing you via a sequential approach towards a much more critical evaluation of the ICO projects you research. But before we get to the steps themselves, I want to note on the most important criteria you should employ while doing your research – time investment.
What I mean by time investment is the following. You should look at everything related to the project and always try and judge it (not exclusively) in terms of how much time it looks like the team invested. For example, a project that has typos everywhere on their website probably didn’t invest much time into perfecting their website. Other examples include, but are not limited to, projects with white papers that look like they were put together in a day, projects with horrific website design, projects without a blog (or a very bad one that is rarely updated), etc.
And I know what you’re thinking at this point. Why does this matter so much? Just grasp the general idea of the project. Who cares if there’s typos everywhere and the design of the website is not completely flawless with its pixel-sized mistakes, right? Well, sorry for being so blunt here, but that’s how amateurs think. Professionals pay attention to details – all details.
But still, why is this so important? Well, because the devil is in the details, or more specifically, the same team that put together the presentation of the ICO project (website, white paper, etc), is the same team (more or less) that will supposedly be developing the product they are trying to sell. And chances are, they will develop it in the same manner as they have their website, white paper, etc.
So, when it comes to researching ICO projects, you should substantially raise your perfection meter. After all, blockchain tech is a baby industry and it can only mature thanks to projects that are absolutely fully committed to their idea. And when you are fully committed to something, you invest every second into improving every part of it.
That being said, let’s begin with the ICO research guide.
Step 1. Be Extremely Critical
The most effective marketing gimmick, by far, that ICOs tend to leverage, is hype. And, as hype evokes strong emotions, and more specifically, the infamous “fear of missing out”, most people tend to forget about doing their due diligence. However, just because a project is backed by a celebrity or just because it has 20,000 people in its Telegram group, doesn’t mean that it will be a good investment, or more so, it doesn’t mean that there is a good chance that it will be a good investment.
And this extends outside of the blockchain sphere. For example, Leonardo DiCaprio and Tom Hardy attending the launch of a $16,000 smartphone, doesn’t mean that the phone will actually be worth those sixteen grand. It just means that they are invested, in some way, in the project and want to influence its performance by leveraging their personal brands.
Contrary to popular belief, you should be most cautious with hype projects by asking yourself why would a project want to hype the community up in an unnatural way – as they often do. A movie star endorsing a blockchain startup means pretty much nothing as, if you think about it objectively, what the hell does a movie star know about blockchain tech? Most probably nothing and chances are, they were paid for the endorsement or have personal interest in the project.
Same goes for endorsements by niche-specific influencers. Most of them are also paid for or own some share of the total cap of the digital asset and, while not so ignorant of blockchain tech as mainstream celebrities, I doubt that most of them do a thorough research before endorsing a project – that is from my own personal experience.
Furthermore, more than half of ICOs failed in Q2 2018 alone and this percentage doesn’t seem to be improving. Reports by ICORating and CoinDesk have also shown that, most crypto assets offered in ICOs in 2018 are below their price at the time they first started trading on an exchange.
Additionally, less and less projects are managing to reach their target funds, as per this E&Y ICO research. Of course, current market conditions aren’t helping and as a consequence, investors have become more critical of ICO projects. However, in my opinion, most are still not critical enough. Not even close as you will see if you read this entire guide.
So, to summarize step one, next time you think about participating in an ICO, make sure to remind yourself that you need to do the research objectively while being extremely critical every step of the way in order to not become yet another victim of the guardian angel of many ICOs – FOMO.
Step 2. Read the White Paper from Top to Bottom
I know this may seem like an impossible task but I believe you can do it. Most white papers are in the span of 20 – 30 pages however, in many of them there are tons of images, which don’t take long to go through.
And besides, if you are serious about your investment, you need to know everything you can about it. And the white paper is, in my opinion, the best place to start. However, what I have noticed is that, most investors don’t read more than a few paragraphs of the white paper which is a huge mistake.
What happens is, from conversations I’ve had with ICO investors, most of them report taking a look at the Abstract/Executive Summary section and quickly look for the quality of the language and the technical “depth” of the content i.e. are there words the don’t know in there. If there are, then the writers probably know what they are talking about and so there is no need to further read on and they move onto the next step in their “ICO research checklist”.
This is a very wrong way to go about it as reading a few paragraphs, especially the first few ones where the writers would have often invested the most time, and then jumping to the conclusion that everything is looking good with the white paper is quite literally a statistical error. You can’t just read 3% of something and then consider it a job well done and later complain to the project founders that you have lost whatever percentage on your initial investment. On most occasions, this was an error on your part as you should have invested much more time in research, rather than jumping to conclusions.
