Not a day comes without warnings about a new potential ICO scam. This has started to affect the ICO market, declining since the beginning of the year. A research report published by Diar in August highlights that nearly $100 million have been stolen as a result of ICO exit scams. Additionally, the high failure rate of project funded thanks to ICO is also worrying: using the social footprint of projects after successful ICOs, a research conducted by a team at Boston College in Massachusetts, found out that only 44% of these projects are still active into the fifth month or beyond. With a proper projects audit phase, couldn’t we confine the risk of scams and destined to failed projects?
At the origin of any investment decision: the token economics
One of the main advantages offered by the ICO mechanism is that even a seed-stage startup can raise funds from investors contributing from around the world. But this system’s strength quickly becomes its weakness when any projects, even non-viable, comes before investors – not all being business experienced auditors.
To avoid bad surprises, a good start would be to check the token strategy before investing in a project. The token economics, meaning its true utility in the project, is probably one of the key assessment criteria when verifying the project sustainability. How can an investor use them within the project? Tokens to get a real value first need to have a strong utility within the project and not just exist to raise funds. Few other red flags should be checked to make sure an ICO is not a scam, such as the team existence and experience, the information communicated through the website, the whitepaper, the social networks or the token distribution. But nothing will replace a proper due diligence conducted by an expert. Problem is, with the increasing number of ICOs, we have seen the raise of plentiful centralized ICO rating platforms, in which the most important criteria to get a good mark is just paying! The real solution lies in the blockchain community.
The Proof of Viability, a real decentralized network of auditors
A bit as the proof of work or the proof of stake, the Proof of Viability (PoV) could be a new due diligence process to determine which project is viable enough to raise funds through the blockchain community. At the origin of this Proof of Viability process: Eqwity, a new player in the blockchain industry, that started its pre-sale on 17 November. Their aim is to promote blockchain self-regulation thanks to a decentralized ecosystem.
Eqwity will start by launching a fundraising platform based on a 2.0 version of ICO: the ICO.E = Initial Coin Offering + Equity Airdropping. Only projects willing to give away a bit of their equities could launch their ICO.E on this new platform. They would also have to comply to a thorough verification process of both founder’s identity and background (KYF as Know Your Founder) and project viability through the Proof of Viability process.
Not a company would be able to audit all the projects by itself. That is why, Eqwity has thought to a decentralized process putting at the forefront auditors from the blockchain community:
1. Projects submitted for audit approval will be divided in blocks of specific activity field (marketing, finance, token economics, smart contract audit etc.).
2. An algorithm coupled with artificial intelligence will randomly select among a pool of verified auditors a certain number of them to assess the project viability or unviability in their respective field of activity.
3. Once five of auditors of a field will have voted in the same sense (viable or unviable), three new auditors in the same field will be also randomly selected, as safeguards, to verify the quality of the first auditors’ assessment.
4. Finally, all audited project reports will be available to the public and recorded in a blockchain.
This decentralized network of auditors coupled with the Proof of Viability process (PoV) could provide to investors an effective way of preventing from blockchain industry’s frauds and scams. By the same occasion, blockchain investors will get a valuable external and professional analysis on matters they don’t necessarily master.
For more information on Proof of Viability (PoV), you can visit www.eqwity.io.