Even people with viable business ideas struggle to gather money to launch new companies because the conventional fundraising approach necessitates much more work, time, and money. An alternative that works well for blockchain-related projects is cryptocurrency fundraising. Initial coin offerings (ICOs), security token offerings (STOs), initial public offerings (IPOs), initial exchange offerings (IEOs), initial DEX offerings (IDOs), and initial stake pool offerings (ISPOs) are just a few ways that blockchain-based firms might utilize to acquire capital.
Since the companies do not need to spend time rebuilding the structure and producing extensive documentation as required for the traditional IPO, the token fundraising procedure is significantly more efficient in terms of cost and time. For example, the business or project owner can approach several institutional or angel investors to obtain benefits like offering operational support, boosting the project's legitimacy, or assisting the business in expanding its network, and finally, creating a concrete protocol. However, each method has its own disadvantages, altering crypto stakeholders to stay safe when participating in public crypto sales.
This article will discuss potential ways that crypto stakeholders can utilize to stay safe while participating in crypto public sales.
Various ways to stay safe while participating in crypto public sales
Before deciding whether to use crypto tokens for fundraising or invest in cryptocurrencies, there are a few essential aspects to consider. Understanding how to stay safe while participating in public sales is helpful, whether you are a newbie or an intermediate-level person in crypto initiatives.
Consider level of expertise of the project’s team
The people behind the project are good to look up to because, ultimately, they are the project's backbone. Also, it is crucial to confirm that the product offered by the team is genuinely required. For instance, Vitalik Buterin and other founders developed the Ethereum blockchain to allow developers to build decentralized apps that support smart contracts, which the Bitcoin blockchain could not do. Therefore, it is wise to know the experience of team members and their history in the crypto space. If the team seems mature enough to make the project a success, you may want to proceed with your participation or vice-versa.
White paper’s quality
A white paper is a piece of writing that explains the technical terms and concepts underlying a protocol. An excellent white paper will describe the protocol's fundamental ideas, clarify its goals, and explain how it works thoroughly. Numerous white papers also highlight market inefficiency and describe how the protocol addresses it. Understanding the big picture of decentralized banking protocols requires reading white papers, which is an essential first step to protecting yourself from dodgy projects. Without reading the white paper, it can be challenging to comprehend the rationale behind a protocol and may give users a distorted view of its aims and purposes.
However, white papers are not meant to be sales materials for governance tokens. Therefore, approach a fundraising project's white paper with caution if it primarily serves to promote its governance token. In some circumstances, a project might create a white paper specifically regarding their token; this is acceptable, provided it is not their only paper for the project.
In addition, highly complex protocols may have more theoretical papers defining them and providing context, so it doesn't raise any concerns. However, if a project cannot explain its mechanisms and how it functions, it should be approached with caution.
Read project’s documentation
To learn about a protocol, the project's white papers are an ideal place to start. However, project documentation is a crucial source of knowledge while performing due diligence. The documentation explains how to utilize the protocol, while the project white paper introduces the concepts and methods that underlie it (provides detailed information about how the protocol works). In addition, the project's growth plan should be described in the roadmap, and it should also offer you some idea of how the team intends to carry out its goal.
An efficient technique to sift out unreliable project teams, potentially fraudulent projects, and less serious projects is to examine the uniqueness of the documentation. The sole generated search result will be the original documentation, or if you find similar wording for another project, it's likely that the team copied it from a related project, which might be a warning sign. To verify the project's legitimacy, free plagiarism detection software like Copyscape and Grammarly or their paid premium counterparts can be used.
The term "tokenomics" describes the project's business plan and how the token will be utilized inside the ecosystem. For instance, if a token is primarily used for payments, its value will probably change along with the market. However, tokenomics will be more complicated, and its value will be steady if it is being utilized to power a decentralized application (dApp).
Therefore, before making an investment, it's critical to understand a project's tokenomics since it can provide some insight into the possible value of the token. For instance, when there is no token vesting, projects with a sizable portion of their token supply allocated to insiders and project team members should be treated cautiously.
While investing in projects during their public sale process, the ability to conduct due diligence is a prerequisite. Remember that to make sure the team supporting a project has a solid reputation and is knowledgeable in their field; it is crucial to research the team. Similarly, technical definitions and theories for protocols should be outlined in white papers and explain how they operate and their intended use. The key to protocols is good documentation, which should include instructions on utilizing a protocol and building with it. Moreover, tokenomics shouldn't disproportionately favor project founders and advisers at the expense of the community. Always verify the vesting and distribution schedules for tokens before buying any tokens. Similarly, always audit the project’s roadmap before participating in any public sales to avoid losing your hard-earned money.