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Author Topic: Red flags in ICO’s  (Read 431 times)
John-Doe
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September 21, 2018, 06:36:51 AM
Last edit: September 24, 2018, 04:08:17 PM by John-Doe
Merited by dbshck (7), joniboini (2), miningnew (1), Piggy (1)
 #1

I. Problem

Despite a significant recession in the popularity of ICO in the last quarter, this method of raising funds still has a huge potential and enough space for future growth. Unfortunately, most teams of ICO-projects don’t fully understand how this method should be used. Furthermore, even some investors frequently don’t understand this mechanism, and it leads them to financial losses (what is quite natural). There are three main reasons of ICO’s popularity, in the one hand, and huge number of failed projects – in the other:
1. Projects aim for the fast fundraising bypassing current legal methods. This happens, when the only goal of launching ICO is the personal enrichment of team members.
2. Projects have nothing but ideas and get a chance to simply raise funds for its implementation.
3. Mediocre startups exploit the idea of blockchain to attract the attention and money to their already existing projects.


I’m Russian-English translator working with different ICO-projects within the bounty-campaigns. For the last year I’ve worked with 50+ projects and researched 200+ various types of content (whitepapers’s, ANN’s, Websites etc.). Also, I oversaw the further development of these projects, their interactions with crypto-community. During this time, I found some “indicators”, that quite clearly show that:
1. The team lacks a clear vision of the project;
2. The team lacks a project’s development experience;
3. The project is an obvious scam.
Some of these indicators are associated with the contents of project’s documentation, some – with external signs (e.g. whitepaper’s or website’s design). Interesting fact is that a lot of projects with these indicators raise an extremely large communities around them, and, for example, have more than 100 pages in their bounty topics on BTT.

Below I’ll try to describe these indicators in details.

NB: everything described below is my personal opinion. Projects that are given as an example can be legit and their teams can have a clear vision. I suggest everyone to write their opinion on the issue, raised in this topic.



II. «Red» indicators
1. The project doesn’t have clear and understandable purpose. A good example – there are projects, the only goal of which is issue of cryptocurrencies itself, backed by time-tested assets like gold, diamonds etc. 95% of these projects don’t have any content or meaning as well as the understandable value proposition, they don’t solve actual problems and the only goal of these projects is purely speculative.

Here is a short list of cryptocurrencies, backed by gold:
- Flashmoni (OZT)
- Gold Bits Coin (GBC)
- XGold Coin (XGC)
- AurusGold (AWG)
- PureGold (PGT & PGG)
- etc.

This is what you can see on the statement in GoldBitsCoin’s whitepaper as an example:


In fact, whitepapers of the vast majority of such projects could be limited by this phrase. Their main feature is the complete absence of any value proposition and the “obsession” around theses like stability, prosperity and wealth for token holders.

If you still doubt whether it is worth to invest in cryptocurrencies, backed by gold or another “stable” asset, below I’ll bring the list of gold-backed projects again, indicating raised funds, the ICO-token’s price and the current token’s price (according to ICOBench, CMC):
- Flashmoni (OZT) - $72m, $0.13/-
- Gold Bits Coin (GBC) – $50m, $0.24/$0.21 (24h volume - $136)
- PureGold (PGT и PGG) – $6m, ETH 0.00143/ETH 0.00019
- XGold Coin (XGC), AurusGold (AWG) – no information.

Conclusion: think twice before you decide to invest in gold-backed cryptocurrency.

2. The essence of the project is the implementation of blockchain in every sphere of our life like medicine, food industry, finance etc. But those projects can’t propose any original solutions of problems which these campaigns or their competitors faced. In the absence of large investments and partnerships with transnational corporations, these projects demonstrate their total non-competitiveness over the time. In other words, blockchain for these projects is “the fifth wheel”.

There are few projects that provide original solutions (that I can think of)
- 0x protocol (infrastructure layer);
- Skynet (end-to-end protocol for an intelligent machine economy);
- Faceter (decentralized surveillance system).

