Economy of ICOs: How can an investor find a promising project to finance?
Crypto investing still remains the trend in the field of finance for 2018. According to the annual report of an analytical news site CoinDesk, the active growth of the number of ICOs continues. The funds raised in the second quarter of 2018 amounted to $39 million. Despite the good indicators, many crypto experts express their concerns as to the efficiency of the projects’ ICO entry and warn about the existing uncertainty of the token market.
Investing using Money or Tokens
Investor’s main goal is to receive the maximum profit from his/her investments. For the most part, this fact explains special interest of businessmen to invest in innovations. It means high profitability, and co-investing with venture funds lowers the risks of negative income. Venture financing demands certain conditions, one of them is the availability of a risk capital allocated beforehand because innovations are one of those unpredictable fields where you have to “guess” the time the product or technology enters the market and also predict the customers’ readiness to use such technologies.
The portfolio of venture investor should consist of at least 10 projects. According to statistics, only 1–2 business ideas bring profit, a few more projects return the invested funds and the rest end up losing money. The advantage of “portfolio investments” is that you can invest small amounts of money in various projects and gain reasonable profit in a few years. The problem that really concerns venture investors is where to find good projects. And that is where the dilemma arises: whether to invest fiat money or tokens.
Projects of familiar companies, startups recommended by business partners or projects of people in your social circle are good for fiat investment. To find such offers you can also use competitions of business ideas, monitor specialized mass media and other sources. Having chosen a suitable project and signed a contract or entered into an agreement, you have to monitor its implementation stages and realization of the invested funds, which takes more time and more money. In addition, the financial entry point for venture investing is relatively high: from $10,000 to a few million.
Crowdfunding platforms have a totally different approach to an investing process. Firstly, the ICO process itself is more open and participation in fundraising is available not only to big companies but also to private investors. Basically, it means that anybody can invest money. Secondly, the expenses needed to conduct and organize a new ICO range between $10,000 and $50,000. Meanwhile, the cost for attracting one client in Europe is somewhere between $600 and $1,100 and with ICO it is $250. Thirdly, the downsides of this investment type (no protection of investor’s rights, no dividends, unregistered tokens) can be balanced out by choosing a reliable investment platform. Fourthly, the problem of where to find promising projects gets solved pretty quickly. Many platforms for attracting investments to projects have appeared on the Internet:
Having chosen the platform that meets the requirements, the investor learns about the projects the platform offers and decides on whether to participate in one of them.
Another way to find a promising ICO project is to use popular services like ICO Stats, ICO Rating, ICO Tracker, ICO Alert, Coinschedule, TokenMarket and Profit Grid, where they publish project ratings based on analytics or according to the current calendar of ICO projects. Some resources provide information about investment payback, but for the most part — these are news outlets. They announce the upcoming or ongoing fundraisings and make up their own ratings based on basic parameters: White Paper, team members, project roadmap and other available information.
Ideal ICO Project
What makes a business idea creator turn to ICOs? First and foremost, it is a shortage of capital for the implementation of that idea. For example, there is a good plan that has been worked through in theory, but in order to produce a utility model you need special equipment, facility, workforce, etc. The very fact of the idea being only a theory and the absence of at least some sort of a utility model creates a negative reputation of “blowing bubbles” for ICOs.
According to ICO Rating, 46.6% of all ICO projects (for the first quarter of 2018) did not have a finished product. At the beginning of token sale, only 26.2% of startups had MVP (minimal valuable product) — it’s when a product is released with key functions so that you could evaluate its actual user demand and, having received feedback, make a decision to release the product with complete functionality. Despite the uncertainty of potential profit from investing in ICO projects, there are offers that investors are “hunting” for.
Statistically, the process of raising funds needed for the business idea implementation averages between 30 days and 2 months. Although, projects like Zeepin, Neuromation and ArcBlock raised the required amount on the first day of the ICO.
The ideal project capable of raising funds during the ICO in hours or days is a project that solves an issue of its potential users. For example, the fastest ICO in terms of fundraising is still TON (Telegram Open Network) by Telegram. According to the developers, TON will grow into a complete ecosystem. The TON multi-blockchain solves issues of low speed and scalability. The decentralized platform is built into an anonymous messenger, which greatly increases the security of the network.
The issue of copyright, its confirmation and protection is solved by a project called Zeepin. The use of DApp with a Copyright Pro plugin allows avoiding 90% of information copying attempts, thus, digitalized and recorded creative resources receive additional protection.
