The Graveyard of ICOs and Investing in Projects in 2021
Skip back to 2017. Every man and his dog were releasing new tokens and projects. This was the year of the ICO, and they were launching everywhere you looked. All you had to do was to build a website, create a whitepaper and boom you had your own new token or project, many of which failed to solve real world problems. Over the course of that year, it became clear that a veritable pile of unwanted tokens and projects was growing. In July of 2017, over 800 cryptos had been pronounced dead and a report by research and consulting firm GreySpark Partners declared that around half of the ICOs that had launched over 2017 and 2018 did not manage to raise even one single dollar. Only 12 of 1400 ICOs raised $100 million and from those just two became $2 bn ICOs, namely EOS and Telegram. The vast majority of these new ICO projects failed to show any returns at all within the first few weeks of the ICO. Got the point?
Why the Failure?
This is down to a number of reasons. Firstly, many of the new projects simply did not have real utility. There was just no demand for these products. They failed to identify and solve real-world problems. We have seen clearly that the only coins that do truly flourish are those that are backed by useful products that lead the cryptosphere closer to mass adoption.
Apart from this, other projects failed to market themselves adequately and in so doing they failed to gain traction, others still delivered shoddy technology and products. There were others that were just plain scams in the guise of ICOs. Developers were asking users to hand over their ETH in exchange for their new promising (they said) tokens, but sadly not only did many fail to deliver, the user just never heard from them again.
So how could users that wanted to invest know whether an anonymous project was truly backed by entrepreneurs? How could they know for sure that they would receive their tokens in exchange for them sending ETH? How could they know this was a real project and not just a faked replica of a real project? Finally, how could they feel protected against cybercrime, once they had sent their ETH to protect their investment from being stolen? These problems are still just as relevant for investors today as they were in 2017.
Parachain Slot Auctions which consists of Kusama / Polkadot Parachain Auctions. Crowdloans create a unique model for those users looking to fund Kusama/Polkadot slots for projects. The way it works is simple. The user picks the project of their choice from those that are doing Crowdloans. They will know in advance the amount to bond and the duration they will need to keep it bonded. They then effectively lock in their KSM/DOT without having to actually send tokens to any project owner. They simply lock it up and lease it out for the duration of the contract. From there, if that project makes it, their tokens are locked up until the end of the leasing period. At the end of that time, they will get their tokens back with a nice reward. This may be a % being vested, and another % free to use. The point is, the reward will have to be more enticing than simply staking your tokens. This is an entirely protective and safe way for users to fund projects, without the doubt that comes with doing so in a nameless website.
Projects that are conducting Crowdloans cannot just take the money and run. They first need to test themselves on Rococo (Kusama and Polkadot testnet), which means code will need to be verified first. This rules out the shoddy technology aspect, the faceless scam artists and the copycat projects. Acala was the first to test on Rococo and win a parachain slot, not an easy feat.
There are of course still potential scams out there, Kusama have given a list of ways to avoid falling prey to these kind of scams:
Essential Rules of Thumb:
- Never share your seed phrase or account password.
- Remember that it’s easy for scammers to impersonate people online.
- If you are participating in a Kusama-native Crowdloan (see FAQ below), never send your KSM to an address. Native Crowdloan contributions are made with a special transaction in Kusama using what’s called a campaign index, where contributed KSM remain locked until the end of the lease period. Legitimate teams will not ask you to send KSM to an address to participate in a Kusama-native Crowdloan.
- If participating in a non-native Crowdloan campaign, always consult the official channels of parachain teams to verify the details of how to participate. Remember that scammers may try to impersonate official channels and team members. Never participate in a Crowdloan you don’t trust, and never send tokens to someone you don’t trust.
- Remember that if you are scammed, there is nothing that can be done to recover your funds.
Scams of course still abound, and scammers are always working on being one step ahead, which makes it harder for the bona fide projects that are genuinely trying to build something worthwhile. But with Parachain Slot Auctions, this is one method of sending developers through a number of hurdles to prove their projects viable and worthy, effectively sifting out the scammers.