Since the late 2017 bull market in ICOs and cryptocurrencies many investors have been trying to figure out the magic formula for identifying which ICO is going to win once it goes to exchanges. While no one has really come up with such a formula that provides you with positive returns in all market conditions, there are certain investment criteria that still go unnoticed by the majority of ICO investors, while sharpest investors have taken them into account for a long time. In this post some of those criteria will be analyzed for the purpose understanding, why they affect the ROI of an ICO. Let’s jump right into it:
Project source code
Evaluating the source code of the ICO needs you to be somewhat tech savvy and the ICO project must be open-sourced. Source code’s progress can be usually found out by analyzing the Github of the ICO. If there is no progress, you can quite safely assume the ICO has a higher risk than those with progress and a lot of activity.
Hard cap and soft cap are generally understood and examined by almost all ICO investors. However, they do not tell you the whole picture of how the ICO, since the proportion of tokens that are available for token sale vary greatly from anywhere between 5% to 90%. In extreme cases, it might be even lower or higher. What this means for investors is that the two ICOs with 10 million dollar hard cap might have completely different valuation: the former with 5% of tokens going for token sale has a valuation of 200 million dollars, as the latter with 90% of tokens allocated for token sale is valuated at 11.11 million dollars!
Mechanism of token value appreciation
In bull market many of the tokens appreciate in value due to pure speculation, and underlying mechanisms for token value appreciation go overlooked for the most part. For the ICO to be appealing as a long-term investment, it should have at least one inherent mechanism for value appreciation, which can be any of the following:
1. Dividends for token holders based on the profits of the project
2. Discounts on services bought with the token
3. Token buy-back and burn programs
4. Regular airdrops to token holders as rewards based on profits
This criterium needs a holistic understanding of the business model and token economics of the project. Governance risks is formed if the best interest of project founders and team is different from that of token holders. The best interest for both parties should be aligned for the project to become a long-term success from both investment and business perspective.