Here’s What You Need To Know Before Joining An Early Token Sale

By Stan Peterson
May 9, 2022 Updated May 9, 2022
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Token sales are quickly gaining traction as the digital economy’s darling of money raising. Initial Dex Offering (IDO) sales alone contributed about $18.5 billion in crypto assets in 2021.

Huge quantities of money have been raised; certain tokens have seen stratospheric prices, and many people feel there are no regulations in place. This has created a significant sense of “fear of missing out” among individuals wishing to become engaged in this fast expanding field.

But not everything that glitters is gold. Many people, hedge funds, and corporations are considering buying tokens for projects that may or may not be technically feasible, commercially viable, or even doable. Furthermore, a rising number of token sales are under regulatory scrutiny, particularly under US securities laws and anti-Ponzi scheme regulations (United States and United Kingdom). Hacking and disagreements are becoming more common.

Does this imply that you shouldn’t take part? Certainly not.

Token sales are ideal for some initiatives because digital assets may be incredibly beneficial. Many of them are unregulated. However, you must be aware of what you are purchasing.

This essay focuses on practical due diligence measures you may take to “Know Your Token.” We start with a broad overview of token sales before moving on to the four main areas:

First and foremost, what is a token sale?

A token is an intangible asset that makes use of blockchain technology. It usually grants token holders a set of rights (and sometimes liabilities) outlined in smart contracts and other related paperwork, such as an offering agreement or whitepaper (or both)

Tokens are sold in a token sale to generate cash for a certain project over a set period of time. The certainty of underlying projects varies at token launch and during their progression over time, with or without token holders’ input. After being acquired, the token may be exchanged on publicly available markets.

Tokens or “coins” may also take many other forms, such as corporation shares or fund units. This is critical.

Understand the procedures

Individuals from particular countries are often barred from participating in token sales. This is owing to worries about how tokens and cryptocurrencies are treated legally in certain areas. The position of a professional investor differs by jurisdiction.

Complete Anti-Money Laundering (AML) and Know Your Customer (KYC) Procedures

Anti-money laundering (AML) and Know Your Customer (KYC) checks are performed by the more reputable issuers. Accept them. They are an indication of an experienced issuer.

If you’re filling these out online, ask if you can visit in person; the issuer’s data protection and cybersecurity controls, ask about them (the issuer should be able to describe them, and bug reviews are often part of bounty programs) – but if you’re still not satisfied, then don’t participate at all; or if you want to keep your anonymity, move on.

Do you have any additional purchasing restrictions?

Cryptocurrencies may be subject to capital restrictions in certain countries. Tax concerns may occur as a result of the tokens, notably in regards to any capital gains and any related value-added taxes.

Before engaging in a token sale, you should get professional counsel on your circumstances. However, keep in mind that capital controls and tax situations may shift abruptly and without warning.

Are there any lock-up or vesting periods?

For the issuer and pre-sale buyers, most token sales include vesting schedules and lock-up periods (if any). These should be compared to the project’s road plan to see whether they deliver the right incentives to the right people at the right time.

Purchasers’ tokens may also be held in escrow until AML/KYC standards are met. These conditions should be disclosed explicitly in the offering paperwork.

What security precautions have been taken?

Distributed denial of service (“DDoS”) and other assaults have been launched against token sales. There have been thefts of the token sale money. As a result, buyers should think about what security measures the issuer has taken to preserve the integrity of the token sale (including any related personal data), the token sale profits, and the tokens themselves.

Guard against hacking, fraud, and other problems.

Hacks, fraud, and scams have occurred in a number of token offerings, including Ethereum addresses being modified on issuer websites. In order to redirect payments to themselves, less competent attackers would simply publish their personal wallet address on social media channels and fraudulently claim that this is the contribution address.