Ukrainian startup Neuromation (2017) gathered $50 million in only 8 hours of the ICO. It is a technological platform based on which improvements for algorithm operation are created. Due to an artificial learning environment offered by Neuromation, companies get the ability to analyze data faster and more efficiently than other international companies not using the platform.
ArcBlock is a new generation Blockchain 3.0. One of the numerous advantages of the project is the ability to freely interact with other Blockchains. The possibility to create and deploy decentralized DApps applications is being implemented into the platform. According to the developers, the user only has to launch the technology and the network will start expanding on its own. ArcBlock can be launched both from the cloud and on a local computer. Thanks to the OCAP protocol (open source code and abstract access to basic Blockchains), applications developed using ArcBlock can work in different Blockchains, which greatly improves the users’ working experience.
The majority of ICOs are conducted on the Ethereum platform. During the project’s existence, the total number of startups that have attracted financing is already over 1,000, and this number will keep growing. Waves, NEM, Nxt, EOS and other platforms are also popular for conducting ICOs.
Each of the mentioned platforms has its special features, so let us take a look at the most interesting ones.
A promising new platform called Waves is ideal to place ICO offers from startups of the real sector of the economy. According to the developers, the main area of the platform’s activity is fundraising for construction and enterprise launches. The platform itself is at the launch stage right now, and its stable version will start functioning at the end of 2018.
Another two resources that are just as interesting: Nem and the Bitbon System. Both of them have a special environment, which expands their possibilities of use.
Nem is recognized at the state level in Japan. It uses the POI algorithm and has additional wallet protection (there is no Blockchain download). The Blockchain has an open code, but the NIS system itself is completely closed. One block is created in 1 minute and as of right now the system can conduct 4,000 transactions simultaneously. The developers’ main interests are financial technologies and bank transfers. Experts emphasize the promising nature of the project and are confident in its ability to conquer the Asian region.
The Bitbon System is a Blockchain-based digital innovative environment for investing and raising funds for projects at different stages of their implementation, from startups to projects, which are already operating and developing new directions. The System has a number of differences from similar platforms. For example, developers have introduced the ability to control rights to assets, evaluate and transfer property rights to assets of different types: movable and immovable property, copyright, securities, shares in statutory funds and other companies, etc.
The System solves a number of key issues that investors are facing during standard ICOs. The fundraising process for project implementation in the Bitbon System is defined as IBO (Initial Business Offering).
The search for appropriate projects. The users of the platform select the investment project according to the internal rating of the platform, where projects are divided into three categories: A, B and C.
Project information. The Bitup-Agency as a System participant provides the Contributor (investor) with all necessary information about the project.
No commission fees for transactions within the System.
Protection of investor’s rights. Projectbon Public Contract of a specific project contains terms and conditions of how the participants interact within the project. That guarantees the compliance with the agreement and a refund in cases specified in the contract.
For the convenient use of the System, the Bitbon Space mobile app was released in May 2018 and its complete functionality will be available in October 2020. The functions that are currently under development include connection of your own exchange accounts to Assetboxes (digital wallets) upon their creation and management of your shares in different business projects using Projectbons.
Investor’s Reference Points on the Market of ICO Projects
In only the first three months of 2018, $3.3 billion was raised during ICOs. The main tendency of the ICO market in the first quarter of 2018 is the rise in the share of institutional investors and the decline in the private ones. The USA, China, Lithuania and Russia are among the countries actively adopting ICOs. A quarter of such projects is being implemented by multinational teams. A certain decline in the number of ICOs means only that the market “matures”, cleans itself from unsustainable business offers and that investors have become more demanding. According to crypto analysts of the Satis Group research company, the volume of crypto trading will increase by 50% in 2019. According to Jacob Pouncey, leading analyst of Saxo Bank, the main reason for crypto market instability is the pressure from regulating authorities and the advertisement ban, but the cost of crypto assets will continue to rise.
Cryptocurrency is becoming a potential alternative to fiat funds and, after you decide on the most preferable field to invest in, you have to choose a project or compile a package of investment projects. When choosing projects, a number of things should be taken into account.
Things that ICO investors should pay attention to:
Website of the ICO project, which should contain all the information about the project: goals, project team, ICO participation experience and its success.
Project description, which should contain the implementation and development stages of the offered product. The White Paper, which should contain not only the idea but also the implementation mechanisms.
Available marketing strategy for project development.
Market sustainability assessment.
Type of the Blockchain technology.
Popularity among investors. The number of people that already invested and in what amounts.