Determining Investability

Determining Investability

Here are some aspects you may want to consider when considering whether an ICO makes for a worthwhile investment – having already conducted previous research to determine that the ICO is unlikely to be fraudulent, naturally.

Vision

Start with an end-to-end read of the white-paper. This embodies both the idea and the roadmap for the project.

For the idea:

  • Originality – are there other ICOs out there seeking to implement something similar or is this truly novel?
  • Do you envisage real demand for the product or service being offered?

For the roadmap:

  • Backing – are we seeing interest from any established players?
  • Direction – does the project have an advisory board with appropriate experience?
  • Risks – what technical and legal obstacles that lie ahead?

Feasibility

Look into the technical questions thrown up by the white-paper – you may find that, with the more forward-thinking ICOs, that there will be a separate technical white-paper. Have a look at this if there is one, otherwise comb through the white-paper itself for indications for an outline of the technical specification.

  • Has there been a proof-of-concept, or is there at least one in the pipe-line?
  • Has the solution been fully specked?
  • Has a date been set – ideally not too far into the future – for the release for a MVP?

 Communication and Marketing

If we have got this far, it is because we believe that there is a great idea and the project team have demonstrated the capacity to deliver on the implementation. Still, we have not answered the question of adoption. Even the best idea with the best people behind it is no guarantee of success. If no real imagination has been applied to getting the message out there, we remain sceptical. Make sure to enquire after marketing strategies.

  • Has the project grabbed the attention of traditional media (a very good sign)?
  • Has the project grabbed the attention of crypto-media (usually a good sign – but beware of press releases dressed up as content filler)
  • What percentage of the ICO funds will be put aside for marketing?

As a rule-of-thumb, anything below 30% for a marketing budget should raise a flag. Obviously, there can be legitimate exceptions – for example, ICOs that are being fielded for extending a business with an existing client-base. Follow up with the ICO team itself for justification if this is not the case.

 

Crypto Token

The Underlying Token

This is, of course, what attracts potential stakeholders to the project. The intrinsic value of the token will depend, naturally, on how the token underpins the technology.  Our focus here is in determining two things from the white-paper:

  • Is the coin hard-capped?

A hard-capped coin, i.e. a coin that is limited in supply, will generally be expected to be derive value from its scarcity. If the underlying coin is not hard-capped, this raises a flag – but not necessarily a red one – that indicates more research is needed to determine the likelihood that the coin will take on value.

This is where we then take at look at its functional value (see below). Ethereum, currently the second most successful cryptocurrency in circulation, is the most prominent example of a non-hard-capped coin and serves to demonstrate that if a coin is not hard-capped, it cannot be dismissed out of hand.  Hard-capped coins are much more common in the ICO space than their non-hard-capped counterparts.

  • What is the functional value of the coin?

Aside from the question of its supply, any coin – crypto or otherwise – needs to have some kind of inherent property that bequeaths it value. In the case of cryptocurrencies, the modern blockchain revolution will be lead by cryptocurrencies that grant real, tangible value to users.

A good concrete example is that of Golem whose inherent value derives from the fact that it is tied to a blockchain-driven, peer-to-peer computing task and resource distribution solution which can be used by anyone in need of mass computing power.

Operators in the CGI industry, for example, who require immense computing power to perform CGI-rendering, will need to purchase Golem currency as a pre-requisite for participation in the Golem network. It is the combination of demand for this service and the requirement for Golem currency to get access to this service that gives value to the Golem coin.

To summarise – the question here is whether there is real, functional value attached to the coin? This is arguably the most important question of all when assessing an ICO.

Social Utility

At this stage, you believe you have now picked up on a potential success in the ICO minefield. And you think the coin is going to grow stupendously in value. But the question now is whether this is something that deserves our money? Will the solution being offered up bring general benefit to Joe Public and humanity at large?

Perhaps our ICO will give the world an open platform that leverages blockchain transparency to give charity donors insight into how exactly their money is being spent by the organisations that solicited their contributions in the first place.

Or, on the other end of the spectrum, perhaps all that is being offered up is nothing more than a tool that facilitates anonymous peer-to-peer gambling. This is, of course, at the discretion of the ICO participant but it is an aspect which we occasionally feel is relevant. If we feel that the project risks inflicting a clear, negative net loss upon either people or the environment, why bother? There are plenty of better candidates out there who deserve your money.