Initial Coin Offering (ICO) is a brand-new way of crowdfunding projects, basically associated with the cryptocurrency world. In an ICO(Initial coin offering), a project generates a new token or coin which is then sold to investors in exchange for other crypto-coin like Bitcoin or Ethereum. The funds gained in the ICO are used to finance the development of the project.
ICOs have become very popular In recent years or so as they offer a way for projects to raise money without going through the typical venture capital path. However, there have been some mass-fishing scams associated with ICOs, so it is essential to be aware of the potential risks before investing.
When we dive into ICO research, we got a few key red flags to be careful of that may indicate the investment is not worth enough. Welcome to this Blog. Read the full blog to learn more about ICO Investment.
Here are 5 red flags to be careful of when considering an (initial coin offering) ICO investment:
Lack of Transparency
One of the important points to look for in any investment is transparency. With an ICO (initial coin offering), you should be able to simply find information about the team behind the project, track record, experience, and as well as details about how the funds raised in the ICO (initial coin offering) will be used.
If this information is not gladly available or hard to find, it could be a red flag that the team is not being transparent about their plans and thoughts.
Be cautious of any project that seems to be giving unrealistic promises about what they will achieve with the funds raised in their ICO ( initial coin offering ). If the blueprint is vague or unrealistic, it could be a hint that the team needs a clear vision for how they will use the funds.
For example, one unclear promise can be: “We will build the biggest decentralized application on the Ethereum blockchain!” This is unrealistic because it is almost impossible to know how big the application will be if the build is not complete. Also, there is no guarantee that the Ethereum blockchain will still be the top blockchain platform by the time the application is finalized.
Lack of Code Repository
A Code Repository is solely a website that gives access to the developers to share code and track changes to the codebase gradually. If the project you are in view of investing in which don’t have a code repository, this could be a red flag as it shows that the team is not fully transparent about their work. An absence of code could also hint that the plan is not as far along in development as they claim to be.
No Token Use Case
Another point to look out for is whether or not there is a clear reason for the token that is being sold in the ICO (Initial coin offering). If there is no positive use case, it may be hard for the token to raise any value after the ICO and you may face losing your investment.
For example, if a company is selling a token that will be used to employ purchase advertising on their platform, the token will probably have some value after the ICO. However, if a company is selling a token that will be employed to access its platform, but there is no other use for the token, The token is unlikely to hold any value after its completion.
Be cautious of any project that seems to be promoting Fear Of Missing Out (FOMO) by using taglines like “limited time only” or “first-come, first-served”. FOMO is the feeling of anxiety that triggered an investor’s fear that feels missing out on potential profits. This fear can lead to emotional decisions and can cause investors to make poor investment choices.
When considering an Initial coin offering investment, being alert to your own FOMO is important. Refrain from letting the fear of missing out on a good investment cause you to invest in something you do not fully understand. make sure to research an ICO from start to end before investing.
Read the whitepaper, know the team and the experience they have, and ensure you know what you are investing in. These are often used as tricks to get people to invest without thinking carefully about whether or not the investment is suitable for them.
If an ICO project upraises any of these red flags, doing more research and due conscientiousness before investing is important. However, even if an ICO emerges to be legitimate, there is always a risk of losing your investment so it is important to only invest what you can afford to lose.
Can you see bot activity?
One of the most familiar ways to create a false sense of enthusiasm on behalf of a cryptocurrency project is to deploy bots on social media. Thankfully, bot activity is relatively easy to catch.
Indications that are easily noticeable comprise monotonous remarks supposedly originating from various profiles, an excessively zealous promotion that appears to have no connection with the actual announcement, incorrect grammar, and an overabundance of emojis.
Although bot promotions are most familiar on Twitter and Telegram, any site with a chat function is given to bot activity. This includes price trackers like as CoinMarketCap and even blockchain explorers.
Is the development team anonymous?
Disclosing a development team’s identities is a topic of dispute in the cryptocurrency community. While some believe potential investors have the right to know the individuals to whom they are entrusting their funds, others cite Bitcoin as a prime example of a successful anonymous project.
How healthy the token’s liquidity?
Assessing a token’s liquidity is crucial in determining its health. With the emergence of decentralized exchanges like PancakeSwap, token launches have become more accessible than ever before. To identify any potential red flags, it’s essential to determine the primary DEX where the token is traded and then examine its liquidity on that exchange.
Decentralized exchanges operate differently from centralized exchanges, as they rely on liquidity pools provided by project runners and users. A low level of liquidity in a token could indicate weak support for it. Additionally, if liquidity is withdrawn suddenly, token holders may not be able to sell their tokens, rendering them essentially worthless.
In conclusion, investing in initial coin offerings can be a high-risk, high-reward venture. To avoid scams and protect their investments, potential investors should conduct thorough research and analysis of the project’s website, whitepaper, and team members. Additionally, assessing a token’s liquidity on decentralized exchanges and avoiding hype and over-enthusiastic promotion is crucial. Investing only what one can afford to lose is a key principle to follow. By carefully considering these factors, potential investors can make informed decisions and increase their chances of success in the initial coin offering market.