So, all that being said, what should you look for in a white paper? Well, first of all, you should look at the quality of the language. As most white papers are in English, I will use that for the purposes of this section. So what does it mean to look at the quality of the language?
Well, it quite simply means that you need to make sure that there are no mistakes at all, anywhere in the white paper. That includes grammatical errors, typos, and pretty much anything that is considered a mistake in the English language. A few typos here and there in a 30-page paper is tolerable however, if you are finding mistakes in every paragraph or even worse, in every sentence, then you should place a black dot in your head regarding this project.
Think about it this way – the white paper is the main selling point of most projects since, still, the majority of ICOs are only backed by an idea. What does that tell you? Well, a team that is not serious about their main selling point so much so that they did not even take the time or invest the resources to perfect it, will most probably do the same with their product, provided they ever make ti to the development stage.
Another thing you should look at is the style of the white paper. This part is more so my opinion than anything else, but I think that it is true in most cases. What I’m talking about is the duel between LaTeX-style white papers and brochure-style white papers.
From what I have observed, some of the largest and most successful ICO projects have used LaTeX for their white paper i.e. a more scientifically-styled content. Examples of such white papers can be seen here, here, and here.
Scientific-style white papers are a rarity when compared to brochure-style white papers – I also call these marketing-style white papers since they look more like a product catalog than anything else.
And while you can put together the common marketing-style white paper in a week, it can take you a month or even more, to do the thorough research and then write the white paper using a more scientifically-focused approach. And there goes the time investment again. A team that is fully committed to their project will not be afraid to invest however much time necessary to bring every part of their project to perfection.
I just want to note here that, just because a project has a brochure-style white paper doesn’t mean that it will not be successful. I just expressed my opinion that I would much rather prefer a scientific-style white paper due to the fact that it is much more difficult to put together, which gives me a some insight into the way the team behind the project operates.
Anyway, the next thing you should be looking for is references. If a white paper has just a few references, or no references at all, then you might need to consider the fact that, a lot of what’s being said might just be baloney, especially if exact data is being included, without any reference to its source. If you really want to take it to the next level, you can go to the end of the white paper and take a quick look at each of the references there.
In most cases, the referenced articles in the white paper include the fundamentals on top of which the proposed improvement is based. So, taking a look at the sources used to put together a white paper can tell you a lot about the aim of the project.
The last and most important thing you want to look for in a white paper is vision. Since white papers depict different products and services, it is hard to come up with a linear evaluation approach that will work in all cases. That is why, I would always recommend looking for a clear vision.
If, after reading the entire paper, you have a clear vision of how this project is planned to be executed in the next 2 years or so, then the ICO related to this project certainly deserves further research.
Step 3. Thoroughly Explore the Project’s Website
Once you are done with the white paper, move onto the project’s website. Your approach towards the website should follow one main criteria – perfection. This includes the content, the design, and the layout.
Typically, ICO project websites are one-pagers, meaning everything is bundled into the homepage. That is perfectly fine, but not when there’s way too much stuffed into a single page. In that case, the website should have been split into a few pages.
Now, let’s begin with the content. Just like with the white paper, you should read it from top to bottom, rigorously grasping its essence while at the same time looking for mistakes. In many cases, the content of an ICO project’s website is a summary of what’s written in the white paper – though you shouldn’t use that as an excuse not to read the entire white paper.
When researching the content on the website, you should pretty much employ the same approach as when you were researching the white paper – look for the quality of the language and expect to be left with a clear vision of what’s to come.
The difference here is that, while scientific-style white papers are much more impressive than brochure-style white papers, they tend to be quite technical. So don’t expect to understand every single little detail unless you are technically proficient and you do your reference research.
But, you shouldn’t be left with that same feeling after going through the website content. It should be written in a much simpler manner, exposing the fundamentals of the project to be understandable, even on first glance, to a much broader audience.
Next comes the design of the website. Now, design is extremely subjective and everyone has their own personal taste however, there is still a general sense of it that is integral to the success of every website.
Again, employ the same crucial time investment criteria to the design of the website. Does it look like the team really took the time to perfect everything? Are there misplaced elements? How is the color palette? Is it flowing or is it contradicting itself? Is the website easy to navigate? How long did it take you to find what you were looking for?
These and other similar questions should be popping up in your head as you are judging the design of an ICO project’s website. Of course, the design of the website includes the logo of the project as well. When it comes to logos, the sky’s the limit. Any logo can be pretty much acceptable as long as it depicts the project in both a subtle and an obvious manner.
