Participants in ICOs rely on various information sources when performing due diligence. One of the crucial information sources for due diligence is the ICO whitepaper.
In particular, an ICO whitepaper contains all relevant information such as system architecture, technology overview, and other aspects of the ICO proper and business itself. In essence, the ICO whitepaper is the business plan for the company. Some companies also publish separate papers that go into further detail for those that want to peruse deeper technical or business aspects of the company.
The whitepaper allows potential investors to scrutinize the project’s legitimacy and reading the whitepaper is one of the basic steps to accomplish when mitigating investment risk or doing proper ICO due diligence. But with the lots of new ICOs being held every month, how do you tell if a whitepaper has covered all the necessary commercial, business and technical factors it needs to present?
The list below covers some aspects of what a participant in an ICO should ask themselves when reading an ICO whitepaper.
Company Information - How long has the company been in operation? Is the company a running business? Does it have any existing products? What is the track record of the company? Where is the company incorporated? How do the laws about holding an ICO affect the company? How does the company prove that it is not a scam?
Problem – What tech or economic issue is the company planning to solve? What opportunities are present in the market that the company is taking advantage of?
Proposed Solution – What can the company’s product do to fix the problem? How will technology be applied to solve the problem? How is it going to address other issues that may arise during the rollout? Are there any bugs and coding issues that needs to be fixed before the ICO launch?
Product Description – What kind of product is the company planning to create or is currently developing? Does the product description adequately cover the needs of the proposed solution? How long will development take? When does monetization occur? What is the roadmap for the rollout of the product? What is the unique selling point of the product?
Diagrams and Statistics –Do the stats make sense? What sources did they use to calculate the numbers?
Token Implementation or Commercialization – How would the token work together with the product’s commercial and technical aspects? Does the product benefit from tokenization? What advantages does the product acquire from tokenization?
Token Value – What value does the token possess? Can it be traded for a good or service? What is the market for the token? Is the token a security? What rights does ownership of the token give to the holder? What will the company do to add value to the token?
Token Distribution – Is it clear how the token distribution process will be carried out? Are the tokens for the team, advisors, employees and the company distributed and vested equitably? Are the tokens for sale during private, pre and crowdsale have a just distribution and do not give undue advantages? What measures did the ICO take to prevent unjust distribution?
Token Differentiation – How does the token differ from other tokens offered?
Sale Mechanism – How is the ICO tokensale going to be conducted? What measures are undertaken to promote a fair distribution of tokens? What are the requirements to participate? Are there any banned countries?
Terms – How much does the core team of the project receive during the presale and the ICO? Does the company adhere to the proper allocation of tokens? Are the vesting periods aligned with the company and investor goals?
Ecosystem – Does the company have enough resources and plans to prove the strength of its ecosystem? How are tokens going to be used to improve the company’s ecosystem?
Team Composition – Do the people working on the project have verifiable credentials via LinkedIn or other social media sites? Have they worked on past projects that demonstrate their capabilities? Does the company have competent advisors in the blockchain and cryptocurrency industries?
Other Stakeholders – Are the developers, PR and marketing staff, miners, potential product users, target participants and pre-sale investors described? How does each stakeholder benefit from participation and what measures are in place to prevent excessive influence from each stakeholder?
Legality – What is the legal state of the company, project, product and token? What measures are being taken to address problems of legality? Are the legal risks taken care of with proper permits?
Roadmap – Can the roadmap be carried out in the specified timeframe? Are the dates in the roadmap realistic? What about any roadblocks, how will those be addressed?
Competitor analysis – Who or what are the competitors of the ICO company in the blockchain or in traditional fields? What is the competitive edge of the company?
Use of funds – How are funds obtained from the ICO funding going to be used? Is the allocation and use of funds fair and just for all parties involved?
By keeping these questions in mind when reading an ICO whitepaper, you can do proper due diligence and check for all opportunities and risks involved in participating in an ICO token offering.
It often takes a lot of time to do proper due diligence and you may be tempted to just rush in and participate. But rest assured that it is time well spent, because by doing proper ICO due diligence, you can see if participation in the ICO is aligned with your investment appetite.
The ico-check team wants to promote proper due diligence and a mature and informed approach to participation in ICOs and we hope that this article has been helpful to you.
Happy ICO participation from your ico-check team!