Initial Coin Offering (ICO) is a fundraiser held by a company by offering crypto services/services or selling new tokens/coins. The purpose of holding an ICO is to attract investors to support the project being offered. The funds from these investors will later be used by the company to launch cryptocurrency products. The advantage for investors is to make a profit if the value of the new crypto coin continues to increase.
Investors already have tokens/coins before they are traded to the public. The price offered during the ICO is usually lower than when the token/coin has been listed. So that investors get a lot of profit if the price of tokens/coins continues to rise. But buying during the ICO also has a very high risk. So it is important for investors to always Do Your Own Research (DYOR) before deciding to buy.
The concept of an ICO is similar to an IPO (Initial Public Offering). It’s just that the ICO is not regulated by anyone and any agency. In the ICO, the total coins in circulation will later be given to investors. It is different from an IPO, where a company sells some new coins to investors in order to operate the business.
How ICOs work on Crypto
The company conducting the ICO must make a proposal called a whitepaper. The whitepaper contains an explanation of the ideas, strategies, tokens/coins to be circulated, the funds needed, the type of currency used, the price offered, and the ICO implementation period.
In addition, the whitepaper must also be able to describe the purpose of the project, who will carry out and be responsible for the project, as well as the percentage distribution of rights and obligations of developers or companies, and investors.
If during the ICO the funds collected are not met, then the funds can be returned to investors and the ICO project is considered a failure. On the other hand, if the funds are met within the ICO term, the collected funds will be used to run the project.
Tips to avoid ICO losses
Following an ICO, of course, has a fairly high risk. But you can minimize the risk by understanding the anticipation that must be done. Here are tips to avoid losses.
Research the latest cryptocurrency information
If you want to become an ICO investor, you should read a lot about the latest online projects. Currently, there are many sites where investors gather and discuss various new potentials. In addition, you also have to update about cryptocurrency coins or tokens.
Be careful and alert
Because there are no regulations governing ICOs, they are still vulnerable to fraud. Financial authorities do not regulate ICOs. If you experience fraud, it will be difficult to follow up on it or get compensation. That’s why you have to be vigilant and pay close attention to the ICO hosting companies.
You must ensure clear objectives of the project held by the ICO hosting company. Find out and also consider the legal terms and conditions set and make sure that the ICO is legit. Make sure the ICO funds have been deposited in an escrow wallet which requires multiple keys to access them.
Well, you already understand about Initial Coin Offering (ICO) right? If you have other tips to avoid ICO losses, feel free to let me know in the comments column. Continue to follow our articles on the Litedex Blog so that you will understand more about crypto. Don’t forget to visit the Litedex website, Instagram, Twitter, YouTube, and TikTok to keep getting updated information from us.