In order to reduce the network load and to increase the sum of investments, a pre-ICO becomes more and more popular among the companies. The investor, entering the project at this stage, can make good money quickly, but the high risk of fraud appears along with this. On the other hand, the participation in an ICO gives one more information about the product, the team and market’s reaction, which reduce the chance to invest in a scam. The article below is about the pros and cons of ICO and pre-ICO.
Listing period — scam or not
An investor faces an unpleasant period after the getting of tokens on an ICO: the period of waiting for the asset to appear at the large exchanges. Aiming to minimize the risks, investors start selling the tokens, which reduces their rate, causing damages to those investors themselves and to the project. It is quite understandable; they consider that the team attracted the enormous sums for such a short time should be able to pay off the coin’s listing at a popular cryptoexchange with those means. But it is not that simple. Before the project appears on a cryptocurrency exchange, its smart contract is to undergo the audit of an independent third party. This stage lasts long. Many investors, noting that the token has not long appeared in exchanges’ lists, consider the project fraudulent and get rid of the tokens at a low price in short terms, causing the fall of the rate of the asset even before enlisting on large trading platforms.
Pre-ICO. What for?
Now, a lot of teams carry out a preliminary fundraising which is a pre-ICO which gives investors the chance to increase the profit, and a team – to collect more money since there are huge discounts, up to 40% some time, and other bonuses.
The smart contracts for pre-ICO differ from ICO smart contracts. This way of raising allows to divide the funds, but at the same time can cause confusion since the sum collected during a pre-ICO is not included in the means specified in an ICO. Besides, the quantity of the issued tokens exceeds those planned by investors. When carrying out a pre-ICO, a team should have an accurate accounting of the funds raised and the coins released. The main shortcoming of a pre-ICO is a sell-off of new tokens by early investors before the listing. At the same time, they get essential profit but undermine the project.
Pros and Cons
While investing before an ICO, one can get more information about the product, the team and the level of consumers’ interest, using the feedback. It means the reduction of the chances for the project to be a scam.
Meanwhile, pre-ICO gives the chance to make a high profit fast. At the same time, the chance that the project will turn out to be fraudulent increases. Also, it is worth understanding that the fast drop of tokens stabs the credibility of the project and affects its investment attractiveness and also the rate of the coin.