ICO. Soap opera to ratings.
No doubt, crypto-currencies and tokens are still a small global market. Now there are more than 1000 crypto-currencies, the total capitalization of which is around $ 200 billion, and this figure continues to grow. On average, according to Coinscedule statistics, from 2,000 to 24,000 people participate in each ICO, while their spending ranges from $2 to $35,000 (private sales are not taken into account).
In the rapidly expanding ICO market not regulated by the government, rating agencies are almost the only one protection of investors from scam and loss of funds, since few potential investors are able to assess the financial and technical basis of each project qualitatively. It would seem that ICO is something completely brand new, but in the end it all comes down to the long-established rules of venture investment, taking into account some differences in the instrument.
Now, the market of crypto-currencies and ICO is actively developing the activities of specialized rating agencies that assign ratings to ICO projects.
Ratings allow you to assess the reality of a business project and the trustworthiness of its founders on a variety of criteria. The term “rating” is a prioritization, assessment, order, classification. Rating means the definition of an evaluation parameter or a group of parameters according to the accepted evaluation algorithm, according to a given ranking scale. However, such ratings are based on very different mercantile interests, and not on the real state of things in the project and its ideas.
The main methodology for assessing ICO so far is the evaluation methodology for four indicators: Team, Tech — technology, Theme — concept; Token — legal status of the implemented crypto assets. In this case, for example, in the analysis of the Team, the following is monitored: the founder’s reputation in the blockchain community, the PR of the founders company, the history of successful previous projects, and the degree of involvement in the project.
Team — is the project provided by specialists of all levels, the availability of competencies necessary for the development of the project, experience in the field directly related to the ICO project, successfully implemented venture projects that provided the investor with an acceptable level of profitability.
Theme — to determine how successful the concept will be. Unfortunately, the definition what is success — just weak and with vague priorities.
Tech — evaluating the technology of using blockchain and the potential of additional opportunities, which often simply come down to the Ode of Joy to overpraise the empty technical concept of the most projects.
Well, other parameters — a similar verbiage and eloquence. The rating objectivity is the main problem of this service. It is still impossible to ensure the independence and reliability of the assessment results under the current practice of commercial project evaluation, fragmentation and struggle for the client of rating agencies, lack of a unified systematic methodology for assessment and complexity of verification, the closure of some information by rating agencies research, if any.
In fact, at this time, the rating ICO agencies cannot cope with their direct task — an unbiased assessment of the project that goes to the ICO. Mainly, a number of curious questions are constantly in the head and more likely claims to the majority of such agencies as:
· How fair is the analysis provided by existing rating agencies and whether there is no conflict of interest between rating platforms monetizing through the placement of hype information on projects
· Use of the classic “venture approach” to assess the investment attractiveness of ICO, consideration of such categories as “market”, “product”, “team”, “business model” and “financial characteristics”, how effective it is and comfort to such high Risk projects
· Very often the rating agencies do not have a common opinion or consensus on the evaluation of projects, since the same project can have different ratings, which indicates still the lack of standards and assessment methodologies, as well as professional experts
· Is it appropriate to use the collective opinion of the community members in the evaluation of projects and to calculate the average score from this collective opinion? How far are community members (who are not experts) not involved in and relevant to the assessment process itself (examples of ICObench and TokenTops)
· Is it effective that other agencies use their own project evaluation categories, most of which are not related to the classical screening system used in the venture industry, refers to the topic of evaluation and can be trusted (example ICOrating)
The principles of all projects of the digital economy — transparency, openness, accessibility of information. However, these principles do not yet find their application in their evaluation. To my opinion, the reason is the mutual flirtation and the absence of a status quo. Rating agencies are fighting for their fees, not for the safety of investors and truthful informing the community about the projects. ICO projects are fighting for our money by any truthful and untruthful means, manipulating the ratings, in most cases.
So how do ratings work and how do they get into rotation?
To get into the watching list of rating agencies, and then get an expert evaluation, you can in five different ways, two of which are paid, and three — free. The procedure for compiling express reports is almost the same in all cases.
1. The first paid method — the startup asks to do an audit of the project to identify weaknesses or attract large funds by means of a rating. In this case, the agency, after analyzing the project, sends a report to the team and makes it possible to correct errors discovered by the expert team before it is published in the public. In this case, the criteria identified errors or interpretation can be discussed in order to reach a compromise. The main threat to objectivity here is this compromise and PR assessment as a factor of professionalism.
2. The second paid method — the investor orders an audit of particular project in order to obtain an independent opinion, which he considers relevant, before investing in. Here everything depends on investor’s trust to the professional opinion of the rating agency. Moreover, such an assessment is often ordered at once in several agencies. The threat here is a high chance not to get a common opinion, as there are no professional standards.
3. If we talk about free methods, then there are three. The first option is when analysts of the rating agency are interested in some ICO, and they decide to study and rate it for free, but for PR and self-marketing as well.
