Initial Coin Offerings or ICOs are rapidly growing in every direction. As with their growth, questions about the legitimacy of ICOs arise and it is important to take care during their selection.
About the project history:
“What made you step into the decentralization world? What were you previous activities?”
In today’s world of adventurous entrepreneurs, you can never be too careful. This question will save you from the trouble of getting scammed and getting stuck up in wrong hands.
About the project purpose:
“Why did you feel the need for decentralization for your business venture/model?”
This question is a comprehensive one and it will help you in developing a direct judgment about the suitability of ICO. If the founder is able to explain it verbally or through a medium article, you can think of it as a safe option to consider.
About the token:
“What is the purpose of token? As a developer, consumer, and investor, how can anyone use the token? Why and when will I be able to use it?”
The new decentralization frenzy has given rise to many wild imaginations regarding the use case of tokens. However, these imaginations are only but spectacles of the distant future and hold no real weight currently.
Before you ask this question, try to think like a token user from a token target market and ask questions from user’s point of view.
If the ICO founder or representative fails to explain an answer to this question in 15 seconds, it is a straightaway red flag. Avoid that ICO.
About the competitors:
“What is the nature of ICO’s competitors? Are the centralized? If so, what is stopping them from decentralization?”
If you want to determine the preparation of an ICO in true means, it is better to do some research on your own to stay one-step-ahead of the ICO in question. The above question catches most of the ICOs off guard and its answer speaks volumes about the suitability of an ICO. From your research, gather some examples of decentralized competitors of the ICO in question and be assertive in asking the ICO “what makes them better from the ABC company which has x% market share?”
This question is a direct trick which gives rise to several branching questions. If the founder is successful in delivering satisfactory answers without fumbling, there are high chances that he is a founder of his ICO.
About the lockup period and TGE:
“Does the ICO have a lockup period? When is the TGE?”
TGE and lockup are two of the most important factors which determine the liquidity for investors. Answers to these questions are predominantly important for CIOs involved in private sales.
Lockup period can simply be defined as the minimum period of time for which the investors are required to hold the token. This time period may range from 3, 6 and 9 months etc. If the ICO has failed to clear about the lockup period in its documentation, it is highly important to clear about it during personal communication.
Token Generation Event (TGE):
ICOs issue the token to you at a specific time and a specific day. The time when the tokens are issued to you is called TGE. Take note of the fact that lockup period initiates after TGE has been held.
As in investor, beware of the habit of delaying by ICOs. These ICOs delay the TGE for as much time as the lockup period.