How to detect the SCAM

Five-step tutorial how to avoid fraudulent project in ICO market

The process of the ICO doesn’t differ from other crowdfunding mechanisms. It must now fall under certain regulatory requirements in order to avoid unforeseen negative cases that often occur, mostly because of a lack of investors’ asset protection when they are buying tokens. In general, ICOs are additional mechanisms for funding good ideas; further attracting capital from a potentially wider range of investors.

An ICO should be a tool for attracting funding and the means of development for a specific product, a fact well known to most investors. Some projects, however, perceive it only as a mechanism of fundraising — the opportunity to earn on hype. This approach is unacceptable and has already spawned scandals. It is not necessary to conduct an ICO for its own sake but in order to realise the product that is the end result of the process. To distinguish genuine projects from scams, pay attention to the following points:

  1. Regulation of the placement of tokens. In any case, tokens are a digital analogue of securities, and therefore must be placed in accordance with the requirements of the Securities Commission. People who are experienced in the investment field know that any project which respects its investors should be established strictly in the regulatory field. ICO projects should offer an investment product in the form of securities, which can also be purchased in the form of tokens. (For example, as we did with RAISON Ai tokens which corresponded to Prospectus Directive (2003/71 / ec) in Europe and Rule 506 of Regulation D of the US Securities Commission (SEC)).
  2. The project team must include their background and publicly open profiles. It is hard to imagine that a team without experience would be able to implement an ambitious project or that a team with experience would hide their identities and credentials. Such ICOs prey on the naïve and gullible. Each field of work should be supervised by a person who has experience in the area. The team should have experts in the main areas. It is a good sign if there are links to personal members’ profiles on social networks; LinkedIn is a priority. There should also be a video in which the leaders and developers discuss their project. A great looking website in and of itself is not enough. Take the time to investigate the people with whom you are going to entrust money.
  3. KYC (Know Your Customer) and AML (Anti-Money Laundering) procedures. KYC is the identification and verification of users. This term is used in banking and exchange regulation for companies that work with individuals’ funds. The AML procedure is the standard in preventing money laundering. Passage of these procedures guarantees in the future a problem-free withdrawal of funds, which will be required for the implementation of the project. After all, we have read a great deal about projects that have raised investments and failed or disappeared, leaving investors high and dry.
  4. Partners and approval. A good project, at least after some time, will have strong partners; companies in various sectors, which already have some authority. Signed partnership agreements are a sign of quality. If the project plans to work with crypto-currencies, now many countries are actively working on the development of cryptocurrency regulation. Perhaps at the very start, the project will not be licensed, but it should reflect on this. Licenses for working with crypto-currencies, of course, cost money, but the costs are not sky-high. (For example, our project RAISON Ai received two virtual currency licenses in Europe — Virtual Currency Wallet Services and Virtual Exchange Services. Thus RAISON.ai became one of the first services in the market related to the storage and exchange of crypto-currencies in a fully regulated legal field. Also, in March the project was officially included in the startups registered under the state program Startup Estonia. The Startup Committee of the Estonian Ministry of Internal Affairs made a positive decision to recognise the high level of innovation in the RAISON.Ai project. Inclusion in the state register of start-ups not only confirms relevance but also gives preferences for hiring employees.)
  5. Availability of a minimal version of the product or a clear action plan for implementation. If the project already has a minimal version of the product, it is likely that it will develop further. This probably means that the project team really intends to implement the project. It is also worthwhile to assess the scale of the project because Napoleonic plans need Napoleon.

Be extremely careful in assessing the prospects of every investment proposal — always carry out due diligence. Make sure you answer a number of questions for yourself. Among them are:

What kind of profitability do you aim to receive from this investment proposal?

What risks does this investment incur?

What is the duration of the investment?

How tolerant are you to loss, having taken a high risk?

That is, be as thorough as possible — study comprehensively those investment ideas that you generate on your own, or those that are offered by someone from an external financial institution. That is our advice to you.