How To Rate An ICO: A Rating System Explanation on Best Ways to Review an Initial Coin Offering
Rating an ICO can be challenging. Initial Coin Offerings come in all shapes and forms. Some ICOs are blatant scams. Others ICOs could be the next Amazons, Googles, and Facebooks of the future crypto industry.
How do you separate good ICOs from bad ones? How can you judge an ICO? Today, we’re explaining some of the rating criteria we use to judge ICOs. Read this guide to learn how we develop our professional, unbiased ICO ratings. Or, use this information to create your own ICO analyses and become a more informed cryptocurrency investor.
Top 6 Most Important Things To Consider When Rating An ICO
If you want to rate an initial coin offering, here are 6 of the most important things to consider while reading the project’s homepage, whitepaper, forum posts, social media posts, and other online content:
- Data Integrity: How the project presents itself online, including the content within the whitepaper and website.
- Team: The members involved with the project, including their experience, education, and qualifications.
- Vision: The future ambitions of the project, including the short-term and long-term goals.
- Product: The MVP, beta, or testnet of the product, including whether or not the project has a working product available for the public to examine.
- Marketing: How the project advertises itself online, including the professionalism of its marketing campaign and its adherence to investment marketing regulations.
- Social Engagement: The project’s social presence, including its social media profiles and its accessibility.
We’ll talk about each of these six factors in greater depth below.
Is the information on the website and whitepaper coherent? Does the project present unified branding and information across all its online content? Or is the project a mess of marketing materials with a bunch of confusing goals?
Data integrity is a key feature with our ICO rating system. We like to see a full-fledged whitepaper that clearly explains the goals of the project. We like to see a coherent website with a professional appearance and design.
Of course, simply having a 50-page whitepaper and a $50,000 website doesn’t mean anything. We’ve seen plenty of ICOs with 50-page whitepapers that reveal no concrete information about the project. Some whitepapers, for example, spend 40 pages discussing basic information about cryptocurrencies before featuring a brief explanation about the project.
Out data integrity metric also refers to whether or not the product has been plagiarized, or if content from the project has been copied from other sources. Some ICO projects copy an entire whitepaper word-for-word, for example.
Finally, data integrity refers to the honesty of the company’s data. Does the company falsely list major corporations under its list of partners, for example? Does the company talk about getting listed on major exchanges even though they’ve had no previous contact with those exchanges? Does the company feature quotes from celebrities or advisors with no connection to the project? All of these problems suggest an issue with the project’s data integrity.
One of the easiest ways to spot an ICO scam online is when the project refuses to disclose team information. If you’re running an ICO scam, you obviously don’t want your real biographical details attached to the project. That’s why ICO scammers will often post fake names or steal pictures from elsewhere on the internet. Do a reverse Google image search on the team pictures to verify their legitimacy. Search for team names online to verify their history.
We’ve seen other ICO projects that steal the identity of a random person online. You might see a team member with a long and successful history of leading projects, for example. This person and his picture is a real person. However, the actual person has no idea his name and photo are being used by an ICO project. In this situation, it often helps the check the verified LinkedIn profile of the user to see if he has indicated any public connection with the project. We may also send users a message to verify their affiliation with a project – especially if they have no publicly-listed connection with the project online.
We research team members to a great level of detail. We check their social media accounts and activities. We look at the Github pages of developers involved with the project. We check their work experience to verify they’re being truthful.
What are the long-term goals of the project? What kind of vision does the team have? If everything in the project is successful, then what will the long-term achievements of the project be?
We check the vision of all ICO projects to determine how realistic it is, how well-defined it is, and how far away the project may be from completion.
Some ICO projects are ridiculously ambitious with their vision. They post a vision of where the project will be in 2030, 2040, or beyond, for example. Other projects post a blend of realistic short-term goals with ambitious long-term goals.
What is the ICO project attempting to sell? What type of product or service are they offering to the community? Does that product solve a crucial problem? Or is the team inventing a product for a problem that doesn’t exist?
Furthermore, is the product actually available? Is there an MVP of the product available for the public to see? Has the product launched on a testnet or mainnet? Is there a schedule for a beta release of the product?
Generally speaking, you should be extremely skeptical if someone is hyping an ICO for a project with no publicly-available product in place. It’s easy to promise enormous things in a whitepaper – it’s harder to actually create a real product.
What kind of marketing approach is the company using online? Is the company putting enormous emphasis on its ICO while downplaying other aspects of the project? Is the company advertising their ICO as a great investment opportunity? Are they making absurd claims about the valuation of their project or the future value of their token?
