The Satis Group provides end-to-end ICO advisory services including offering structuring, legal, tax and accounting advice coordination, smart contract creation and investor outreach & marketing community management. According to their analysis of ICO quality:
…approximately 81% of ICO’s were scams, ~6% failed, ~5% had “gone dead”, and ~8% went on to trade on an exchange…
Is it possible that 81% of ICOs are exit scams:
…practice by unethical cryptocurrency promoters who vanish with investors’ money during or after an ICO…
Or, is any project with unrealistic goals really a type of an “honest” scam?
What if the team does want to “do good” and they are better marketers than they are able to formulate and then build solutions which are suited for implementation on the blockchain?
How would we even know if the ICO team is just too optimistic or even slightly delusional about their project?
Short Answer:
No way to know for sure.
Actual Answer: It’s All In Our Heads Anyway
Luckily, we do know the psychology behind marketing techniques utilized by some ICO teams to get more financial backing than their project is worth.
Are you susceptible to social proof: a psychological and social phenomenon where people assume the actions of others in an attempt to reflect correct behavior in a given situation (wiki).
How about your resistance to the bandwagon effect: a psychological phenomenon in which people do something primarily because other people are doing it, regardless of their own beliefs, which they may ignore or override (wiki).
Of course, let’s not forget that the real is the “enemy” is FOMO: a pervasive apprehension that others might be having rewarding experiences from which one is absent (wiki).
All They Can Gain is Your Money
What would prevent an ICO team from pursuing the following course of action:
- Come up with an “ok” idea and product to use the blockchain
- Get 100 wallets that are controlled by the team
- Do KYC for the members of the team
- Buy into the ICO from the 100 wallets
- “Scream” everywhere: OMG people look our ICO is blowing up and we have a 100 backers already…social proof…get on the bandwagon to the moon…FOMO…
- Hope that others will FOMO the hell and then do the KYC and buy into the ICO…
Worst case scenario is that their only backers are their own wallets and they lose their $$ for the website and gas. But the team can keep the ETH from the 100 wallets that were theirs anyway.
Best case is that many new people “fall” for their “ok” project and fund their work because they fell under the influence of the “psycinfo warfare”.
As far as the authorities and lack of regulations: they would have KYC docs for each participant at all times.
In today’s ICO ecosystem, there are no filling & prospectus regulations akin to SEC’s requirements for IPOs. Moreover, small anonymous investors are not in the position to get insight into ICO team’s finances like the VC investors get from startups.
If some ICO teams are exaggerating funding, then the last “line” of defense are the exchanges. They could demand to see the KYC docs before listing a new coin. This review would confirm that the team is NOT “pumping” their own ICO and would justify exchange listing fees.
Before It Is Too Late for Your Money
Check the ICO pages on Reddit.com, Medium.com and on their blog: no comments means no real interest and claims of participation could be “fake”.