Me personally, I like simple logos that don’t have too many details and get straight to the point. I am also a fan of unique designs, and do not condone projects that purchase logos from GraphicRiver or Creative Market that tens or even hundreds of other projects use.
Once you are done with the design of the website, you can move onto the layout. This part is usually done very quickly because it has two simple criteria – does anything look out of position and how easy was it to find what you were looking for? That’s pretty much it.
The final criteria you can judge the website by is mobile-friendliness. Check the website on mobile and see if it is looking good there as well. About 50% of all traffic comes from mobile devices so an ICO project’s website should not only be flawless on desktop, but also on mobile.
In summary, the website is usually the main “product” of an ICO project, considering 84% of class 2017 were backed up only by an idea. So, do not let even the smallest detail evade your judgement. With projects looking to raise, often, absurd amounts of funds, they should at least have the courtesy to have a flawless website.
Step 4. Examine the Prototype/MVP/Working Product
As we just mentioned, most ICO projects are backed up only by an idea, with no actual working product, MVP, or even prototype. In my personal opinion, in most cases, you should stay away from such projects.
There are exception of course, but most projects that are backed up only by an idea are probably never going to get to develop a working product. An E&Y follow-up study from October 2018 showed that, just 13% of 86 ICO projects from 2017 had moved from just having an idea to having a prototype or a working product.
That doesn’t mean that the remaining projects will never develop a prototype or a working product, but the odds aren’t looking good. That is why it is becoming more and more popular that ICO projects have, at the very least, an MVP before they commit to launching their fundraiser. Investors are ever so often asking about a demo of the product and with good sense.
But alas, it is still shocking how little projects actually have something to show prior to their initial coin offering. And that is a big part of the whole crypto market volatility problem. Projects are not being judged based on their product development but rather, based on hype. Hype, being inherently unstable, causes the price of these digital assets to literally do a value dance after they get listed on exchanges.
So, if there is one thing that you should take from this guide it is that, you should evaluate projects based on their development progress and not based on, in many cases, useless partnerships, hype conferences, promises of a spectacular future, etc.
That being said, let’s move onto the examination of the product of a serious ICO project. First of all, if a project has, even just a prototype, then that is a big green check in my book. However, be wary of projects that use staged demos and don’t actually have any working product behind the scenes.
In a perfect case scenario, you want there to be a live demo of the product, or even a fully working version of it. That way, you can test it yourself and evaluate it using the same approach you used in step three, when we were talking about the evaluation of the project’s website.
Naturally, it is hard to come up with specific rules you should follow when it comes to researching the MVP of a project, because projects vary quite a lot from niche to niche. Again, you can judge it by design, content, and layout, but you should be a bit less critical compared to the evaluation of the website, since you are most probably looking at a demo version, MVP, or a prototype.
Don’t fully let go, but allow some more room for imperfections. A few bugs here and there is completely acceptable for a product at such a development stage. The main criteria you should focus on at this point is design. Nothing is stopping the team from developing a product with great design, even at this stage. Same goes for content. If they had it in mind to present the product to their community, then they should have invested the time to perfect the content.
Step 5. Research the Team
Start off with the team’s LinkedIn profiles. However, keep in mind that anyone can create an impressive LinkedIn profile, even if they themselves are not very impressive. All they have to do is use big words in the right places and fill-in all of the profile sections.
So, when it comes to LinkedIn info, I think that you should focus your research on the preceding employments of each team member, whether they have added the ICO project to their profile, and whether or not they have been previously involved with some kind of a blockchain endeavor – the latter does not directly increase the chances of success of the project, but it is a good indicator. I wouldn’t much rely on the LinkedIn skills tree or the endorsements and recommendations, because these can be easily manipulated.
The next thing you want to take note of is the number of team members and advisors. Now, there is something very important I want to note here – a bigger team isn’t necessarily better than a small team when it comes to ICO projects. Why you ask?
Well, there are a few reasons. The first one is that, some projects use the numbers to instill a sense of comfort in their community since most people tend to think that the bigger the team, the greater the chance for success.
However, that is not always the case. In fact, one of the most disturbing yet logical statistics I have come across is Price’s law. It basically states that, the square root of all employees in a company does half the work e.g. in a company of 100 people, 10 people do half the work. And in my professional experience, this law seems to be more or less precise.
So, looking at the team of an ICO project, you should not judge it by their numbers but by whether or not the team is comprised of the right people. Identifying the right people without having a personal touch with each of them is a difficult task, but watching video interviews and conference appearances (if any) of the senior staff, will certainly give you some indication.
