It is estimated that $22 billion were raised worldwide in 2018 through an Initial Coin Offering (ICO). Ruby-X, a crypto exchange project, claimed $1.2 billion of that total amount. The messenger app ‘Kik,’ one of the highest profile ICOs to date (currently under the U.S. Securities and Exchange Commission ‘SEC’ investigation) sold $100 million worth to users, of which $55 million were from U.S. investors or contributors.
Even governments forayed into the ICO craze. In March 2018, Venezuela’s President Nicolas Maduro launched a drive to raise $5 billion through ICO backed by sovereign Petro. The website claims to have raised $3.3 billion to date. Not all ICOs’ money were raised by legitimate companies or governments. More than half of that $22 billion were raised and stolen by scam artists.
What is an Initial Coin Offering (ICO)?
An initial coin offering (ICO) is whenever a company or individual creates a new coin/tokens using their preferred characteristics. Before being released, the new coins/tokens can be pre-purchased by investors or contributors. ICOs can be acquired with fiat currencies or with other popular cryptocurrencies. When the sale is completed, the new coin will be sent to their owners and be listed on cryptocurrency exchanges or secondary markets, where they can be traded.
Like traditional stocks Initial Public Offerings (IPOs), cryptocurrency Initial Coin Offerings (ICOs) are issued as digital assets that are sold to the public for the first time. Contrary to IPOs, ICOs are not regulated or follow the regulations of traditional financial markets. Therefore, any promises made by the conductor of an ICO is not legally bound. As a result, there have been several fraudulent ICOs over the past two years. This is something every potential ICO investor should be aware of.
Future ICO Investors’ Due-diligence Advise
We advise you do your due-diligence before diving into the world of ICO investing. Potential investors should take into consideration the following:
1. Know the risks. Be aware that the new coin may enter the market lower than the purchase price and that it may keep going down for weeks or years to come.
2. Be aware that the model may fail completely, which may result in the tokens getting delisted from exchanges, bringing the value to zero.
3. Ask the ICO’s owner which you will receive: A security or utility token? Will you have ownership or receive dividends from the company?
4. Pay careful attention to the team members. Research the members to verify legitimacy.
5. Read the company’s goals and evaluate how likely those goals can translate into real and function results (products). If the project sounds too good to be true, they will likely run away with your money (for example: Dorado ICO).
6. Does the company have potential, the team, or sponsors behind the project to be profitable?
ICOs have since evolved. Companies are not running what are called Security Token Offering (STO) and Initial Exchange Offering (IEO). Some are even bypassing the popular blockchain funds raising processes by simply conducting airdrops. Still due your due-diligence before investing in any blockchain projects.