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What is an ICO?

12 questions to ask when evaluating an ICO

Blockchain technology and cryptocurrency investing has gone mainstream. New projects and ventures are popping up all over the place looking to raise funds. Our guide helps you separate the contenders from the pretenders.

Our 12 questions will give you everything you need when evaluating an ICO. In the world of ICOs, everyone wants your money, but where does that money have the best opportunity to grow? While it can be a time-consuming process to research the hundreds of different opportunities available to you at any given time, learning to look for a few key things in ICOs can improve your chances of striking gold on early-stage investments.

With that said, here are the 12 questions every investor should be asking when evaluating an ICO:

1. Evaluating an ICO – what problems will this project solve?

The best ICOs plan to add value to the world by solving real problems. If the ICO seems like nothing more than a money grab, steer clear. You are better off investing in sound projects with a passion for problem solving. The more significant the problem(s) solved, the better. The world values problem solvers; you should too.

2. How will it solve these problems?

Necessary problem solving steps should be within reach of the ICO in question. It is not enough to simply identify problems without a clear, well-defined path to achievement. If you have any doubts about the ICO’s ability to attack and conquer the challenges ahead of them, ask yourself why you’re having such hesitations and take a deeper look at the project.

3. Is a blockchain necessary?

It should be clear and obvious that the ICO is solving problems that require blockchain architecture.  This means there should be valid reasons for a decentralised approach. If the problem(s) can be solved in a centralised manner, without a blockchain, then this might be nothing more than another venture looking to capitalize on cryptocurrency buzzwords.

4. Has someone done this before?

Ideally, the ICO would be solving a unique set of problems. However, it is possible that competition will exist. If there are pre-existing competing projects, what are they like? How does the ICO in question compare to its competitors? You should feel good about your investment’s odds of winning the competitor battle and coming out on top.

5. Is the token useful?

When you participate in an ICO, you are trading capital for tokens, so it should be obvious that the tokens serve some specific purpose. If no one else is willing to buy your token(s), would the token(s) still be valuable in some way, shape or form? Can tokens be exchanged for some type of good or service? Look to invest in tokens with advanced use cases, the more the merrier. These use cases should make the token more valuable in the long run.

6. How are tokens allocated and distributed?

Look for ICOs with a fair distribution of tokens – this is vital when evaluating and ICO.  Take caution with any projects that keep large portions of tokens for internal distribution, and make sure that founders and team members have clauses in place to prevent token dumping.

7. How does the project plan to grow?

A clear timeline and growth plan should be laid out. Be cautious of arbitrary roadmaps showing little justification, but it should be clear the ICO has a sense of direction. You will feel more confident about your investment knowing they have exhaustively explored different opportunities for growth and progression.

8. How is the white paper?

While projects can succeed without a standout white paper, you can gain valuable insight from the level of effort put forth in these early stages. Looking at the entire body of work, it should become clear which projects are driven by passion and have invested the most time, thought and energy. A fluffy, good-looking white paper isn’t worth much, but the level of detail and presentation in purposeful writing could be indicative of a team’s future efforts and success. White papers are another key factor to take into consideration when evaluating an ICO.

9. How much development work needs to be done?

Blockchain projects need developers, so look for progress on this front. Project code should be open source, concise and efficient; it should look like the team has made programming efforts.

10. How is the community?

A passionate community following can tell a lot about a project’s intentions and/or potential. The best communities are open, public and active on a variety of different mediums. Some ICOs will run bounty campaigns, incentivising users to promote their project. Keep an eye out for this type of marketing, and avoid it. Community interest should be genuine rather than reward-based.

11. How is the team?

Vision is nothing without execution. A project’s success will hinge upon its team’s ability to perform.  The best teams are cohesively made up of credible, competent, experienced and established members. Ultimately, the success of an ICO will come down to its team and the work they are willing to do, so pay close attention to the people running the show.

12. How much am I willing to invest?

While no ICO is a sure thing, certain ICOs will carry more risk than others. Investments can be lost, and you should be aware of this before proceeding. Many ICOs will ultimately go to zero, but others will provide huge investment returns. After careful consideration, your risk tolerance, financial situation and gut feeling about an ICO (based on thorough evaluation) should determine the amount you are willing to invest. Be smart, and may the odds be ever in your favour.

Follow our 12 point plan and make sure you have everything at your fingertips when you’re evaluating an ICO.

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