Another thing you can do is go and join the Telegram group of the project and engage the team there. Any project that is serious about the success of its ICO is going to have their executive staff, at least to some degree, directly engaged with the community on Telegram.
Have a conversation with the team. Ask them a few questions. Note on their response, their professionalism, their manner of speaking, etc. We will cover more about the engagement research part soon.
In any case, a startup of just a few exceptional individuals will always be, in my opinion, a better investment than a startup with a dozen average employees. That’s just how it is. The difficult thing to do is identify the exceptional individuals.
Step 6. Read the Blog
A very important thing you should be looking for when researching an ICO project is transparency. How transparent is the team in accordance with the community? Is there controversy over something (usually happens in Telegram conversations)? Are the team regularly announcing their progress? Are they taking the community’s feedback seriously?
These questions and more get answered in the blog of the project. Now, the majority of projects use Medium for their blog, while the remaining host the blog on their own website. Both cases are perfectly fine. However, if an ICO project’s website doesn’t have a blog, then you should most probably end your research right there.
The crypto world demands constant updates and quite simply, a project that doesn’t report on their progress consistently and often, will surely fall behind. Marketing in the crypto industry is extremely expensive and most projects cannot afford to announce every little news on other crypto-related channels.
In my personal opinion, one blog post per week is the standard for ICO projects. As the initial coin offering is closing in, projects might release more than one announcement per week, and then slow down when the fundraiser ends. This is normal.
So what are you looking for? Well, during the build-up towards the ICO, there should be, in most cases, blog posts about participation, announcements regarding changes to the crypto asset sale process, warnings of scams, etc.
And yet again, you need to look at the quality of the language in the content of the blog posts as well as the manner of speaking. A sense of professionalism is what you are after and you shouldn’t settle for anything less.
Step 7. Analyze Social Media
So far so good. We have researched the project’s white paper, website, team, blog, and there seems to be an MVP/working product available. Congratulations. You might be looking at an exceptional gem here. But, there are more things to cover.
Next on our list is the social media presence of the project. First of all, I cannot stress enough how important it is not to put weight on numbers. Getting 20,000 people into a Telegram group can be achieved in a few hours with a good airdrop campaign. Same goes for Twitter followers, Facebook page likes, and Medium followers. Pretty much all numbers related to social media can be (and are) easily manipulated via a bounty program.
That being said, there’s nothing wrong with a project getting some initial exposure via a bounty program. The point I am making here is that, you as an investor shouldn’t put any weight on the numbers. So what are you looking for when researching the project’s social media channels? Well, Facebook and Twitter you can pretty much ignore aside from looking for regular posting.
The main social media channel you should focus is Telegram. That is where most of the live conversation happens as a project builds-up towards its initial coin offering. You should certainly join the project’s Telegram group and begin looking around. What for?
For the conversation. The bounty campaign, while effective in providing that initial traction for ICO projects, tends to bring a tremendous amount of spam in their Telegram groups. So don’t be shocked if you see a lot of “Hi”, “When tokens?”, “When airdrop”, and similar kinds of messages.
However, it is the project’s community manager’s job to manage that spam. Generally, what projects do is disallow any comments on the bounty program and they either create a separate Telegram group for bounty participants or they redirect the conversation to the bounty thread on Bitcointalk.
In either case, having conversation about the bounty program in the main Telegram group of a project is a big no-no. It discourages serious investors and quite frankly, it’s extremely unprofessional. You can’t really have a serious conversation or respond to competent questions and that really lowers the credibility of the ICO and the project as a whole.
And so does fake conversation. Be aware that, there are services out there offering such manipulations of Telegram groups where a bunch of people use fake accounts to spur up fake conversations in order to raise the credibility of the project. In most cases, the only result of those conversations is a strong case of cringe experienced by everyone who’s reading. That is due to the fact that, it is often too easy to see through the orchestrated debate thanks to the ridiculously rehearsed questions and subsequent responses.
Now, what you should be looking for in a healthy Telegram group is fair discussion about the project itself. Naturally, many of the community members won’t take the time to read the white paper at all and so they will come and ask questions on Telegram in search for quick answers.
This will happen over and over again and it can drive a community manager insane at some points, especially the queries about exchange listings. However, if the project is comprised of a competent team, they should never lose their cool. And that’s the main thing you need to look for when in an ICO project’s Telegram group – unconditional professionalism.
Even if there is someone who is exceptionally negative of the project, the response by the team should be professional, factual, and concise, focusing on changing the person’s negative view as opposed to fueling it by responding negatively.
