Red flags that will help you to avoid investing in fake ICO’S, IDO’S and IEO’s
If you like crypto, you have probably enjoyed many of the benefits coming from the DeFi applications and at the same time experienced the risks that this ecosystem brings with it. In addition to high volatility and market speculation, we are aware that scam projects and accounts are a common concern in our industry thanks to the numerous cases of projects being attacked or having flaws on their code being abused by said hackers and generating huge losses for the project and the investors. Even though an “ultimate guide” on how to be safe from this does not exist, we are going to share some of our tips on how to avoid falling into the trap of malicious people making hollow promises.
What is an ICO/ IDO/ IEO?
ICO´s, IEO´s and IDO´s are methods to fundraiser capital during early steps of a project, to obtain a needed amount of assets, in order to complete the full development of an idea of a product or service; All of this either full or partially supported on block-chain technology. These methods have been well received by the community given that they are accessible and backed up by cryptography.
Many successful DeFi projects like Ethereum, Neo, Ark, Nxt, Spectrecoin, have been a profitable venture for the people that decided to invest their money on them trusting that the project would be developed according to the initial approach explained on the “whitepaper” document, and subsequently would generate value for all the interested parties.
How does an ICO / IDO /IEO works?
The most similar traditional financial method to be compared with, would be an IPO or “Initial Public Offering” where a private company lists its shares on a centralized exchange where the public will be able to purchase them. It is important to empathize that it is not easy for a company to obtain capital through an IPO because a large number of bureaucratic requirements established by the securities and exchange commission must be met.
With the adoption of crypto technology, a company or user can lead a sale of its own tokens in exchange for the investor’s assets, that can be represented in cryptocurrencies or others like fiat money, all of this backed by smart contracts agreements, this idea was introduced with the ICO´s, the acronym for “initial Coin Offering”.
The releasing of the “Whitepaper” is a really important step for the reason that it is the document where anyone can find a detailed explanation of the idea, important dates, key partners and supporters, financial information, requirements, the rules and principles, and how the obtained capital would be managed. Fulfilling a double function, with the launch of the whitepaper, the community is not only invited to get in touch but to support the proposed idea.
After a great massive acceptance of ICO during 2017 –2018, where billions of dollars were invested in crypto projects many of those mentioned projects turned out to be fake. This generated a lack of confidence, resulting in the adoption of IEO “Initial Exchange Offering” where a centralized exchange offered surveillance and security for the crypto users. The IDO “Initial Dex Offering” came as the combination of an IEO and an ICO; using a decentralized exchange (DEX) to hold the launching of the offer.
Why is so risky to invest in them?
ICO´s, IEO´s and IDO´s have its advantages, they are easy to access and use, backed up by the reliable blockchain technology and without the traditional requirements, procedures and governance over the project´s idea. But, let´s talk about the not so bright side of this fundraising methods, starting with the estimation that around 80% of the ICO´s were associated with scams, a valid reason that has led famous figures and even governments to speak out against the risk that ICO´s/IDO´S/IEO´s represent. If the supported idea goes wrong or does not even get launched, you would not only get really disappointed but also would lose your money, time and invested resources, with little to nothing to do about it. It is sad to confirm that no matter your experience, as of now there´s no way to guarantee that you will be exempt from this unfortunate situation.
How can I avoid investing in Scam ICO´s / IDO´s /IEO´s?
With the risk being considered, investing in crypto might feel like standing on thin ice, but please do not panic, here are our tips to minimize the risk in your investments:
1. We sincerely recommend you to always DYOR first, “Do Your Own Research”, this means to doubt, ask yourself the necessary logical questions, be cautious and make sure you make a deep investment research before making any decision.
2. The crypto world depends on its community support, a smart strategy to achieve this needed attention might include alliances with strategic partnering, getting to be mentioned on recognized crypto channels, leading AMA type events, maintaining a good reputation and posting in social media. Take your time to suspect if you receive aggressive marketing messages from random accounts or maybe posing as well-known crypto characters promising great rewards.
3. Take your time to read the whitepaper, make sure it is clear, understandable and accurate, verify its authenticity and sense of logic, is the company offering a realistic idea? Are they assuring the earning of juicy profits for little or even no effort? Is the business idea strong enough to achieve the expected results? It has been proved that a whitepaper of doubtful origin might include copied statements, complicated words and spelling and grammar errors. As with the whitepaper, take a deep look at the webpage; It is easier for scammers to save resources by maintaining a simpler website.
4. It should be noticed that since the beginning of the crypto environment, due to several reasons, some ideas have decided to be developed under anonymous leading and this does not necessarily mean it is a fake, however, we strongly recommend giving preference to a more transparent proposal, where you can meet the team behind the idea, and verify its profiles and experience.
5. As mentioned in our previous article “do not pull all your eggs in one basket”, it is good to diversify your investments
Please remember that we are still witnessing the development of the DeFi, as a new industry, the cryptographic market has shown to be very creative when launching and developing ideas and even though the internet is full of bots and scam, we as crypto supporters play the most important role in this game, having the last word on the value of an idea, with a promising future ICO´s, IEO´s and IDO´s remain a great area of opportunities.