The ICO market moves fast!

Just 6 months ago, it was much easier to make a short list of ICOs worth investing in. Yet throughout Q2-Q3 2017, with the amount of offerings quickly rising, simple analysis isn't enough. People turn to Youtube and social media as they struggle to best distill the merits of dozens of ICOs popping up each and every week. The signal-to-noise is a cacaphony. What was once the domain of the tech savvy speculator has become a circus, and there are no shortage of clowns telling you what to buy.

For ICOs, time is at a premium. FOMO (Fear Of Missing Out) exists on both sides. Many speculators in today's market are looking for quick returns, and ICOs have wasted no time exploiting this, using guerilla marketing tactics (Floyd Mayweather, Paris Hilton, Mark Cuban, even Ed Sheeran) and rushing to market, often with nothing more than a whitepaper that reads more like a Master's thesis than a business plan.

It's not difficult to see why. The noose is tightening as countries like USA and China try to regulate the ICO marketplace within their borders. New investors are flooding in, foaming at the mouth, desperate for an easy 2x, 3x, or 5x flip in a very volatile market that could collapse at any moment. ICOs for their part see a major opportunity to fundraise. Any sort of delay could see an idea rushed to market by a competitor, or the entire market regulated out of existence. Everyone is in a big rush! Ahh!!!

So how do you navigate? How do you get ahead of all this? How do you filter out the noise, to get the signal? I mean, come on. We're busy people. We have jobs and families! Luckily, there are still valuable projects in the pipeline. I'm here to help you avoid throwing your money away and find those diamonds in the rough.

For this article, I'm going to assume you're familiar with your ICO, are confident in the use case, and understand the importance of researching the team and reading the whitepaper. Those things have been covered to death. What I'm here to do is uncover the rest.

Full disclosure: ICOs I have participated in, in chronological order
Bancor, Civic, EOS, Tierion, 0x, Aventus

ICOs I will be likely be participating in
Kybernetwork, Cindicator, GUTS

Glossary of terms:
DEX- Decentralized Exchange
Dogfooding - Companies using their own product
FOMO - Fear of missing out
ICO - Initial Coin Offering
ICO Market Cap - (Value of $$ or ETH contributed * circulating tokens)
KYC - Know Your Customer
Liquidity - Amount of tokens available for trade + ease of trade.
ROI - Return on Investment
Whale - Investor that buys up a disproportionate share of available tokens

1.) Contribution caps

I put this first because I believe it's the most important, not just in the spirit of fairness, but for getting any sort of decent return on investment (ROI). You could argue that this problem hit a breaking point when BAT (Basic Attention Token) managed to allow only 190 people to participate in their ICO, but the fact is, any time you have unlimited contribution caps, the price will quickly be depressed after release as those majority holders will inevitably dump massive amounts on the secondary market, perfectly happy with 10-20% instant returns. Look for contribution caps that are relatively low (Under 10 ETH is ideal) and read the next point because KYC is the only way to enforce this.

2.) KYC (Know Your Customer)

This goes hand in hand with the first one. Without KYC, contribution caps are unenforceable. I know people in the US and China don't want to read this, because they are getting screwed by it, but the only way forward is strict KYC checks for ICOs. That means submitting your passport or driver's license number, so the ICO can audit each person's contribution cap. In the short term, this will mean some countries will miss out, but this won't last forever. Principled ICOs have been badgering legislators relentlessly for feedback and legal clarity. The biggest hurdle is convincing the plutocratic regulators that average (see: non-wealthy) investors can participate too.

If this isn't enforced, even with a contribution cap, greedy whales will make multiple accounts, sometimes as high as 40-50 accounts and max out their contributions. I've personally seen people gloat about doing this. It happens.

3.) Whitelist

If you have KYC, then you almost certainly have a whitelist. If you like a project, don't delay. Sign up. Get on Slack or Telegram. Join their mailing list, fill out the forms. Get on that whitelist! A whitelist is a list of early contributors who are allowed to invest. This is usually based on early adoption (first come, first serve) but some ICOs give preferential treatment to those who invest more money. Be careful of these, as whenever the distribution is too top-heavy, the risk of downward pressure after ICO increases.

4.) Token distribution and lock-up periods

So you've researched an ICO, they pass the smell test on KYC, whitelist and contribution caps. You send your hard earned ETH to them and receive some tokens. You may get 50 from one ICO but 50,000 from another. Is 50,000 better than 50? You need to know what the relative value is.