There is a lot of subtext in professionalism that most people don’t realize. It extends way beyond keeping a healthy Telegram conversation. Running a startup is an extremely difficult task. Making a success out of a startup is almost an impossible task – exhibit A. There are tons of challenges that come your way and, sooner rather than later, you lose your balance. However, conducting yourself as a professional will always give you a much better chance at succeeding, whatever the crisis is.
That is why, when doing research on an ICO project, you should really evaluate the level of professionalism of the team. It is, in my experience, a huge indicator of the future success of the enterprise.
Step 8. Research Similar Projects
According to a recent Ernst & Young research on ICOs from 2017, some of the most successful blockchain startups are in the following segments:
- Data storage – average investment of $146 million.
- Social networks, content, and advertising – average investment of $50 million.
- Gaming and VR – average investment of $50 million.
- Blockchain infrastructure – average investment of $48 million.
So, it is a good practice to know what niche the ICO project you are interested in falls into and then go and do a thorough research on the most similar projects and evaluate their digital asset’s performance since their ICO ended.
This will give you a good indication of whether or not there is interest in such projects and if so, just how considerable that interest is. Very rarely will an ICO project tap an unexplored niche, and while those projects carry a much higher risk, they also carry higher rewards if they are successful. So, you need to be careful in situations like that.
In most cases however, a project will have competitors and, as mentioned already, you need to evaluate how well they are performing. Again, focus on product development and not on hype, current digital asset value, or amount of useless partnerships.
If you deem that there is a competitor project out there with a decent product, then you might want to re-evaluate your investment in the up-and-coming ICO project. It is very hard to overthrow a dominant product unless the challenger project has some very unique edge. Just look at Ethereum. There are a lot of good projects out there similar to Ethereum, such as Waves and Stellar, and both have been around for a while now.
However, Ethereum is still the most popular platform of choice for initial coin offerings – although its dominance has dropped by 11.25% from Q2 to Q3 2018. Same goes for all other products albeit the less complex the product becomes, the easier it is to compete with.
Step 9. Investigate the Marketing Approach
As mentioned already, marketing in the crypto sphere is quite expensive. Big crypto news sites such as Cointelegraph, charge thousands of dollars (last I heard it was $5,000) for a single article. But, without outlets like that, there would be no easy way for projects to get the word out.
However, what you don’t want is to analyze the project’s marketing approach and to identify that they are spending funds left and right. Not all crypto marketing channels are effective, in fact, most of them are not worth it and overcharge excessively, taking advantage of people who don’t do thorough research and are new to the blockchain world – but that’s a story for another day.
Back to the topic at hand, how do you analyze a project’s marketing approach? Well, your first clue is the website. Usually, serious projects would have an “In The News” or “As Seen On” section on their homepage.
You can check out the articles that are featured there. Something that most people are probably not aware of is that, some of these sites will write the sponsored posts themselves, but some allow you to write the content yourself. So, taking a look at the media mentions can really show you how good the team are at promoting their own project.
Another thing you want to look for is articles that are not sponsored but are genuine covers of the story of the project. For example, CoinDesk does not publish sponsored content on their website, so any article you find there, you can be certain it has been covered because the story behind it is in some way relevant and interesting.
Next, you can move onto reviewing the ICO listings of the project. It is important to note here that, many of the ICO listing websites nowadays add a rating to each initial coin offering however, I wouldn’t put much weight on those ratings.
Some of them are dependent on an ICO adding links to all of its social media channels and others are based on arbitrary assumptions about the project. So, just because an ICO has a 5/5 rating on an ICO listing website, doesn’t mean that it’s any good. These ratings are easily manipulated so don’t put much weight on them.
On the topic of ICO listing sites, the biggest one seems to be ICO Drops. And while other ICO listing sites list pretty much any project that pays the required listing fee, ICO Drops seems to have a more aggressive filter when it comes to listings. From my experience, they seem to research all projects that apply for a listing and then decide whether or not to list them – as opposed to requesting a fee and then unconditionally listing the project. The point is that, if an ICO is listed on ICO Drops, then it is a good sign in terms of project presentation and credibility.
Moving on to video interviews and conference appearances. While not crucial, it is good to have some video interviews you can analyze. Good YouTube interviews are a rarity as most of them are so obviously rehearsed that it’s hard to grasp anything of essence regarding the project.
Most conferences seem to be overhyped, with only a handful of people attending and the presentation being relatively low quality. That shouldn’t be the focus of your criteria. You should focus on the way the team presents their project. Is it concise? Are they answering questions promptly or are they dancing around questions? Are you left with a sense of professionalism at the end of the presentation? Did they show something unique or it is just another project looking to ride the ICO wave?
