If you want to know what the risks of an ICO are, you’re in the right place.
Although the returns on the investment in an ICO can be huge, the risks associated with it are also massive. If you want to know what the risks of an ICO are and how you can minimize them, you’re in the right place.
What Makes ICOs Risky?
The crypto market is under-regulated. This means that investors may be on their own if an ICO turns out to be a scam or if the project does not work out. Both of these scenarios are common and you can only trust yourself to make the right decisions judging from the insufficient regulations and immutable transactions.
Read Also: Why Should You Invest in an ICO?
Risks Faced By ICO Buyers
ICO organizers and investors can face many risks. Some of the risks that buyers can face include:
- Investing in inexperienced teams with a risky business model that is not proven.
- Limited transparency in terms of the progress and issues with the project.
- Speculative value of ICO tokens.
- Investing in an elaborate scam.
- Lack of regulatory protection.
- ICO hype that may surpass the project’s utility.
Risks Faced By ICO Organizers
ICO owners can also face the following risks:
- Uncertain regulations that may lead to fines or extra costs.
- Little or no information about the token holders.
- Unstable investment currencies that can devalue within a short period.
- Issuing the wrong documentation in regulated states.
- Waning interest in ICOs.
- An unstable difference in the regulation between utility and security tokens.
As a result of these risks, both investors and ICO organizers must consider the risks carefully to protect the interests of both parties.
These risks do not mean ICOs should be boycotted. We still have decent ICO projects out there. You just need to be careful to separate the scam from the legitimate ones.
How Can You Identify Fraudulent ICOs?
If you come across an ICO project that interests you and you want to minimize the risk of investing in such a project, here are some red flags that you need to look out for:
- Anonymous team, or team members using fake identities and fake social media accounts.
- Team members that lack relevant experience.
- Little or no credible media activity or positive mentions of the ICO project.
- Unrealistic whitepaper and business plan with lack of a detailed market and competitor analysis.
- Lack of an example of the project’s blockchain code.
- No working prototype.
- No clear roadmap.
- The token doesn’t look real to actualize the project’s goals.
- No code is committed to Github.
- Lack of escrow wallet to deliver investors’ money to developers when some criteria are met.
- No legal entity behind the ICO.
Read Also: How to Store Bitcoin
When it comes to investing in legitimate ICOs, you need to do your research and determine whether an ICO is credible or not. Pay attention to the red flags listed above and avoid any project that has lots of them.
Also, do away with ICOs that have regulatory issues that are not certain. This will help protect your ICO investment.