Important Risk Reduction Strategies for ICO Investments

Important Risk Reduction Strategies for ICO Investments
фото показано с : bitcoinist.com

2018-8-1 04:00

Blockchain investors are not necessarily risk averse. They’re generally comfortable with the amount of volatility that exists in the market today.

For most, this is a small trade-off compared to the benefits brought by ICOs. When a startup builds its token economy correctly, it gives investors a number of perks such as quick liquidation and flexibility dealing with assets.

Each individual investor in the market has the option to sell their tokens if they lose faith in the project, or see that there will be no demand for its tokens moving forward. Some investors choose to wait and sell their tokens when they grow twenty or thirtyfold. Likewise, other investors choose to liquidate their assets as quickly as possible if the startup is not suited to face competition.

However, taking advantage of these benefits does not mean that investors shouldn’t mitigate the amount of risk they assume when making an investment in the first place. To the contrary, the flexibility of ICOs is precisely what experts use to hedge these investments.

 

Funds and Delayed Decisions

For example, there are many strategies that investment funds already use to avoid risks. An important one is that they make a delayed decision on a percentage of the whole value of an investment deal. A fund may pledge $1 million to a startup but only be ready to risk 25% of the investment. In this case, it negotiates with the startup the condition to get back $750,000 from the $1 million pledge if the deal is revoked. This means that it will only risk losing $250,000. Either way, the fund can then sell the tokens it bought at any time if things go south.

Although this approach is often exclusive to investment funds, individual investors may also find it interesting since funds are rapidly becoming one of the best possible investment options. Today there are more and more funds working with a larger pool of individual investors, and some offer significant opportunities such as this to evade risks.

Therefore, when looking into investment funds it’s important to pay attention to what transactions are taking place between the fund and the startup. A general rule is that risk-averse funds receive smaller discounts than larger funds which are investing without avoiding risks. In the end, it usually boils down to a decision between risk or discount.

 

Escrow

Delayed decisions go hand in hand with escrows. Regardless of how an investor deals with a startup — either through direct investment, direct purchase of tokens, or through a fund — the startup should offer the option to hedge risks using these services.

More so, escrow services should be available both during the ICO and after the process. In the first case, they reduce the risks of the initial collection. Investors are protected if the ICO raises insufficient funds, the startup team faces disagreements, a strong competitor appears on the market, or regulations change. Here, the startup doesn’t hold the investor’s funds in the first place and there is no risk.

Once the ICO is over, startups may also use escrows that release funds gradually as they are needed to keep working — all under the condition that the project fulfills certain objectives. Startups that work under this arrangement are the ones that protect the investments of token holders the most.

There is an increasing number of platforms that embed these features into the ICO process to allow mass fundraising for interesting projects. In a way, they’re similar to Kickstarter. They mix delayed decisions with escrow services to keep risk at a minimum for investors. The logic behind it is that every time a project passes a certain step in the roadmap, the achievement is recorded on the blockchain and the platform automatically signals the escrow to release money for the next stage. There are many applications for this innovative mechanism, ranging from real estate projects to films, music, and books.

These are all important strategies to keep in mind and each may apply in different situations. One final but important rule of thumb that underpins them is that all involved parties should have skin in the game and share an interest in a particular project’s success. It is essential to security that the interests of the startup, fund, and individual investors are always aligned.

Visit Nick’s website to stay in touch.

Watch Nick’s YouTube channel

Follow Nick on Facebook and Telegram

Disclaimer:

This information is the opinion of the provider and is for informational purposes only. It is not intended as and does not constitute investment advice or legal or tax advice or an offer to sell any securities to any person or a solicitation of any person of any offer to purchase any securities. This information should not be construed as any endorsement, recommendation, or sponsorship of any company or security.  There are inherent risks in relying on, using, or retrieving this information.  Seek the advice of professionals, as appropriate, to evaluate any opinion, advice, product, service or other information provided.

What do you think of Nick’s risk-reduction strategies? Tell us in the comments below.

Images courtesy of Nick Evdokimov

The post Important Risk Reduction Strategies for ICO Investments appeared first on Bitcoinist.com.

Similar to Notcoin - Blum - Airdrops In 2024

origin »

ICO OpenLedger (ICOO) на Currencies.ru

$ 0 (+0.00%)
Объем 24H $0
Изменеия 24h: 0.00 %, 7d: 0.00 %
Cегодня L: $0 - H: $0
Капитализация $0 Rank 99999
Цена в час новости $ 0.6451 (-100%)

risk market important strategies reduction ico investments

risk market → Результатов: 73


Bitcoin [BTC] still at future regulatory risk? Tom Lee discusses

On July 24th, Fundstrat’s Head of Research, Thomas Lee was featured on CNBC Futures Money for his opinion on the recently charged bull-run by Bitcoin. The market strategy expert discussed the Bitcoin year-end price target, emerging possibilities from the regulators’ end and the institutional investors’ next move in the wake of an ETF. On being asked […]

2018-7-26 02:10


Coinbase Custody broker-dealer previously charged with putting customer assets at risk

Coinbase’s new solution for institutional investors launched yesterday to great fanfare. It offers solutions for long-awaited institutional money to flow into the market. Electronic Transaction Clearing [ETC], the registered broker-dealer through which Coinbase aims to conduct transactions, was charged by the US Securities and Exchanges Commission [SEC], earlier this year. The charges against it were […]

2018-7-4 00:58


Фото:

Add Crypto to Investment Portfolio: Enhance Return, Reduce Risk/Volatility

As an emerging asset class, cryptocurrency and blockchain technology related investments are gaining begrudging respect among finance professionals. Market slides aside for the moment, a study released by Grayscale Investments attempts to make the case investors should seriously consider adding crypto to their respective portfolios, as they bring better returns and, counterintuitively, reduce risk and […] The post Add Crypto to Investment Portfolio: Enhance Return, Reduce Risk/Volatility appeared first on Bitcoin News.

2018-6-14 14:40


Фото:

Proposed Regulations Could Cause Major Shifts in Canadian Crypto Businesses

Canada’s government has released draft regulations for “virtual currencies” with a consultation period of 90 days, saying that proposed regulatory changes could mean a loss of $60 million over 10 years for businesses that deal in cryptocurrencies but will improve Canada’s international reputation and make it easier for crypto businesses to deal overseas.

2018-6-13 20:24


Фото:

On Radical Markets

Recently I had the fortune to have received an advance copy of Eric Posner and Glen Weyl’s new book, Radical Markets, which could be best described as an interesting new way of looking at the subject that is sometimes called “political economy” - tackling the big questions of how markets and politics and society intersect.

2018-7-21 04:03