What Makes a Token Sale Fair?
If you are looking into investing in a blockchain project, then you have likely heard of some of the problems that can make token sales unfair to the average investor. There are many potential pitfalls waiting for investors that are unaware of what to look for. Uninitiated investors run the risk of wasting all of their money on a project that was set against them from the start. However, if you do know what to look for, then you will fare much better than most.
Warning Signs and Red Flags
The most common problems afflicting ICOs are easy enough to spot once you know what to look for. While the cryptocurrency world contains many scams, there are few as brazen and annoying as ‘pump-and-dump scams.
While these types of scams would be illegal in securities markets, the regulatory situation for ICOs is far less defined, and even though many countries regard ICOs as securities, numerous pitfalls remain. Pump-and-dump scams generally involve artificially increasing the price of a less known token through fake news and artificial hype.
The token will typically come with a low supply and a small market cap, allowing the scam to take place with little effort.
Once the process is underway, early investors (who are in on the pump and dump) purchase the token in high numbers, while false information is spread to make it look like this token is the next big thing, causing unaware investors who don’t want to miss out to invest in it.
The combined effect is a fast, steep rise in prices. Once the price has been boosted, the early investors sell off their tokens in a coordinated manner, netting them a substantial profit, while leaving unsuspecting investors in the dust. Ultimately, the only way to avoid these scams is to understand how they work, and keep an eye out for suspiciously low market caps and steep price climbs for relatively unknown tokens.
Another red flag comes in the form of a whale. Whales exist in traditional investment markets as well as token sales, and the term refers to an investor or group of investors that hold a disproportionate share of the total supply, allowing them to affect the price of the token with relative ease. Some whales can move entire markets with a single high volume sale. They should also be looked out for, as initial investors hold much power over a new token.
What Does a Successful Token Have?
While being able spot red flags is extremely important, being able to find substance in a token sale is what really completes the picture. Many token sales will offer you something that sounds incredible, and the team behind it may very well mean to deliver it, but that is not a good enough offer.
The most successful token sales offer something unique and realistic. The best sales come backed with a successful, tried and tested product or service. If the company offering the token sale has already offered something of value in the past, it is much more likely that they will be successful in their new sale, and many times less likely that they are trying to run a scam.
On the same note, you should take care to look out for teams that offer nothing but skills in cryptography or strictly cryptocurrency related skills. If they are truly offering something valuable, they will have a diverse team at their disposal that offers skills that go beyond executing a token sale.
There is Hope…
Despite all of the pitfalls that have affected token sales and ICOs, there is much promise out there. There are many legitimate businesses that want to offer something truly unique, while representing their business in the best way possible. It is likely that the best projects have not launched their token sales yet, so it is increasingly important to know what to look out for. For example, BlockGrain is a company that comes with both a diverse team, and a tested service that has already been used in their field. These are the types of ICOs to look for.