To grant the use of investors’ funds for implementation of the project or the return of the funds due to the non-compliance with obligations by a team, one should appeal to an escrow agent. The article tells how does it work and who could perform the functions.
Reason of emergence
The analysis of the market revealed that 81% of ICO projects were a scam. Investors who made contributions to those projects lost all the money. It is no wonder the market needed the tools which could protect the funds. The escrow services rendered by special agents became one of such tools.
Who is an escrow agent?
The escrow agent is a third party which has a positive reputation and a high level of competence. The agent keeps the means and provides the transparency of an ICO.
Mechanics of the system
The mechanics of the work is based on an indirect transfer of investments to a project, through a specially created multisig-purses managed by an escrow agent. These cryptopurses are smart contracts in which it is stated that the financing of each stage of a project could be carried out only after the confirmation of the escrow agent.
Requirements to an escrow
The escrow person should be significant and competent in the industry to where the means are invested and has a clean reputation and the independent relations with the project.
It is a regular practice when a project involves their colleagues, friends or non-public experts with an unclear level of competence or even completely made up persons and proposes to trust the means to them.
Bogus escrow is an often case when a team involves an escrow agent and creates a multisig-purse with three multisignatures two of which are reserved for themselves. An escrow is provided, but the solution on the use of the means depends on the team of developers.
Needless to say, that in this cases money are transferred directly to the team.
Questions on an escrow
Before making the investments to ICO, one should understand accurately:
• What are the stages of a project funding?
• What should the results be for the start of the next stage of financing?
• In what cases the means could be frozen?
• What are the conditions for a return of the means to investors?
The absence of a decent escrow agent conforming to the above-mentioned requirements is one of the indications of scam-ICO. The unwillingness of a team to receive the next financing, while executing of certain conditions, says either about the uncertainty about the obtaining of a result at each stage of the implementation and the project in general or about the fact, that an ICO was fraudulent from the very beginning.