All these projects are characterized by the fact that their ICO-model is based on using the blockchain features (note: they don’t use the features of cryptocurrencies as a means of payment, but features of blockchain as a technology), and it is impossible to achieve their goals without using blockchain.

In the same time, the distinguishing feature for the vast majority of new projects is the “attachment” of blockchain to the traditional business models. I have nothing against using ICO as a tool for crowdfunding for promising startups, especially if the development model chosen by project’s team can ensure token price’s growth and, accordingly, guarantee the profit for investors. However, the use of blockhain frequently looks too artificial and the lack of prospects for the token’s value growth is so obvious that I can only appraise such projects as blatant fraud. The simple examples there are – business-models with mottos such as: “with us you can buy something, that you already could’ve bought from our competitors, but with crypto!” (option “with our own crypto on our own blockchain enviorment”).

I will give some examples:
- Gift Token (https://icobench.com/ico/gift-token) – here you can buy gift card with crypto!
- Bananacoin (https://icobench.com/ico/bananacoin) – we will grow bananas and you will be able to buy banans with crypto!
- CashBag (https://icobench.com/ico/cashbag) – we will create a cashback service, like other similar services, but with crypto!
- BuzCoin (https://icobench.com/ico/buzcoin) – I’m Russian pop-singer Olga Buzova and you can buy my stickers with crypto!

Eventually, the actual proposition for the most of these projects follows an identical scheme: buying ETH/BTC – exchange them for another token – deposit token on the project’s platform – spend token on the platform”. Thus, instead of desirable eliminiation of any mediators we create few more intermediate points (exchanges etc.). I guess that the flaw of such projects, which are not able to propose any real ways to apply blockchain technology for the means of solving real problems, is quite obvious.

Conclusion: try to understand what is the value proposition of the project: implementation of blockhain for solving existing problems or offering of buying X (goods/services) with crypto. If you find out that it is the second option, think twice before you decide to invest in this project.

3. Promises of token’s value growth due to limited supply usually shows that either project’s team doesn’t have an economist, or this is pure deception.

Examples:

The aforementioned Gold Bits Coin.


Or gixelycoin (https://foundico.com/ru/ico/gixelycoin.html).


I’m quite sure that most of you have seen dozens of such projects everyday (btw these promises are typical for gold-backed projects, see section 1).

Everything is quite obvious: the demand arises not from limited demand but from real applicability and token’s value proposition. In other words, tokens, which value is supposed to grow only from the limited supply (usually you can also find promises of profits and benefits, without explaining any reasons in these projects’ documentation) will never be in demand, and 99% of the projects making such statements are trying to scam you. If you do not agree with this – pls send me pm and we will discuss the price of token with limited supply, which I will create specially for you.

It seemed quite obvious to me, but while writing this post I discovered overwhelming amount of funds raised by gold-backed tokens, so I decided to pay attention for this issue again.

Conclusion: do not invest in projects that directly promise the growth of the value of their token in their documentation / on the website. No economist / financier / somebody honest with the minimal understanding of crypto-world will allow himself to write such a thing in official project’s documentation.

4. All proposed solutions and benefits duplicate the well-known advantages of Ethereum/Bitcoin/Crypto/blockchain in general. For me this indicator means that the startup will not be competitive in a dynamic market.

We all are well-informed about advantages of cryptocurrencies – instant transactions, low or sometimes zero fees, security and privacy, immutability etc. So, quite often startups (usually startups with blockchain as “the fifth wheel” from section 2), describing their solutions of stated problems, list the advantages of these solutions…which completely duplicate the advantages of the main cryptocurrencies!

Example: Fitrova ICO (https://www.fitrova.com/wp-content/uploads/Whitepaper.pdf).


If startup can propose nothing but the same as Bitcoin, Ethereum and hundreds of other cryptos have already proposed, why don’t they want to exploit existing solutions (for ex.: implement features like “accepting crypto”)? And, even if I’m interested in using their solutions, why should I invest in this project if I can use completely the same solutions from existing projects?

Most of these projects – either the reiteration of existing and relatively successful projects (and, thus, highly likely they will not be able to compete with them), or complete scam.

