After The ICO: Now What?
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Much attention is given to whether a particular initial coin offering (ICO) may be a good investment prior to crowdfunding or a presale – but what about after the ICO? Separating low quality projects, from projects with a potential for success, is a must for any potential ICO investor or speculator.
What constitutes best practices after the ICO is complete and the project or company has received their startup capital is just as important as what precedes it. And yet, as the new DAICO model postulated by Vitalik Buterin suggests, this is an area in which the entire ICO world must improve as regulatory scrutiny increases. Here we will explore some suggestions for best practices after the ICO, as well as highlight some examples from recent ICOs.
Talk To Us!
Communication is essential to the success of an ICO. Unfortunately, the crypto space is littered with fly-by-night operators. Therefore, holders of new coins tend to get spooked when communication with the developers breaks down. After the ICO projects, should have the funding to deploy professional public relations and customer service staff that can field questions, preferably in an open and shared environment such as Twitter or Telegram.
Frequent updates on the progress of the project can assuage concerns, especially in light of delays or unanticipated problems. Having a team that can address rumors, innuendo, and negative press in a clear, professional, and authoritative way will inspire confidence, potentially buffering a coin from sharp drops in price.
Use Adequate Security For ALL Customer Data
Having proper security procedures in place is necessary for any ICO to function in the current climate. Successful ICOs have large targets on their backs because it is known they possess large amounts of capital that is often raised hastily.
One common tactic is to defraud investors by means of a phishing attack. During, and even after the ICO, would-be investors can be conned into sending funds to the scammers address when the original project is compromised and wallet addresses are clandestinely changed. Examples of this include a $500,000 loss for investors in the cryptocurrency Enigma, a $150,000 loss for Experty, a staggering $7 million loss for Coindash, and a whopping $8.4 million loss for Veritaseum.
Besides phishing attacks ICO funds can be vulnerable to theft due to previously unknown bugs or errors in the underlying code. A colossal example of a catastrophic bug in underlying code is the case of the Parity multi-sig wallet which caused over $150 million of customers funds to be frozen.
Besides securing raised funds it is also essential to secure customers sensitive private information such as passport documents. In order to comply with regulations, such as “know your customer” regulations, some ICOs are requiring investors to provide identification documents. If these documents are compromised, investors can be left vulnerable to identity theft. Best practice includes keeping only the amount of information that is needed to conduct business. A refreshing example of this procedure occurred with WePower when they announced that they were deleting identifying information for investors who were registered but did not receive tokens.
While the importance of communication and security practices can not be understated, another factor which will continue to play an ongoing role in an ICOs success post funding is the robustness of their legal strategy.
Setting funds aside for appropriate legal counsel to address concerns from governing regulatory agencies, such as the Securities and Exchange Commision (SEC), is rapidly becoming a necessity. Last week we discussed the growing interest of the SEC in ICOs and how the industry can move towards proper regulatory compliance. A prolonged legal battle can derail any progress an ICO project has made and quickly eat away at capital. This is especially a concern for ICOs who have accepted money from U.S. investors.
Three pillars of successful ICOs post funding have been presented: communication, security practices, and legal strategy. These procedures should be in place before any money is raised and should be clearly articulated to potential investors.
Both for the protection of investors AND for the long-term health of the project, having a strategy for dealing with the “lull” between crowdfunding and release of an MVP can only be a good thing for the cryptocurrency community.
Financial Disclosure: The author holds long positions in Bitcoin and Bitcoin Cash. The author holds no short positions.