Distribution is too often overlooked during ICO. It's not enough to calculate total Market Cap. You want to calculate the market cap of circulating tokens. These are the tokens that will be available when the token is released. If it's too high and demand is too low, your portfolio will reflect it. You want make sure that the project is allocating the tokens fairly, but also in a way that benefits the investor. If you don't know where the the tokens are going after the ICO, then how do you know how scarce (see: valuable) your tokens are? Look for a pie chart on their website or whitepaper that breaks down each silo of tokens. You should be in one of the big slices. Yet even if the distribution makes sense, if there is no lock-up period, then you could be competing with fellow investors, presale whales, and even the ICO founders themselves on the exchanges. Good ICOs reward their investors by allowing them to own the majority of early liquidity and holding reserves for a set period of time. This encourages healthy trading, incentivized work on the project over cashing out early, builds reputation, and also encourages exchanges to list them. ICOs that aren't concerning themselves with this aren't seeing the big picture, or are preparing for a strategic exit.

5.) Exchanges lined up prior to token release

Don't be afraid to ask the founders of a project when tokens are distributed, and where they can be traded. Recently, the Aventus ($AVT) token launched and the only medium for exchange was EtherDelta, a very slow and technically challenging decentralized exchange (DEX). Despite the ICO selling out in 7 minutes, and despite a contribution cap, investors watched in horror as the price dropped to 50% of the sale value within 24hrs. This wasn't the only problem, as lack of KYC also meant multiple whale accounts were a contributing factor, but too much liquidity in a narrow pipe means lots of downward pressure.

Note: If a project is really popular, sometimes exchanges will buy up massive amounts of tokens to create centralized liquidity and launch the token on their exchange. Poloniex recently did this with the 0x token and it created positive pressure and raised the price to 7x which made for happy investors

**6.) Things changing near the ICO launch date. **

Enigma ($ENG) just concluded a successful tokensale. Successful in the sense that it sold out quickly. However, there were problems. Early on, hackers nabbed $500,000 of their presale tokens. To make matters worse, mere days before the ICO launched, they saw an opportunity and announced a 50% raise in their market cap to increase funding. This is the same as taking money from your investors and pocketing it. This, along with a lack of KYC is going to result in a depressed market when the token releases. Many people who expected instant returns will no doubt be disappointed.

7.) Dogfooding. Does the company use their own product?

"Eat your own dogfood" - Vinny Lingham

Recently, Civic ($CVC) did something interesting. They used their product to perform the KYC of their tokensale. Civic is an identity verification tool on the blockchain. Civic was among the first ICOs to use KYC, and because of their innovative approach, they were able to not only turn away whales, but also demonstrate their product to each investor. This, along with lock-in periods for partners and generous liquidity to investors meant that the token launched and quickly rocketed to 5x value. Cindicator ($CND) is doing something similar by filtering their whitelist based on knowledge of their product, and GUTS ($GET) will also be using their platform to launch their token. This is an approach to look for when investing. An attractive whitepaper is important, but at the end of the day, if there's no product, all you are buying is a promise.

Note: To date, Steemit is still one of the few platforms that have a working product, where the token is working as intended and paying dividends in the ecosystem.

8.)Does the token have any use other than trade?

It turns out that many blockchain use cases don't really need tokens. The 'tokenization' of every blockchain project is becoming a problem, as founders are stretching to find a way to justify it in order to launch an ICO. How tokens are evaluated on the market is often disconnected from how it will be valued in the system. There is a certain lack of elegance to this that is concerning many people. Without going into too much detail, the value seems to fall into these camps

• The token is used to transact value within the system (ie. Steemit, Civic, Iota, most utility tokens)

• The token is held as stake, and holders will have certain rights (resources, oracles, voting) in the system. (ie. Steemit (again) Dash, Veritassium, EOS, various shitcoins)

• The token is used to fundraise projects within its ecosystem (Eth, Neo, Waves)

• The token is used as a simple store of value (Bitcoin, ZCash)

The task of determining which of these has the most validity is one for a greater mind than mine, so I will leave it at that. Just be conscious of what token you are buying and what it will be used for. No doubt the answer to this question will become clearer in the months to come.

Note: Token offerings could correct an imbalance in the way financial rewards are distributed among technologists. Historically, the people who develop foundational technologies, such as protocols, have watched from the sidelines as others—firms that build the applications running atop those protocols—reap the riches. The Google search engine, for instance, is an application that trawls the world wide web, which is made up of a collection of open-source protocols. Yet it’s Google’s founders who are billionaires and not Tim Berners-Lee, who came up with the protocols that made not just Google, but the entire web, possible.
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So there you have it, an ICO guide that goes beyond looking at the Whitepaper and the founders. Please resteem and share as needed.