Home > Guide > ICO risk evaluation
Crypto Security,
Guide, Scam,

ICO risk evaluation

According to Satis Group LLC, 80% of all ICO projects at the beginning of 2018 are a scam. To assess the risks and not to give your money to the scammers, take half an hour to check the project. The 4С method will help you to run a quick assessment of the ICO in order to understand whether it is worth further investigation or not. It is not an all-round analysis but just an express check for you to differentiate between a promising project and a scam.

Read time: 8 min
Cryptoassetsrank.com Published on Jul 05, 2018
'ICO risk evaluation' article image

According to Satis Group LLC, 80% of all ICO projects at the beginning of 2018 are a scam. To assess the risks and not to give your money to the scammers, take half an hour to check the project. The 4С method will help you to run a quick assessment of the ICO in order to understand whether it is worth further investigation or not. It is not an all-round analysis but just an express check for you to differentiate between a promising project and a scam.

ICO assessment

According to the 4C method, you should evaluate the following:

  1. Crew or team.
  2. Concept.
  3. Coin or token.
  4. Code.

Crew (Team)

Social media profiles. Study the developers' profiles: what they post, how often they post, when the profile was created, how many subscribers they have. Also, experienced specialists communicate at crypto forums, for instance, Bitcointalk.org. The nickname of the user must be open.

Experience. To make sure that the programmers are competent, check if there is any data about their previous projects at GitHub and other repositories where they put the source code of the programmes.  If the programmer states that he has a 10-year experience in the field, he should have some finished products or examples of source codes at repositories.

Content. Check if there are publications at Medium, Steemit, Golos. To be silent for years and then to create a project and present it for initial coin offering is a dubious sign.

Project community. Pay attention to the number of subscribers and the comments. Numerous subscribers and comments do not at all mean that the project is reliable because they can be fake, that is why assess the profiles of the users and the gist of the comments.

For example: The COSS project has the following:

  • the links to the team profiles on LinkedIn;
  • the white paper with a description of the whole team;
  • the links to the strategic partners.

Concept

MVP. A test model of the product with minimal functions corresponding to those announced.

Uniqueness of the white paper. Analyse the white paper with any service helping to check the text uniqueness. Better use two or three different services. Sometimes the scammers copy a part of somebody's white paper because they do not know what their project is about. If the uniqueness check service identifies plagiarism, look at the source. If it is not the developers' website or their own post at the forum, chances are that these are scammers.

Competitive analysis. Study the projects in the related field. Maybe, they offer more favourable terms. If the project has no competitors, it is likely, that it is either not in demand on the market, or not technically feasible, or it is a fraud. In a very rare case, it can actually be a revolutionary product.

Buzzwords. Vague generalizations without any details: "Our application is based on the high-capacity blockchain technology, using which you will be able to solve a lot of problems". If the description consists of buzzwords, the developers want to conceal the defects or their own lack of knowledge of the technology.

Consistency of the time frame in the roadmap and the white paper. If the dates and deadlines are not consistent, the developers are not serious about the project and have prepared it in a rush.

Blockchain is a must. If you can take away blockchain from the project and the project will continue functioning without any losses, it is a scam. If the project developers cannot explain why they need blockchain, the goal of ICO is profiteering.  

Source of traffic. The websites from which the audience arrives will help to understand the project target audience and identify a fraud. For example: the Desktrow project, whose aim was scam prevention, was buying traffic from PornHub. You can define the source of traffic with the help of Similarweb.

Clean website. Before selecting a project, check its website via Who.is. Find out the date and place of domain registration, the owner’s name, the content history on the website.  

Coin or token

Token uniqueness. ICO will fail if the token is not unique.

Financial model. There are three types of models:

  • inflational, when there is no limit. For example, ethereum.
  • deflational, where the number of coins is limited. For example, bitcoin.
  • stable, backed up with some material resources. For example, USDT.

If the project is aimed at massive demand but at the same time issues a limited number of tokens, they will not be able to scale the business up.

Getting listed on exchanges. If the developers declare that they are going to list the coins on 15 leading exchanges, they must confirm it by answering the following questions: how they are going to do it, on what terms, why the coins will be traded, who said it, how much money will be needed for it. Otherwise, such declarations are often made to attract investors who take anything they are told at face value.

Regulation. Check if the project implies a reserve fund, coin burning, freezing and buyout. Coin burning helps to maintain the cryptocurrency exchange rate, temporary freeze of the team's tokens reduces the likelihood of the team giving up the project immediately after its launch, and the buyout gives at least a conditional guarantee of some profit if the project is done. For instance, you buy tokens for $4 and the organization promises to buy them out in a year and a half at a price of $8, regardless of their market price.

Token distribution. How will the tokens be distributed between the team, big investors, the market and the contractors? On the average, the developers' team should have not more than 10-20% of tokens, 1-5% of tokens should be spent on marketing expenses and advertising, and 80% of tokens should be sold for free use.

Token type. If you invest into the project development, where the profit does not depend on your actions, it is a security token, i.e. digital securities. You should check the agreement: if there is a certificate of SEC or other regulatory authority and a licence for asset management. If these are utility tokens, they provide access to the programme, digital goods, right of property. If there is no such indication, then there is no financial model.

Code

Code of smart contract. Check its authenticity and update frequency. It shows the level of project development.

Project website. It must be a convenient website with:

  • A video describing the essence of the project;
  • The documents: the terms, a roadmap, a white paper;
  • Textual description of ICO;
  • Information about the team: photographs, links to social media profiles, CVs;
  • Links to the materials, publications, videos with presentations and public  speeches;
  • Partners;
  • Contacts and social channels.

If the team has problems with the website, they have problems with the project as well.

ICO investment risks

Now you are almost fully prepared to choose low risk ICO projects by yourself (you can do it using our list, by the way). Consider a few more aspects, before starting.

Scammers. Their aim is to provide an eye-catching description of the project and to disappear after they have collected the money.

Weak project. Because of ICO popularity, a lot of inexperienced teams want to create a project and to earn from investments, that is why a lot of products turn out to be secondary, non-demanded, or technologically underdeveloped. It is safer to select a project with an experienced team who has already worked with blockchain.

Overlong implementation. A long implementation of the project increases the risk of failure: while the team is improving its product, there can appear a quicker competitor. If the competitor becomes the first to launch an ICO, your project will be useless because of its secondary nature.

Hackers. They can hack the transaction, replace your wallet's number with that of their own, steal the tokens from your wallet, replace the website or use hundreds of other schemes.

in this article
Did you enjoy that? Why not share this article