You can learn a lot about an ICO from its marketing. Legitimate ICO projects have high-quality marketing campaigns online. They present themselves in a unified and professional way while abiding with local laws. Lesser-quality ICO projects, meanwhile, spend a lot of convincing you the ICO is a life-changing investment opportunity.
Is the company engaging with users and the community via social media? Does the project have a Telegram chat? Are they open and accessible to users across a number of different platforms? Or is the company closed off from the internet?
Does the ICO project have an active community of users who appear to be genuinely interested in the product? Or is the ICO’s community flooded with get-rich-quick-style spammers trying to convince you to buy the token today?
Beware Of ICO Rating Websites
ICO ratings websites are notoriously awful. Most websites contain totally inaccurate information, including fabricated token sale dates at best and false rating systems at worst.
The problem lies in the impartiality of ICO rating websites. Put simply, many of those who rate ICOs on rating websites are not impartial. They may have a stake in the success of the ICO – or the failure of the ICO. Some ICOs launch marketing campaigns specifically targeted at ICO rating websites. An ICO might pay users to boost ratings on a specific ICO rating website, for example.
All of this means you can’t always trust the information on ICO rating websites. Some ICOs will have mysteriously high ratings on these websites, for example, despite a complete lack of a valid business plan.
Ultimately, the problems on ICO rating websites boil down to biased, invalid raters. There ICO websites often have a limited quality control process on who can rate a specific ICO. Some websites allow anyone in the community to rate an ICO. Other websites have a vetting process – but they still allow any “ICO guru” or online personality to chime in with a rating.
If you’re going to research ICOs on a rating website, make sure you understand how ratings are calculated. Watch for bias whenever possible.
At our ICO review website, we maintain an impartial and unbiased view of all reviewed projects. In rare situations where we may be affiliated with a project or own tokens from a project, we disclose this information upfront.
How to Measure the Risk of an ICO Project
An ICO might perfectly exceed expectations based on the 6 rating criteria above. However, the project might still completely fail despite all the best intentions. Why? Because of risk!
We pay close attention to the risk of a project when reviewing an ICO. An ICO project might have a great plan to launch an ICO that sends a man to Mars, for example. They may publish a whitepaper with specific shuttle engineering plans, a trajectory launch, and a detailed budget breakdown – but the project is still ridiculously risky.
We separate risk into four different categories, including all of the following:
The project might have a great plan and a great execution – but the project could still fail because there’s no market for the product they’re building. We call this market-related risk.
- Some of the warning signs of market-related risk include:
- Aiming at a small, niche marketplace that would not be commercially viable
- Creating a product that solves a problem that few people experience
- Incompatibility between the vision of the project and the ultimate market for the product
- Creating a product for a market notorious for scams or other criminal activity
- Creating a product for a market oversaturated with mature, larger, and experienced competitors
Some projects might have a detailed whitepaper and business plan – but they face risk due to implementation of their token. Some of the things we look at when calculating token-related risk include:
- Inappropriate token distribution, including a disproportionately high number of tokens allocated to the team and advisors
- A ridiculously ambitious hard cap target, like a startup with no MVP product seeking to raise $300 million for unclear reasons
- Lack of a lock-up period for the team and investors or other signs the team is preparing to sell their tokens quickly
- Poor execution of a token sale, including incompatibility with the Howey Test, illegally selling tokens as securities, or selling tokens without completing KYC/AML verification processes
Some projects fail because of a bad team. The team might refuse to disclose information about itself, for example. Or, the team might just not have the experience needed to get the job done. Some of the signals of team-related risk we look at include:
- Refusal to disclose names, pictures, biographical information, and other details of the team
- Presenting a team with fake social media profiles, no social media profiles, suspiciously new social media profiles, and other red flags
- A lack of team members in important positions, like the lack of a CTO for a major blockchain project
- An inexperienced team with limited previous experience
- Team members that have been involved in scams or criminal activity inside or outside the crypto industry
Even if a project avoids all the risk factors listed above, they might still be exposed to considerable risk due to technological problems or even legal regulations. If a project has technology-related risk, then it may meet some of the following risk factors:
- The project is based on technology that doesn’t yet exist or isn’t fully developed
- The project claims to be open source, but doesn’t have a GitHub repository or other publicly-viewable source of project materials
- The project is a clone or fork of another project’s technology with few significant differences
We carefully consider all of the risk factors listed above before calculating an ICO score for a project. As initial coin offerings (different than IPOs) become more popular, it is important to get a baseline for what to look for when it comes to selecting where to invest your funds into blockchain-based asset projects. Our ICO analysis experts pore over all aspects of an ICO to determine what the company is offering the cryptocurrency community. We take pride in providing professional, unbiased analyses of ICOs from across the crypto space.