4 warning signs of an ICO scam or money burner


#1

To an investor, scam or just bad deal from honest entrepreneur are the same - a money burner.

These 4 warning signs are like a first filter.

  1. Short window to decide. This is a FOMO tactic.

  2. Uncapped raise. Imagine a traditional fund raise where investor asks “how much are you raising?” and the answer is “we won’t tell you”.

  3. Minimum Viable White Paper (MVWP). Term coined (sic) by Andreas Antonopolous. An empty GitHub is a bad sign if the ICO promoters are pitching open source. However, what investors should be looking for is at least a Minimum Viable Product (MVP) demo. A “trust me we can build this” pitch is a bad sign.

  4. Lots of buzzwords and breathless hype on social media. You know the pitches that look like they were created by a random buzzword generator.

I thought Wall Street was a rough market where you had to be super careful, but the ICO market is worse.

There are still ponies in there, but you have to dig through a lot of pony poop first.


#2

Hi there. This is my first post. It’s nice to be here.
Anyway, I had a really “smart” neighbor who was very negative about BTC for years. We both eventually moved, but I ran into him at a local BTC meetup in my town. He still doesn’t own any crypto but he’s now on an ICO team! They have competitors who are a year ahead of them and have large teams actually doing coding and they have test models on their websites, but my neighbor always deflects when I bring that up. They’ve just cobbled together an MVWP that is devoid of both technical details and a good strategic plan. My ex-neighbor told me that are rushing their ICO (starts next month) out of fear they might miss out on the ICO craze.

One night the CEO was a little tipsy and laid out his strategy.
Team members’ tokens vest after one year and he intends to use a large portion of ICO funds to paint the tape at around that time so they can sell their tokens for a big profit.

And that’s my story.


#3

Thanks @Acewriter That tells a great story. Makes sense as a way to cash in - “use a large portion of ICO funds to paint the tape at around that time so they can sell their tokens for a big profit”. Another way I hear is through non-profit foundations because the amount paid to promoters is unregulated. That applies outside crypto as well but the scam is quicker in crypto. Oh well, its just a market phase, this too shall pass.


#4

I agree with all of them except for one. ICO/ITO of yesterday are gone. Hard to believe how fast the industry is maturing.

ICO/ITO of today and tomorrow are REGULATED so things are changing.

GitHub will not be an issue going forward as most companies are not going to release this
it is the only point I feel does not belong on this list.


#5

Thanks @oscar Good point. I have amended it to read. 3. Minimum Viable White Paper (MVWP). Term coined (sic) by Andreas Antonopolous. An empty GitHub is a bad sign if the ICO promoters are pitching open source. However, what investors should be looking for is at least a Minimum Viable Product (MVP) demo. A “trust me we can build this” pitch is a bad sign.

BTW, for anybody who does not know what @oscar does, check out his KoreConx software (yes, it is more than a MVWP, he has a working product). If you want to do a legally compliant securities raise, whether using traditional crowdfunding or ITO, his software will raise the bar on transparency. Sunlight is the best disinfectant.


#6

Great post @BernardLunn. I’ve seen many ICOs working as old times startups hunting for angel investors, but this new world around cryptocurrencies is not as mature as startup world is now and there’s a lot of people looking for magnificent gains through buying new tokens from these fragile projects.

Soon we will notice these projects falling apart and a bunch of people complaining about the whole segment.


#7

Thank you for the post @BernardLunn!
I would only add few specifics about viable product testing. It’s explicitly explained here https://lvivity.com/minimum-viable-product.
I won’t copy text to keep karmic slate is clean.


#8

Welcome to Fintech Genome. Thanks. It is a good article.