To note on the last question, it is actually quite easy to answer it. Projects that are nothing special tend to use hype adjectives a lot and compare themselves to other projects, while projects of essence focus on a genuine depiction of their project and tend to talk less about other projects and stay on track with their own.
The final and most important analysis you need to perform regarding the project’s marketing approach is whether or not they are using “unnatural” marketing tactics. We touched on that in the beginning of this guide, but let’s get into a bit more detail here.
A project being endorsed by a celebrity that has nothing to do with blockchain tech, means nothing more than the fact that, the project is trying to generate hype. However, while hype is not necessarily always a bad thing, it tends to instill FOMO in people, which overrides reason. People forget about research and just dive into the ICO of the project simply out of a fear of missing out.
And then they wonder why they lost the majority of their (or the entire) investment, because the celebrity that hyped the project either took the money and left, or the project itself was charged with fraud by the SEC – just a couple of examples.
Looking back in retrospective is always easy – why would you participate in an ICO just because it is backed by a celebrity? What the hell does Paris Hilton know about blockchain? It was so clear, yet somehow you failed to see it at the time. Don’t worry. This is nothing less than a strong case of FOMO. Virtually everyone’s been a victim of it at some point or another, but what you should focus on is learning from the experience.
Staying objective during your ICO project research is imperative. That is why you should learn to ignore the hype and research each project for what they offer, rather than what they promise.
Step 10. Review What Other People Are Saying
Analyzing what other people have to say about an ICO project can be very crucial to the success of your investment. Not all people participate in initial coin offerings out of FOMO. There is a minority that does a thorough research and some of them are willing to share their findings.
Usually, this happens on Reddit or in specific Telegram groups. Simply googling “[Project Name] reddit” will certainly bring up some results, if there’s actually interest in the project. As for Telegram, you need to be in the right groups in order to hear about what other people have found about specific ICO projects. Most of these groups you can find on here.
However, be careful as many of these groups do hype ICOs and a lot of the time, these promotions include a small time frame, which can easily cause FOMO in anyone.
The best place to see what others are saying about a project, in my opinion, is the project’s Telegram group. There is no other place you can gather more meaningful information about an ICO project than its Telegram group – that is if it is managed properly as we discussed in step seven.
You can also look at reviews of the initial coin offering on YouTube, although I wouldn’t put much weight on those since most probably they were sponsored. You can easily notice that actually. If the review contains only positive feedback and a lot of sense of hype, then it is most probably sponsored. If however, it seems like the interview is competent i.e. it includes both positive and negative aspects of the enterprise, then it just might be a genuine review.
While it is important to know what other people are saying about the project, beware of the consequences of that. One competent and positive review can easily instill FOMO in you and cause you to quickly forget about doing your due diligence. You don’t want that. Regard other people’s opinions for what they are – they are just opinions. Take them into consideration but don’t rush to participate in an ICO just because reddit user “lambo213512” said that the moon is the next stop.
Step 11. Find the Legal Entity Behind the Project
Another integral part of the ICO project research process is making sure that there is nothing out of place with the company behind the project. If details about the company are not found on the website (they usually reside within the footer), then go on Telegram and ask the team for details. If they are evasive about it, you should pretty much stop your research right there.
Serious projects will always have a registered company and will not have any reservations sharing that with the community. Now, once you have the details of the company, you should find the trade registry of the country where the enterprise is registered and then find the company listing there.
The listing should include further details such as shareholders, management board, capital, type of company, etc. Take an in-depth look and make sure that everything is looking good. If for example, there is a person listed as the company’s shareholder or is part of the management board, but is not listed on the website as a team member, then go ahead and ask the team on Telegram what that is about.
Step 12. Evaluate the Legal Framework
Regulation in the blockchain sphere is just as volatile as the crypto market itself. Some countries and institutions consider a certain digital asset to be a security, some don’t. Some have banned ICOs, some have only regulated them, and some don’t really have any particular stance on them.
Whatever the case is, you need to make sure that the legal entity behind the project has received the necessary licenses (if any) in order to legally proceed with the development of the enterprise.
Additionally, you need to make sure that the company is registered in a country where initial coin offerings are not prohibited and if they are only regulated, you need to find proof that the necessary measures have been taken by the team in order to hold the ICO without any trouble caused by the local government.
For example, if an ICO project is planning to launch a crypto exchange that also has a fiat option and the company is registered in Estonia, they would have to first receive the following two licenses:
- Providers of a service of exchanging a virtual currency against a fiat currency.
- Providers of a virtual currency wallet service.
Of course, that is just a simple example with an ICO legally located in Estonia – one of the more popular locations where people register blockchain-based startups.
