First of all, what is the difference between an Initial Coin Offering (ICO) and a tokensale?
A tokensale uses an existing Blockchain (mostly the Ethereum network) to create tokens via smart contract. The total amount is limited to the tokensale and the number of tokens can’t be increased afterwards. An ICO is more of a general term for the event of a coin- or tokensale and can refer to just the first units sold while further can be mined afterwards.
If you are interested in an investment by participating in an ICO, there are currently many options to choose from. However, there are a lot of scams out there and very little coins actually experience a rise in value after the auction is over. Here are some tips on how to spot a well thought-out offering:
First you should ask yourself these question about the project:
- Does it really aim to solve an existing problem?
- Are there other projects working on the same problem? If yes, does this one have the best perspective?
- In what timeframe do you respect a ROI given the roadmap of the project?
- Do the founders and the team have a solid background?
- Is there an active and serious discussion going on in the community? Not just advertisement all over by a few members.
- Does the website offer a whitepaper? It should. And you should probably read it before investing. :)
- Is there a return for your investment promised? Definitely a red light – no one can and should make such promises.
- Does anything else about the project sound fishy? Even if it’s just a small detail, it’s well worth some more research.
And then about the setup of the sale itself:
- Is there a presale for large investors? If yes, how many percent of total tokens are offered? If a small number of people own a large number of coins from the very beginning, they are able to strongly manipulate the market after the sale ended. A wide distribution of coins is most likely a good sign.
- Are bounties offered (e.g. for advertising, translations,…). Bounties are very likely to get dumped once a coin hits the exchanges, which might lower the price. So bounties should only be a really small part of total units.
- Are there bonuses for people that invest early (like a +25% extra tokens)? Most likely people who have this bonus will dump their coins fast if it hits exchanges at ICO price. Instant +25% return? I’ll take it.
- Does the project team keep a part of the coins for themselves? On the one hand, this is good, because they themselves will be motivated to increase the value. On the other hand, if the amount is too big, again, they are able to manipulate the market easily.
Of course, there a more things to watch out for, but these are some general things you should consider when looking for a promising project to invest in. Keep in mind that, as it is common in investing and happened as well during times like the dot-com bubble, a large percentage of ICOs will fail. For even more detail you can find a good article on that here: https://blockgeeks.com/guides/why-most-icos-will-fail/