Conclusion: while researching project’s documentation try to identify the benefits of project’s solutions and then ask yourself – isn’t this a benefit of blockchain in general, or benefits of one of the existing cryptos? If the answer is yes, try to find out what will be a competitive advantages of this project. I’m quite sure that in most cases it’s impossible to find such advantages: for me this is a bright red indicator, which prompts me that I shouldn’t invest in this project.

5. Doubtful and far-fetched past achievements without any specifications. It should be understood that some projects are interested in highlighting previous successful projects or activities, since this is one of the main criteria for the reliability of the project. If team members don’t have any successful projects (the success of which can be confirmed by facts), if companies’ names and positions of team members are not mentioned, highly likely it means that team members don’t have a corresponding background, which is very important for the project’s implementation in such an unstable and dynamically changing environment as the crypto-world. Abstract phrases about “huge experience in any field” serve as a veil, covering the incompetence of team members.

Here you can see an example of blatant lies: http://swecdocs.54-webstudio.ru/lightpaperen.pdf


Also in many whitepapers you can find “a little scam” – the achievements of team members seem to be there, but they are so indistinct that you can’t understand, what this person actually achieved.

Examples: https://icobench.com/ico/crowdforce, https://icobench.com/ico/winnest, https://icobench.com/ico/infleum


On the contrary you can, for example, have a look at Electrominer (https://electrominer.io/) or dClinic (https://dclinic.io/#team) “team” sections.

Conclusion: if you have any doubts about team members’ previous achievements, search for LinkedIn pages of these people, contacts of companies they worked in etc. And don’t be afraid to use Google. I’m sure you know how to do it.
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September 21, 2018, 06:37:02 AM
Merited by dbshck (6), joniboini (2)
 #2

6. Stated mission – improving the wealth of investors. This partly overlaps with sections 1, 3. Projects with such missions are financial pyramids and obvious speculation, I’d strongly discourage you from investing in such projects.

Example: Sorgin ICO, http://swecdocs.54-webstudio.ru/lightpaperen.pdf


No adequate project can aim to increase the wealth of investors (numerous lotteries, which pursue this goal look especially absurd). This is typical only for financial pyramids and speculators.

7. Token use cases are not described in detail. One of the most important whitepaper’s part – use cases, because it allows you to estimate investment opportunities of this project. If you see only abstract phrases about use cases without any specifics and then there are three-paged detailed descriptions of bonuses and discounts for token buyers – most likely, the project is not interested in building a successful business, rather than obtaining short-term profits.

8. There is no token lock-period for large investors and team members for a sufficient amount of time after the end of ICO. This doesn’t mean that a project is a scam or that is expected to fail – but with a high probability, when the token will be listed on exchange, its price will plunge down after selling assets, which have been bought on the early stages with big discount. In my opinion it’s more preferable to buy these tokens on the exchange, without burdening yourself with the risks of possible project’s failure at an early stage of development.

9.  The creation of the global alternative to banks (usually – to banks in general). Frequently I see projects which are trying to replace all banks and the essence of these projects is the possibility of storing and remitting money. Though I think that existing banking system could be replaced in future, I’m totally sure that the successful ICO will not be the start-point of this process. In fact, one does not simply replace banking system. Even if you use blockchain.
For clarity I’ll show you some graphics, frequently used for that kind of projects (don’t know why, but they look like funny graphics made in Microsoft Paint): https://mammothblockchain.org/doc/Mammoth_whitepaper_01.pdf, https://icobench.com/ico/world-bit-bank, https://icobench.com/ico/quantocoin


Conclusion: if you know how to use Paint that doesn’t mean that you’ll become crypto-JPMorgan.



III. Problems in document’s design

Designing a whitepaper for a project is the best way to understand how well this project is being financed at the moment. The development of a good whitepaper on average costs about $10 000, and for a large-scaled project, this is affordable. In addition, this is one of those things, that a project rather not save money on - because whitepaper, in fact, becomes a business card of the project. However, many projects simply don’t understand the importance of this document, or perhaps they don’t have enough money to create a good whitepaper. That's why it is very important to pay attention to the small details in the design and some common mistakes, which can change the perception of the project at once.