Whatever the case is, you need to make sure that everything is solid with the legal framework of the project. Knowing where the company is registered is all you need. Just research what the local laws are regarding ICOs and whether or not there are any specific licenses that need to be obtained for the sale of digital assets – the latter usually concerns only projects that intend to sell crypto assets that are deemed securities.
Legal problems can kill a company really fast and sometimes, there’s nothing that can be done. So, if the team is serious about their project, they will have their legal framework set in stone before even thinking about announcing a date for their ICO.
Step 13. Break Down the ICO Specifics
Every initial coin offering is unique in some way and all of them have their own digital asset distributions. Be it a token deployed on Ethereum or a completely separate blockchain with its own new cryptocurrency, there’s always a split of the total cap of the crypto asset among the crowdsale participants, pre-sale participants, private investors, team members, reserve funds, etc.
The distribution of a crypto asset can tell you a lot more about a project than what percentage each group of people will be holding after the ICO is concluded. It can also tell you how knowledgeable the team are of current ICO trends and how good they are at managing the potential of a new crypto asset market.
This means that, you need to watch out for suspicious allocations e.g., 80% allocated to the team members, 70% allocated to a reserve fund, etc. There might be a good reason for this, but you need to dig to the bottom of it and understand why the team have set their minds on this particular distribution.
A Q3 2018 ICO research by ICORating showed that, the most successful initial coin offerings in terms of funds raised were the ones that allocated 51 – 60% of their crypto asset to the pre-sale. And while a lot of people might be displeased with the fact that, generally, whales are the ones that dominate the pre-sale, this procedure has become somewhat integral to the success of ICOs, especially for the ones that aim to raise anything larger than $10 million.
The concerns with a large allocation to the pre-sale usually include objections over the unnecessary high bonuses that are handed out to participants and the fact that, the maximum individual cap on investments is often quite big, if there’s any at all.
And those concerns are completely understandable. These bonus tokens that are usually received throughout the duration of an initial coin offering, tend to be dumped as soon as the crypto assets begins trading on an exchange. This causes the price to drop down and generates negative feedback by most participants in the ICO. Of course, serious investors won’t be moved by that, because it is well expected and if they are smart about it, they will be focused on the big picture (the long term potential of the project) as opposed to a temporary price drop of its crypto asset.
Speaking of bonuses and price drops, there is another thing you need to analyze during this part of your ICO project research – what are the bonus stages of the initial coin offering in question. Rarely there are projects that don’t offer any bonuses at all as they are trying to create a more stable market environment for their digital asset post-ICO. In most cases however, there will be bonus stages and not just one. The pre-sale is commonly the first one and it offers the highest bonus in order to encourage early adopters.
Once the pre-sale ends and the crowdsale begins, another wave of bonus stages usually begins. What you need to do is thoroughly research each stage for its duration and bonus factor. This will not only give you some indication of the possible value performance of the crypto asset post-ICO, but will also help you decide when is the best time for you to participate.
Of course, deciding when to invest is not a one-dimensional argument based on the bonus stage. If you have done your research as per this guide so far, you will know when the best time to join in is. Sometimes projects release live demos of their product after the pre-sale and before the crowdsale and sometimes they have other announcements that are released during the crowdsale itself. Whatever the case, your decision of when to participate will be arbitrary to an extent, but should mostly be based on your research of the project and its development progress.
Now, we talked about the pre-sale, let’s talk a bit about the crowdsale. The main distinction between the two is that, the pre-sale’s focus is to reach its target funds quickly, without necessarily focusing on getting as much participants as possible. The funds gathered in the pre-sale can then be immediately put to use, strengthening the marketing of the project and boosting the development process. The crowdsale is different.
It is more focused on putting the crypto asset into the hands of as many people as possible. Thus, it is a popular practice that modern ICOs put an individual cap on investments during the crowdsale i.e. a single person can only purchase so many of the digital asset being sold. That way, a lot more people can participate in the initial coin offering, thus significantly diversifying the ownership stakes of the token. This will later come of use as it will create a somewhat more stable value of the crypto assets, once it starts trading on an exchange.
Lastly, you want to make sure that the ICO includes KYC (know your customer). Nowadays, every legitimate initial coin offering will have KYC integrated into the participation process. It is extremely important for the long-term success of the project since AML policies have been onto ICOs for a while now. So, to keep it on the safe side, legitimate projects, even if they are not legally obliged to do so, implement KYC into their initial coin offerings.
If a project you are researching doesn’t enforce KYC on ICO participants, then you should immediately go and ask the team what’s that about. If they don’t give you a very good explanation why they decided to go that way, you can end your research right there and move onto the next project.