4. The second — in the ICO market appears scam project that making an active advertising campaign, then the agency conducts a full audit and demonstrates to investors that it is dangerous to invest in this start-up. Unfortunately, in this way agencies can troll decent projects and teams, playing on the side of competitors. The threat here — the truth and objectivity is being eroded, and further it will be harder to believe the expert opinion of the rating agencies.
5. In addition, you can get for free in the watching list through participation in large hackathons, where agencies are often members of the jury. Winning projects are usually awarded with certificates for a free assessment.
The rating scale is usually used from the IPO market, but some agencies in the ICO part can use their own methods in the evaluation. We do not have hard standard for evaluating ICO projects on the market. The threat in this technique is that the ICO cannot correspond to the IPO in many ways, and it is not always appropriate to assess the ICO using the IPO metric.
After all, ICO is a start up, where it is not possible to provide financial, managerial, accounting statements of past periods for evaluating. Where will they get it from? And the ratings from the IPO are used when estimating the ICO. Moreover, what then is evaluated instead, as one of the examples, of the specified parameters? And this is just one example in the anarchy of evaluation.
The high risk of fraud and loss of investment combined with the current golden rush around the ICO creates a dangerous cocktail, and rating agencies are playing along, as they can manipulate ratings, giving false estimates in exchange for bribes from projects. There are already enough examples!
However, another disrupting trend in the development of rating agencies for ICO projects is the desire to unify the evaluation methodology. In my opinion, in this situation with unstable standards in the assessment, the situation can correct the use of SWOT analysis for project evaluation.
At this time, this approach has the right to be used! Already some agencies are starting such a promising approach to use. SWOT-analysis is a method of strategic planning, which consists in identifying factors of the internal and external environment of the organization (project) and dividing them into four categories:
· Strengths
· Weaknesses
· Opportunities
· Threats
The task of SWOT analysis is to give a structured description of the situation, regarding which it is necessary to take any decision. The conclusions drawn on its basis are descriptive without recommendations and prioritization. The increasing use in the rating of SWOT and its implementation in the projects — is a direct consequence of the impact of the principles of project management on ICO. Today, ICO projects are already been evaluated by SWOT. Therefore, there are several positions that are worth founders thinking about and trying to enlighten to the maximum. As normal rating agencies look primarily at the following basic parameters and priorities of your project:
What is considered a strength
· Is the blockchain the necessary component of the project (proof)
· Did the team make detailed description of the business model in the project
· Does the project have a clear Road Map and Gantt chart of works and tasks
· Does the project have a detailed financial plan
· Whether the token emission is capped, if not, how justified is the solution for uncapped
· How clear is the legal structure of the project
· Is the project popular in social networks and thematic forums
· Is the project actively discussed on the news sites of the blockchain media
· Are the founders and project managers professionals in their field and / or in the blockchain industry
· Does the team have significant experience and impressive achievements not only in the field of blockchain, but also in the area of project implementation
· Is the advisory board of the project adequate and useful
· Do the founders of the project have the practice of implementing a successful business
What is considered a weakness
· The team did not describe in detail the competitive environment of the market and the competitive advantages of the project
· The project does not provide the tools (for example, an escrow agreement or an escrow instrument) that would guarantee a return on investment in case of misuse by the team of raised funds
· There are no any major well-known companies among the project partners
· The team does not have a MVP (minimum viable product)
· The project source code was not published on GitHub
Project Development Opportunities
· Is there a chance to scale the sales or to create a new niche in a market
· Will there be an increased demand for the company’s product
· The growth of the token’s rate in the medium and long term — how realistic is the nature of its growth
· Is there an increased demand for tokens among ecosystem participants — how diversified are the instruments and the need to use it
· Is the project activity in the legal field of the contractual relationship
· The project’s relation to the requirements of the GDPR — the project activities are carried out within the requirements for the processing and storage of personal data
· The company’s operating activities are conducted in the legal field of entrepreneurship
Threats
· The seriousness of the project to AML policy
· Low competitiveness of the product and project (no justification)
Special attention to the following
· a detailed description of the project competitive environment and advantages
· the implementation of tools (for example, an escrow agreement) that would guarantee a return on investment in case of misuse of the raised funds
· Development of partnerships with major well-known companies
· Providing a MVP
· The source code of the project is published on GitHub
· Comply with the AML and KYC requirements
· increase the competitive ability of the product and project
More information about
· Compliance with the requirements of securities market legislation (if security / asset token) and taking preventive measures in order to avoid problems with regulators
· Big venture investors of the project
· Security audit of the smart contract
Do not forget that now there are a lot of sites that are making ratings, but the main problem is that the high position in the rating does not reflect the real situation, since on the overwhelming number of sites the position of the project determines by the paid amount for the publication. Therefore, before making a decision on investing in the project, be guided by SWOT and find answers to your questions in the WP of the project or directly ask the project team.
If you do not receive answers to these questions or if such answers are from the realm of fantasy, than the final decision and responsibility are apt to you. There will be a chance for you to become a part of a soap opera or save your investment!
Sergiy Golubyev (Сергей Голубев)
EU structural funds, ICO projects, NGO & investment projects, project management, comprehensive support for business