   Some startups believe that they can write a good whitepaper on their own. On the one hand, it is not so hard to do so, if people writing it have good experience in this activity. On the other hand, if you do not have any experience in doing so, you’ll end up with an awful site from the mid 2000’s. Good example:

A very common red indicator is when project starts to promise becoming a new Facebook, Uber, or Amazon. Such theses usually occur in questionable or scam project’s whitepapers.


Such phrases coming from the project, which doesn’t have confirmed funding, experienced founders, a huge team and a list of popular advisers show full-on certainty to the fact that you will not earn money investing in this project. Promising projects differ from dubious projects on the fact that they give executable promises and position themselves realistically.

Also, in many whitepapers you can encounter a fairly common writing style, which clearly shows that this startup is in line with thousands of other incomprehensible projects. This style is called «beating around the bush».

Whitepaper should be as informative as possible. The art of writing a good whitepaper is based on reducing the information to a certain minimum amount yet conveying the essence of the project simply and clearly. If this golden rule is not being followed, it means that founders of the project don’t quite understand what they are doing themselves. Very often, after reading a couple of pages in the document, you involuntarily stop and think «what did I just read?» A good example of meaningless text:


   Red indicator: the project clearly has nothing to say to you. Behind long texts and beautiful infographics about the benefits of the blockchain, authors conceal the absolute lack of content in their startup. I should note that such information blocks can be quite appropriate if they dilute the hard-to-read text parts, which are dedicated to the technical features of the project. However, when the whole whitepaper consists of such paragraphs, then you should not take this project seriously.

In addition, there are already established phrases and figures of speech, which can cause rejection at subconscious level because of how often they were used in the text. Professional whitepaper writers (who write those on a permanent basis) try to avoid such templates. However, less experienced (or lazy) writers don’t want to devote much time to important details. The bottom line is that you can easily identify how thoughtfully and carefully document was developed by examining those phrases and figures of speech.


As a bonus, here’s an example of frank hackwork from creators of whitepaper:




IV. Conclusion

A lot of projects appear on the market and they have the right to live, even if their life will be short. The ability to timely notice the alarming indicators that the projects try broadcasting to us through whitepaper is the key to financial success in ICO investing. Of course, there are a large number of ways to catch the project on lies, but I think that you can give an overall assessment of the project by simply reading its whitepaper and evaluating it globally. You don’t need to be a market expert to recognize the economic impracticability of most startups in the long run simply seeing how they position themselves. You just need to discard the beautiful veil from tempting descriptions, beautiful pictures and seductive bonuses, leaving the main thing - the essence of the project.

The indicators listed in the previous sections shouldn’t always be perceived as a guarantor of the financial failure of the project - on the contrary, as we all understand, there are a lot of «hype» projects on the market that can’t decide what exactly they are doing. But as the time passes on, the space for those projects starts to shrink. The financial literacy of investors is growing, the Blockchain is coming out of the shadows and a huge amount of Internet resources allows you to learn more about the topic. Therefore, it is important to realize that the time when you could invest in some weird crypto-currency project and get a 1000% profit probably has passed.

Also I would like to note that the second and third sections describe absolutely different indicators. The second section is devoted to the fundamental problems of the project, which allow us to assess its viability on a long period of time and the real intentions of the project founders. In the third section we consider indicators that allow us to conclude that the founders either don’t have much money or imagination – and it is also becomes a very alarming point for any cryptocurrency investor.

Also I invite to discussion of the raised theme all BTT members  Smiley
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September 21, 2018, 07:09:02 AM
 #3

Really interesting, thank for your work!

« The development of a good whitepaper on average costs about $10 000 »
Would it be possible to have the source of this information please?
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September 21, 2018, 08:05:24 AM
 #4

Really interesting, thank for your work!

« The development of a good whitepaper on average costs about $10 000 »
Would it be possible to have the source of this information please?