Quick ICO Research Checklist
Now that we are finished with the in-depth ICO research guide, let’s do a quick checklist of what you want to be looking for when evaluating blockchain projects:
- Does the white paper have a clear vision?
- Does it look like the team really invested a lot of time into putting together the white paper?
- Is the quality of the language in the white paper exceptional?
- Are there references in the white paper where there should be i.e. where there are mentions of exact data?
- Is the white paper written using LaTeX?
- Is the content on the website without any mistakes?
- Is the quality of the language on the website exceptional?
- Is the design of the website flawless?
- Does the color palette of the website coincide with the nature of the project?
- Is it easy to find what you are looking for on the website?
- Is the logo of the project visually concise?
- Does the project have an MVP?
- Is there are live demo of the MVP?
- Is the MVP’s design great?
- Is the content on the MVP perfect?
- Does the project team look like the right people to get the job at hand done?
- Does the project team conduct themselves as professionals, regardless of the situation that is presented to them?
- Does the project have a blog?
- Is it updated consistently and regularly?
- Is the team taking the community’s feedback seriously?
- Is the team protecting the community’s best interest i.e. warning of scams, promptly announcing any changes, etc?
- Are there constant updates on the project’s social media channels?
- Are the team responsive on Telegram?
- Are the team managing their Telegram group in a professional manner i.e. controlling bounty program spam, responding to negative comments competently, etc?
- Are the team’s responses on Telegram always professional, no matter the case?
- Are there realistic conversations about the project on Telegram?
- Who is the competition of the project and when identified, what does the project have that the competition doesn’t?
- Is the project in a segment of blockchain tech that people seem to be interested in i.e. blockchain infrastructure, finance, gaming, etc.
- Are similar projects’ digital assets performing well after their ICO was concluded?
- Are the team marketing the ICO and the project effectively?
- Is the marketing budget optimized i.e. there is no spending of funds left and right?
- Is the project listed on ICO Drops?
- Are there mentions of the project in articles that are not sponsored?
- Are there any conference appearances and if so, did the team conduct themselves as professionals?
- Did they present at the conferences they appeared in competently with a focus on their own project?
- Is there a lack of obvious focus on generating extreme levels of hype i.e. there are no completely irrelevant celebrities endorsing the project?
- Are there competent people generally saying good things about the project?
- Does the project have the necessary licenses (if any) in order to legally proceed with the development of the project?
- Is the legal entity behind the project registered in a country where ICOs are not deemed illegal?
- Is the distribution of the total cap of the digital asset reasonable?
- Is KYC required for participants in the ICO?
- Is the ICO closed to certain countries where people participating might cause problems in the long term i.e. United States, Mainland China, etc?
At the end of this huge checklist, you should ask yourself if the sense you are left with is of a project that looks like they can really keep good on their word. Of course, there are no certainties when it comes to investments, especially when it is related to crypto assets. However, it is your responsibility to increase the chances of success of your investment as much as possible. And doing such a thorough research on each ICO project will most certainly help in that regard.
Even if a project looks good on all of the points from above, it still might fail as it is subject to a billion other factors and you can’t take everything into account. Regulations pop up constantly in the world of crypto, the SEC is getting more and more active, and well, the crypto market is extremely volatile. These factors and many others can drag a project into the ground, even if it had great potential.
Even if that happens, you can still be happy with yourself that you invested in a project that didn’t fail because of bad marketing, non-existent product development, bad finance management, poor company management, etc, but rather failed because of an unpredictable circumstance.
Congratulations. If you have gotten so far and actually read the entire article up to this point, you most probably have a far better understanding of how to research and evaluate ICO projects. I’ve tried to include everything that I thought is crucial to the topic at hand, but if I have missed something, I’d love to hear about it.
Now to the summary. It is a bit hard to wrap up such a long guide within a few paragraphs, but here goes. There’s a basically three things you need to take away from this. The first and most important one is that, you need to start judging every aspect of an ICO project by time investment i.e. does it look like the team went all out in terms of perfecting everything?
The second thing you hopefully already integrated into your research approach is the professionalism criteria i.e. are the team conducting themselves as professionals, no matter the situation they are put in?
And finally, start judging projects by their development progress as opposed to hype. Learn a bit about startups backed by VCs and you will see just how much more difficult it is to raise funds compared to ICOs. And still most startups fail.
Initial coin offerings need to be better filtered by responsible and well-read investors if the blockchain ecosystem is ever going to rid itself of billions worth of dollars in investments lost on vapourware projects.