What do Smart Investors look for while Investing in an ICO?

The Need for Smart Investing
There has been a surge of new ICOs in the
last few years. An initial coin offering (ICO) is the process of generating
capital through crowdfunding to initiate and maintain the development of the
crypto asset associated with an ICO. Both the
investors and the developers of the project are benefited by this process as
investors reap huge profits as the project grows, while developers are granted
funds to aid in the development of their decentralized platforms. ICOs are a
billion dollar industry, yet are unregulated. This has led to several scams and
huge losses. There are several cases of ICO exit scams which have left
investors in the cold and penniless. The market is plagued with numerous
fraudulent platforms and it is becoming more common by the day.
There is no way to recover lost money once
an untrusted service provider absconds. Not all ICOs
are fraudulent, yet the sheer volume of them in the market makes it difficult
for investors to choose an ICO to invest in. One way investors can
prevent themselves from being a victim of fraud is by conducting detailed
research with respect to any ICO they wish to invest in. Some investors may
have the necessary resources to conduct Due Diligence for the ICOs they may
wish to invest in, while other investors simply may not have the resources to
do the same. How does an investor make a smart decision in this case?
PlexCorps is a cryptocurrency company banned
by the Securities and Exchange Commission (SEC) for fraudulent practices. They
were accused of raising around 15 million USD and swindling their investors and
their assets have been frozen. If an ICO promises huge returns on the crypto
asset they are selling, they are likely to be a fraud as there is no guarantee
of profit in the cryptocurrency world. PlexCorps
promised massive returns on their crypto asset and advertised a non-existent
team of experts in the quest of quickly putting across their stance in the eyes
of their investors and gaining their trust. The financial crimes of its
founder, Dominic Lacroix were conveniently hidden and it was only a matter of
time before a complaint was lodged against them.
Refer
to –
https://www.theverge.com/2017/12/5/16739348/sec-plexcorps-plexcoin-ico-scam-asset-freeze-charges
According to a report published by CNN, of
the 1,450 tokens they analysed, 271 have turned out to be a scam. More than 1
billion USD has been lost to scam ICOs and less than 25% of these funds have
been recovered. Investors need to be careful as they are the ones at loss in
the end. Some ICO teams have published fake whitepapers which have been copied
from other ICOs or are blatantly wrong and improbable. Other ICOs have
published fake team lists and have even gone to the extent of copying the names
of members from other trusted ICOs! All in all, it is absolutely necessary to
gauge all aspects of an ICO before investing in it as the loopholes in a
project may be immense, and the possibility of fraud large. Here are a few
things smart investors should look for when investing in an ICO.
Refer to –
https://www.ccn.com/ico-scams-have-raised-more-than-1-billion-report-claims/
What
do Smart Investors look for while investing in an ICO?
Legal
Compliance of Affiliated Tokens
The Securities
Act of 1933, also known as the “truth in securities” act, has two basic
objectives:
· “require that investors
receive financial and other significant information concerning securities being
offered for public sale; and
· prohibit deceit, misrepresentations, and other fraud
in the sale of securities. “
Refer to –
https://www.sec.gov/answers/about-lawsshtml.html#secact1933
It is safer to
invest in tokens affiliated with ICOs under regulatory frameworks such as
Regulation A+, Regulation D and Regulation S. This significantly reduces legal
risk and is much cheaper for companies to conduct an ICO. Donald Trump, the President of the United States has
assigned a task force to investigate pervasive fraud existing within the
cryptocurrency universe. The President signed an official executive order on
the 12th of July, 2018 to establish a new task force to prevent
fraudulent activity and "to investigate and prosecute crimes of
fraud committed against the U.S. Government or the American people, recover the
proceeds of such crimes, and ensure just and effective punishment of those who
perpetrate crimes of fraud."
Please refer to –
The task force replaces the originally
existing Financial Fraud Enforcement Task Force which was established on the 17th
of November, 2009. The team will be led by the Deputy Attorney General Rod
Rosenstein.
The Deputy Attorney General will carry on with proceedings as deemed fit
by him and will invite representatives from other federal departments of the US
government. Other team members include FBI Director Christopher Wray, the
Federal Trade Commission, representatives from the Securities and Exchange
Commission and the Consumer Financial Protection Bureau (if called upon).
Investigations and enforcement actions are set to be ramped up. Tokens issues
by companies in a compliant manner will not have to suffer through the nuance
of constant private litigation and other significant business interruptions. In
today’s market this protection is a necessity. If the
initial coin offering is from the United States, make sure that it is under
Regulation D or Regulation A+ for United States based investors and under
Regulation S for foreign investors.