Market prices differ in a lot of ways. Some people feel ready to write a WP for $3000, others only work when the price is not lower than $7000. Since I am a lawyer and I had an engagement in one ICO, the price of WP there was approximately $10 000. Of course, this price includes original content and design of such WP.
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September 22, 2018, 05:32:25 AM
 #5

Okay, this is information from your personal experience, thank you!

As a lawyer, do you think that the crypto sector could bring a new branch of the law to light?
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September 23, 2018, 10:43:00 AM
 #6

Okay, this is information from your personal experience, thank you!

As a lawyer, do you think that the crypto sector could bring a new branch of the law to light?

Yep, I'm sure that blockchain should improve such areas as confirmation of the authenticity of documents, confirmation of payment and transaction conditions, arbitration.
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September 24, 2018, 12:36:32 AM
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Sorry i didnt have enough time to read all of the write up but if theres one thing i agree there is that the ico flashmoni is an obvious scam project....
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September 24, 2018, 06:19:33 AM
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Paradoxically, many Blockchain innovations could lead to the disappearance of certain activities of lawyers, notaries, etc.... we will have to think about reconversion!  Cheesy
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September 24, 2018, 04:07:55 PM
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Paradoxically, many Blockchain innovations could lead to the disappearance of certain activities of lawyers, notaries, etc.... we will have to think about reconversion!  Cheesy

Already doing that Smiley
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September 27, 2018, 07:39:15 PM
 #10

You really did a very good job !!!. Immediately evident that you are a great professional who painted everything in great detail.
And I have a question for you. You say that there are a lot of scams among ICO, and in General there is a future for ICO companies? Because I observe that the largest and most promising companies collect the necessary amount of money on the presale or on the closed sale of tokens. Do these companies have a future at all? How do you see it in 1 year or 5 years? Share your thoughts in this direction.
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September 28, 2018, 05:10:57 PM
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best thread ever. we need many thread like this on bitcointalk forum. so btw some base on s.t ICO had been succeed like banana ICO (if you stay long in this forum maybe you will remember this ICO)
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September 30, 2018, 07:45:12 PM
 #12

Very detailed work. It clarifies most things about ICOs. Some ICOs are obvious and smells like a big scam but people are in dream world and think they will make millions investing in false promises.
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December 03, 2018, 06:12:26 PM
 #13

Very detailed work. It clarifies most things about ICOs. Some ICOs are obvious and smells like a big scam but people are in dream world and think they will make millions investing in false promises.

Thank you for your feedback Smiley
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December 04, 2018, 02:26:16 AM
 #14

I would like to add that another important red flag is a well-balanced team. At one time Block Collider was one of my favorite ICOS at the time of launch. The tech team seemed capable, but I quickly realized that they did not have a balanced team. They had no marketing skill sets, financial skill sets, or even basic economic game theory knowledge.
They did some decent blockchain work but were quickly outpaced by the average blockchain project.
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December 04, 2018, 04:12:57 AM
 #15

Thank you for your feedback Smiley

Hi John-Doe, you've done quite an impressive work there. Can I translate it into Bahasa Indonesia and posted in on my local board? Some members in my local board don't have good English proficiency but a lot of them participate in ICO/Bounty stuff.
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December 04, 2018, 03:04:43 PM
 #16

It is uncanny how often people continue to fall for the same cheap tricks shown by initial coin offerings. You have outlined some very interesting facts in this regard. One can only hope more people start taking this kind of advice to heart in the coming months and years.

It is not overly difficult to distinguish between a legitimate offering and one that will probably turn into a scam. All people need to do is some research, rather than just throwing money at something and hope they get rich off doing so.
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December 05, 2018, 05:10:00 AM
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Thank you for your feedback Smiley

Hi John-Doe, you've done quite an impressive work there. Can I translate it into Bahasa Indonesia and posted in on my local board? Some members in my local board don't have good English proficiency but a lot of them participate in ICO/Bounty stuff.

Yeah, sure you can translate it!
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December 05, 2018, 10:41:25 AM
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Yeah, sure you can translate it!

Thank you! I'll start right away. Nice work again. Appreciated your effort to write this Cheesy
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