Following the need of companies and businesses to raise capital for projects and the difficulty in obtaining such funds from banks and other financial institutions, many companies have turned to cryptocurrency and Initial Coin Offerings. Flowing from that, Initial Coin Offerings are a method of fundraising that swaps yet to be crypto coins for booming cryptocurrencies with an instant liquid value such as such as bitcoin, Monero and Ethereum.
Going on, the concept of ICO is a working relationship between investors and companies behind these ICOs in which big or small investors provide funds to sponsor the companies to project and in turn receives a return on investment (tokens) from the company. Since 2017 report has it that over twenty billion dollars ICO funds been pumped into ICOs by investors. Due to such huge numbers, Initial Coin Offerings are undoubtedly a goldmine. However, in order to keep ICO investors from going wrong, the concept of token distribution or ICO fund distribution has to be understood. Understanding such fund distribution would serve as a guide to investors so they have an idea of how their monies are being spent. Having said that let’s explore what ICO fund distribution is, why investors should draw attention to this and how funds should be properly distributed.
What Really Is ICO Fund Distribution?
Once the period for the sales of the token has come to an end or when a milestone has been achieved or a fixed interval by the ICO company has passed, the ICO company or project team goes on to distribute the funds through the use of the approximated costs for the diverse aspects of the project. Investors quite often are rewarded with tokens which end up being valued at millions of dollars. A portion goes into developing the blockchain project which is the reason behind the creation of the ICO and a portion may be used in taking care of legal or administrative concerns. Basically, the distribution of tokens or funds in ICO varies from project to project and is usually outlined in the ICOs white paper. This enables investors to have an understanding of where their cash is going into, what they stand to gain and how their money is being used. Having laid down the basics, let’s take a look at why investors should draw attention to ICO fund distribution.
Why Should Investors Draw Attention To ICO Fund Distribution?
For starters, although cryptocurrency has been a well of wealth that raises billions of dollars for investors, there have been several sad tales as well. In 2017 alone an average of eighty percent of Initial Coin Offerings launched was failed or fraudulent. Furthermore, a good number of such Initial Coin Offerings were lacking in a well-detailed breakdown of their fund’s distribution in their white paper. This points to the fact that if investors had taken the time out to understand each ICOs whitepaper, fewer fingers would have been burnt.
Secondly, apart from deliberately fraudulent ICOs, a lot of well-meaning Initial Coin Offerings were not able to fulfill their goals and strategy due to poor management of funds and a lack of a well-drawn plan towards the distribution of funds. This led to a loss of returns on investment and as a result, has left investors feeling cheated.
Due to the above two situations, it is only natural that potential investors exercise more caution in Initial Coin Offerings and pay close attention towards ICO fund distribution and token distributions. This would keep them from the unnecessary loss of funds. In line with the above, token analysts and stakeholders advise that investors should go above and beyond in evaluating the funding structure. They should dig up information on former investors and investments and ensure that the company is not entirely hanging the possibility of their development on the sales of tokens. Secondly, they should ensure that the majority of token distribution is used in the development of the project and not bounties or founders. That said, let’s understand how funds should be properly distributed.
Ways In Which ICO Funds Should Be Properly Distributed.
As an investor, picking out the right ICO is not exactly an uphill task. If you know the ropes and what to look out for you’ll be just fine. One of the things to put an eye out for is properly distributed ICO fund. In line with that, an ICO fund can be said to be properly distributed when a significant share has been designated for handling development works and fewer of the shares assigned to founders and bounties. Basically, any ICO that distributes its funds to handling irrelevant things at the expense of the project should be avoided.
On a final note, ICO fund distribution is the heart and soul of ICO projects as investors are interested in rewards from their investments and companies are interested in getting funds from investors. This, therefore, means it has to be done well. The roadmap for the fund distribution in every Initial Coin Offerings has to be clearly stated and followed. As a prospective investor if you are not at peace with the plan for the ICO fund distribution you can withhold your cash or call the project team to order. With the right distribution of funds and highly valuable tokens, an investor in cryptocurrency is sure to have a great and financially beneficial experience.
Source: Foundico.com: Blog