Listed
as a Security
Security
tokens are liquid contracts and equate to denominating a fractional ownership
over an asset in the form of a token. Classifying a token as a security offers
legal clarity and protection for both the ICO investors and the affiliated
company. There are several rules and regulations but it is safer in the long
run. An organization that acknowledges their token as a security can
acknowledge their token as an investment and give investors certain benefits
like profit shares, benefits, voting rights and dividends. Bounty rewards may
be misleading so keep that in mind as well.
There is No Such Thing as
Guaranteed Profit
If an ICO guarantees profits,
it is most likely a scam. If there was a guaranteed method of generating
profits on blockchain systems, everyone would be a millionaire. There are
several platforms which promise automated trading bots that eventually rake in
massive amounts of money. Other platforms promise a return to investors for
staking in their coin. The Proof of Stake consensus is growing in popularity
and the latter mentioned method of profit raking is more prevalent. Of the many
examples of such fraudulent ICOs, BitConnect strikes the mind and is a
well-known instance of an ICO guaranteeing profits. There scheme turned out to
be a Ponzi scheme. Remember, there are no certainties and no proven or reliable
methods to sustain profits in blockchain environments.
Celebrity Endorsements
There are several ICOs being endorsed by celebrities. These celebrities
are paid a fee for their endorsement. Hardly any details are provided on the
project and investors are drawn into investing in the ICO because of the
celebrity associated with the project. Centra is an ICO which was endorsed by
Floyd Mayweather and the two co-founders, Sohrab "Sam" Sharma and
Robert Farkas were arrested for fraud. The ICO raised 32 million USD and was
banned by the SEC. They claimed to offer a debit card authorized by MasterCard
and VISA that would allow its users to convert cryptocurrency to USD and spend
in stores. This was not the case as they had no connection with both companies.
Their profiles were fake as well.
Please refer to-
https://www.cnbc.com/2018/04/03/floyd-mayweather-backed-cryptocurrency-ico-fraud-sec-says.html
Team
Credentials
An
authentic initial coin offering will provide investors with a detailed list of
their team. All ICOs generally display the names of their founders, advisors,
developers and other members integral to its creation and maintenance. There
are several ICOs which create a fake list of team members which seem authentic.
Scam ICOs understand that investors will look at the team page of an ICO and
make a decision based on the credibility of their team members. These scam ICOs
go to great lengths to create a list of team members which seem credible.
Conduct detailed research on the credentials of the team before making a
decision.
Project Roadmap
A roadmap generally encompasses the work of the
development team, what they have achieved so far, what they plan to do in the
future and their eventual goal, along with certain updates. If a project does
not have a roadmap, it is likely to be a fraud. A roadmap shows the direction
in which an ICO plans to head in and sans one, it can be expected that the team
plans to abscond after obtaining profits. As mentioned before, an ICO which
seems too good to be true probably falls into this this category. ICOs without
a whitepaper, roadmap or an empty repository are likely to be a fraud. There
are some ICOs which claim to be working on a roadmap but never come up with
one. Never trust a platform which reeks of fraud, as no one can save you if you
transact virtually on the internet. An unrealistic roadmap which guarantees
profits may be a fake as well. Assess the content of the roadmap carefully
before making any decision.
ICO
rating reports
ICO ratings enable an investor to determine whether an ICO is fraudulent
or not. Of the many ICO rating organizations, Crypto Asset Rating Inc.
is a viable option to choose from. Crypto Asset Rating Inc.
is an independent United States based ICO rating agency, offering two security
tokens for US-based and non-US based investors under Regulation D and
Regulation S respectively. They have developed an algorithm to determine the
viability and authenticity of the ICOs affiliated with their project.
Refer to for ANSA token details-
Refer to for AND token details-
Their rating system segregates the set of fraudulent ICOs on the market, from the authentic and viable ones. The blockchain-based rating engine is based on 150 different rating parameters and is divided into over 15 categories, depending on the business, legal, financial and technical risks involved in investing in a particular cryptocurrency asset. Their team is experienced and is not limited to just providing ratings for various ICOs and also suggests certain changes crypto assets can bring to their structure to get a better rating. This may lead to a change in rating and is visible to investors looking to invest in a particular coin. All registered subscribers have the option to access detailed reports which are published by the organization.

Crypto Business World
CBW - External Analyst
INDIA