As a result, you must also take precautions to safeguard yourself. This comprises:

  • Straight to the source – only referring to official sources of information regarding the token sale – not social media threads.
  • Social media – judiciously utilizing social media. Although social media may provide useful information on token sales, do not depend on it. This is especially important when obtaining information about how to send your money – do not use any smart contract address posted on social media.
  • Official announcements – regularly check for official announcements on verifiable channels.
  • Your own due diligence – as described above, ensuring yourself about the token issuer’s security arrangements and (as a general rule) only using reputable wallets and exchanges.

These procedures will help you avoid the majority of frauds.

How will the money be spent?

Differing token sales provide different amounts of specificity about how the funds will be used. Some may show a basic pie chart with cash allocated to “development,” “legal,” “marketing,” and other categories.

Others will provide specific statistics for certain aspects, as well as continual audits of money use.

In any case, the earnings should be distributed in accordance with the roadmap’s expenses. In an ideal world, buyers will be able to track the profits using the issuer’s bitcoin addresses. 8. What happens if the project is not completed?

A variety of termination events are often included in offering contracts. If a termination event happens, they often provide the issuer a lot of leeway in deciding whether or not to cancel the token sale and/or project.

Purchasers should think about what they’ll receive back if the contract isn’t renewed. If refunds are issued, it should be determined if they will get the whole amount donated or whether costs would be removed.

Because of the volatility of cryptocurrency markets, a buyer should be aware that their investment may be worth much more or considerably less at the time of return.

Understand the ramifications

First and foremost, you should understand what you are signing up for and seek expert guidance if necessary. The language of the offering agreements, as well as the novelty of token sales itself, may limit your legal choices.

However, if you are dissatisfied, contact the issuer. If necessary, inquire about filing a formal complaint. Still not satisfied? Consult a lawyer who specializes in digital assets.

What laws apply to the selling of tokens?

Legal safeguards for token sales have yet to be shown. Nonetheless, the location of the issuer’s headquarters or incorporation, as well as the project’s target markets, should be considered. What is the status of cryptocurrencies in these jurisdictions? Have any relevant regulators offered instructions, or have there been any legal cases?

If the issuer is based in a country with strong consumer protection legislation, for example, this might be a viable legal option. Importantly, any assertions that the token sale is “jurisdiction-free” should be viewed with caution. Courts and governments normally determine the scope of their own jurisdiction, and words in an offering agreement cannot readily override this.

How can you get involved?

If you decide to join after considering the above considerations, the following stages are practical: setting up and safeguarding your wallet, collecting the bitcoin required for purchase, and discovering the relevant donation address.

Vent Finance is a viable option for anyone who wants to take part in a token sale. Vent Finance is a full-stack multichain community crowdfunding environment, that aims to make it simple for users to participate in compliance token sales of trustworthy blockchain projects. The platform is intended to level the playing field and make the process of identifying interesting initiatives enjoyable and accessible to people of all skill levels. 

Early-stage startups may use the decentralized Vent Launchpad to raise funds. Furthermore, the platform allows incubation, assisting in the growth of blockchain entrepreneurs by offering the necessary resources, such as professional coaching on product development and strategy, as well as access to result-oriented collaborations.

Early-stage startups may use the decentralized Vent Launchpad to raise funds. Furthermore, the platform allows incubation, assisting in the growth of blockchain entrepreneurs by offering the necessary resources, such as professional coaching on product development and strategy, as well as access to result-oriented collaborations.

The platform has a built-in token purchase protection and due diligence system that helps investors to vet and research projects. Similar to PayPal’s buyer protection, where PayPal steps in if there are issues, VENT’s Defi launchpad will look into crypto projects and their roadmaps, and release funds based on the completion of their milestones.

Conclusion

Token sales may make fundraising simpler, but they do not make completing a project or running a successful business any easier. Before engaging in a token sale, buyers should think over the aforementioned concerns as well as the project’s commercial fundamentals.

Being an active participant in the Blockchain world, I always look forward to engage with opportunities where I could share my love towards digital transformation.
The presented content may include the personal opinion of the author and is subject to market condition. Do your market research before investing in cryptocurrencies. The author or the publication does not hold any responsibility for your personal financial loss.

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