It’s the question every investor is asking right now: How can I make sure an ICO is legitimate?
Today at The Blockchain Event in Ft. Lauderdale, TMC (News - Alert) CEO Rich Tehrani led a panel discussion that tackled this critical question head on. Tehrani was joined by Mavatar CEO Susan Akbarpour, Founding Partner at Silver Miller David Silver and Co-Founder of Symmetry Blockchain Advisors Deborah Hoffman (News - Alert).
Right now, the ICO space is suffering from a major lack of transparency, which is making it very difficult for investors to understand who they are funding, and where their money is going.
As Silver explained, over the last few years we have seen a radical shift in the way that companies are created. In the past, the average entrepreneur would create a proof of concept, raise money and scale up as they became more successful. Now, Silver explained, all you have to do is write a fancy white paper, post it online, raise $10 million and run off to another country.
It’s a whole new ball game from a regulation perspective, and the market — which is still unregulated — is creating a tremendous amount of risk for investors. Right now, state governments are regulating ICO transactions and it will be at least a year or two before the federal government catches up. Regulation is coming, but it’s going to take some time. And in the meantime, investors need to be very careful about who they fund.
The panelists offered several suggestions to help navigate investors through the murky waters of the ICO market.
Hoffman, for instance, recommended that when looking at a cryptocurrency token, investors should ask if the token has a clear utility. However, we need to make sure that regulation does not stifle innovation while the market is still in its nascent stage.
As Akbarpour pointed out, investors should also look for a cap and a spending plan in an ICO when they are considering investing.
“As an investor, I want to see a reasonable cap, a detailed roadmap for spending, a competent team and a legitimate underlying technology behind an ICO.” Hype alone cannot determine the overall value of an ICO.
So the key takeaway here is that eventually, regulation will come. But until there is full regulation and transparency, investors need to be more prudent and do their due diligence. Like any high-risk investment with a higher payoff, it’s really the decision of the investors if they have the bandwidth to take on a possible gamble.
What’s encouraging is that 90 percent of the ICO investors are from the global developer community, and are considered to be early adopters of cutting-edge technologies. When millions of experts put small bids into proposed solutions or discovered pain points that can lead to disruption, it can be valuable to later stage investors when vetting potential breakthroughs.
“This is a critical part of the ICO process that nobody is really talking about,” she added. “ICOs are all about showcasing the power of election as opposed to skewed selections.”