Digital currency…
“It is important to understand the background of the team leading the development of the project. Are they mostly engineers and do they possess relevant backgrounds? Look for LinkedIn profiles, Twitter accounts, Medium accounts, and anything else that can provide information on their background and how long they have been involved with cryptocurrencies,” he said.
Those that have had previous experience with cryptocurrencies tend to be more familiar with how ICOs work.
“If it is very difficult to find additional information about the team online this is generally a negative sign,” Glazer warned.
“Good projects will have a website that is able to succinctly explain the important takeaways from the white paper – why a coin is needed, how it will be implemented, etc. – and a means of communicating updates to people who are following the project (some combination of an email list, chat thread that can be joined, and a social account like Twitter or Medium),” he said.
He said it’s a good sign if there is a development team that provides updates and keeps followers in the loop about new developments.
“If so, are the materials high quality and do they make sense? Search around for developers online who have commented on the project on platforms like Reddit or Twitter,” he also said.
Interested investors should also know how far the issuer is on the project.
“How far along is the project? Is it just a white paper or has meaningful code been shipped? Some project use GitHub to store and collaborate on code and this can be a good way to track a project’s development progress. Good projects will have both a roadmap of future plans and also a record of previous goals completed. Has the team done a good job meeting goals that they set in the past?”
Potential investors should also look into competing tokens as well as the funding structure.
“How much will the founding team keep and what lock up (if any) will be placed on their coins? A wellstructured project will gradually issue coins to the founding team as they complete project milestones and it is a major red flag if the founding team gets a large coin stake upfront with no lock up. Linking the release of coins to project progress aligns incentives and keeps the team motivated to build, rather than to cash in on a successful ICO. Is the ICO unlimited or has a hard cap been set? It is important to know how many tokens will be issued and how this will change over time. If the team has the ability to issue new tokens at will, this can dilute the stake of original investors,” he said.
In the end, Glazer said investors must evaluate ICOs carefully and not just look at the marketing schemes employed by the issuers.
“With so many ICOs being launched, it is important to evaluate each new cryptocurrency project by its merit rather than the hype and marketing surrounding it. Given how promising blockchain technology is, it is likely that developers have just begun to scratch the surface of what’s possible and many new ICOs will launch with great teams and technology behind them. There will also be many imitators and scams, however, so spend time researching a project before investing,” he said.
Indeed, SEC commissioner Emilio Aquino said there have been incidents abroad when issuers of ICOs “suddenly just disappeared” after getting money from investors.
“Some investors just disappeared. It has happened,” he said in a recent interview.
Against this backdrop, it may be good to remember what SEC chairperson Teresita Herbosa once said about investment schemes in general – “if it’s too good to be true, it must be a scam.”