Initial DEX Offering (IDO) is one of the trendiest models of investing in exciting crypto-projects, yet it’s so new that most people don’t know many of the details that can help determine between a profitable & successful investment, and between a bad investment or straight-up scam. That’s why it’s important for new IDO investors to have a plan in place before getting started.
Where Are IDOs Headed in the Future?
The cryptocurrency market is changing fast, just in a couple of years, we had a major evolution from the ICO moel to an IDO model. Recently we compared these various models of investing in our What Is an IDO and Why It Matters Article.
IDOs and their launchpads are becoming the future of fundraising, and the increasing number of cases validate the model’s potential. The IDO model is likely to become the most popular blockchain-based fundraising technique in the future. But with its solutions and innovations, new problems appear.
The Hidden Problems
No matter how many times you heard of people successfully investing in a cryptocurrency that paid off big, there were equally, or even more people who barely made any money back or lost all of it in a bad project investment or scam.
In fact, in 2020, there were over 80,000 cryptocurrency scams in the US alone according to Forbes. And this number is set to increase drastically with all the capital coming into crypto, combined with many new people.
These scams are frequent in the crypto investing space, and are often manifested in one of these 3 main ways:
- Luring investors into ICO/IDO scams where projects are being abandoned within days or months.
- Pump-and-dump schemes where the token price skyrocket and then plummet within hours, leaving most IDO participants losing 99% of their money
- Scams that involve account hacking.
With so many crypto scams our first and foremost priority is to avoid them by choosing carefully.
How to Choose an IDO For Investment
Now even if you invest in a legit project, it still might not pay off because it’s simply not good enough. We have to look for a few important details that signal integrity and a high chance of success for an IDO investment.
Look for an experienced team of professionals
The first important thing to check in IDO is the team, backers, and community. Real professional people and engaged community members will create and drive real value, and not empty promises.
The team plays a crucial role when creating projects. Find out as much as you can about the team, including track record, developers, and transparency. Look for evidence of prior success and watch out for red flags.
Although like most startups it might consist of young talents that lack blockchain experience but looking at their past employment and achievements should give you a clue about how well they can deliver on the project, and if they’ve worked with reputable projects in the past.
The executive team should be scrutinized the most. Pay close attention to their CEO, CTO, CVO, CMO, and advisory team.
Lastly, look for transparency. It’s important to spot attempts that have been made by the project to be transparent and communicative.
If the team is anonymous then look for alternative ways to verify the integrity of the team. Such as looking for testimonials of other trustworthy individuals or looking over their GitHub projects
Weigh the Product-Market Fit
IDOs just like any other startup require finding the right product-market fit.
And some projects that perform well at one point in time, may perform poorly at another point in time. Likewise, projects that seem less mainstream at the launch, can evolve into just what the market needs after some time.
Product zeitgeist-fit is a term that is often used for describing; a successful product + with the right timing + suitable society mindset. This is the key to the success of the project.
One of the best ways to look for product zeitgeist-fit is to stay updated about the industry, and have a general understanding of trends and the market.
If you don’t understand the industry that well, then pay attention to what problems are being solved by the project. Effectively solving painful and common problems is one of the simplest ways to determine the value of the project.
Is the Token or Asset Undervalued?
Looking for an undervalued asset is one of the most common ways to spot a good investment opportunity.
Looking at the total market valuation and the scale of the problem being solved is a good starting point. Projects that have an initial market cap lower than their expected value can signal an attractive investment opportunity since the market tends to move the token price toward its right value.
In general, a project that launch an IDO with a lower than expected market cap has a higher chance of gaining value over time. On the other side projects that launch with a higher than expected market cap, often fall back.
If the project hasn’t launched yet, then check the token amount that will start circulating after its token generation event (TGE), which is often found in Tokenomics.
Launching a token successfully requires making sure that the economics of the token support the project in the long term. Tokenomics that support the short term often end up with no plans for future distribution, making it at risk of immediate dumping by the founders, or the early stage buyers.
Look for these features instead:
- Long-term locked periods of the tokens (up to years) for the team and early investors even after the milestones of the project are met.
- Vesting periods ensure that IDO participants will lock liquidity into pools instead of selling the tokens early. The more tokens are locked into liquidity pools the better because fewer tokens circulate in the free market. More frequent and longer period token generation events (TGE) usually support this.
- Who and how much owns the tokens? – Too many tokens distributed to investors or the team causes a different form of centralization and are vulnerable to dumping. Big portions of tokens distributed to influencers are more likely to sell all their tokens early which makes the price fall. Diversity of distribution is a good sign.
Look for Strong Communities
A supportive community is the backbone of the crypto project.
The vast majority of projects are unable to sustain the same levels of hype and interest which often naturally settles down once the hype runs out of steam. An engaged community that sticks around is a big positive for crypto projects that involve people.
Numbers aren’t everything – There are a lot of bots and shilling, instead, dig deeper and look for meaningful engagement.
Bonus; but that’s not all. If a project manages to stay on course by keeping a consistent momentum long after the token sale. By managing project development even after the hype has died. It shows the integrity and hard work of the team, which can signal an undervalued investment opportunity.
IDOs are Not Always Profitable
Not everything is as good as it sounds. While you can make good returns on investment there will always be some degree of risk involved.
Nonetheless, through careful project selection and solid IDO research, you can dramatically minimize this risk and maximize your profits.
A lot of money coming into an industry fast can create a lot of gaps for inefficiency and room for scammers. With all the capital and investors there follows a lot of copycats and scammers trying to get easy money from the investors.
Tips to Stay Safe
With so many new people and innovations, scamming becomes a common practice. Here are the main tips to avoid scammers.
- Copying a website, and sending fake emails that attempt to steal your funds, is a common scam that you must be aware of.
- Refer only to official announcements & emails from a project.
- Scammers may attempt to impersonate project team members. Always remember that team/admins will NEVER initiate a DM first. We will never request funds, passwords, or private keys for any reason whatsoever.
- Lastly, store your secret phase where no one can get access to it and where it is disconnected from the internet is stored on a device. The secret phase is the main key to your crypto wallet.
Choose the Right Launchpad
Choosing the Right IDO Launchpad will make things much easier in participating in this one-of-a-kind industry. To find the right one, make sure it aligns with your goals, but also gives fairness, transparency, high-quality projects to choose from, and has the multi-chain support needed for the future.
It is critical to choose a launchpad you can trust because many lack the necessary commitment and experience to keep you safe from losing your money.
Scaleswap Minimizes Risks of an IDO
Scaleswap is dedicated to providing you with a truly fair, secure, and exciting IDO experience. Scalswap does half of the job for you by having an unparalleled project vetting and selection process.
Learn more about Scaleswap and its selection process:
How Can You Participate in an IDO with ScaleSwap?
Everyone can become a participant in an IDO with Scaleswap!
If you’re new to the IDO process then getting started can sometimes seem overwhelming. Don’t worry! We’re here to guide you through each step. Here are the resources you’ll need to get started today: