ICO Presale also referred to as Pre-ICO, is the token sale event that Blockchain firms unleash before the official ICO or crowd sale goes live. Notably, the ICO Presale fund-raising targets are significantly lower when compared to what is set for the main initial coin offering (ICO).
Pre-selling is a method used by some cryptocurrency projects to raise funds before an official ICO is conducted. The pre-sale tokens are sold to interested parties at a specific price. This move might prove beneficial for the developers and investors, in case everything works out well and the digital currency becomes a success.
While the project developers would get the much-required funding to finalize their projects, investors can acquire an altcoin that might be worth a fortune in the future. Project developers also go for an ICO pre-sale to market their coin ahead of the official ICO, targeting a price surge when their token eventually goes public.
Some of these Pre-ICOs are used to accrue money to cater to incurred expenses. On the other hand, others feature paid promo ads, calculated recruitment, and meet-up costs to help in boosting investor interests.
The tokens involved in the pre-selling process are cheaper than those available in the crowdsale. Pre-ICOs use separate smart contracts from the main initial coin offering for the sake of prudence. This strategy is used to avoid a mix of Pre-ICO funds with the funds acquired from the main ICO to guarantee straightforward account audit and reconciliation.
Related: SEC Official Says ‘Plain English’ Guidance On ICOs Is Coming
The Risks That Come With An ICO PreSale
But, pre-selling also comes with some risks. In case the project fails, these early investors might find themselves having worthless tokens. Hence, they will not make profits from their investment. Also, when the real ICO happens, the increased coin supply available to the public may decrease the value of the coins that investors acquired in the pre-sale.
On the flip side, developers need to look out for the investors who may sell the pre-sold tokens briefly after the main ICO aiming to make huge returns on their investment. These investors tend to sell at ICO prices when they got the tokens at a discount
It is never a good sign when a coin that underwent an ICO recently if some of the early investors start dumping at the first chance.
Some of the crypto movement supporters also believe that pre-ICO is antithetical to the decentralization concept. Decentralization is the underlying premise believed to be powering the massive rise and growth of the crypto sector.
Furthermore, there are regulatory issues. Most of the ICOs are powered by the Ethereum blockchain utilizing ERC20 fungible tokens. The US SEC may label Ethereum as a security asset soon, which would impact the sustainability of growth of such tokens.
How To Participate In A Token Presale
For anyone who wants to participate in a token or ICO pre-sale, certain steps need to be followed. Token sales work as a crowdfunding tool that is used in generating capital for startups to unleash new projects.
In these token sales, investors buy new cryptos directly from the developers using other cryptos like Ethereum and Bitcoin. Token sales are also known as ICOs.
One great example is the BitImage token (BIM). BIM is powered by the ERC-20 standard and Ethereum blockchain. The token functions efficiently in the crypto ecosystem and can be used in many other decentralized programs without any issues. ERC-20 standard enables the presale token to meet all security needs common in the sector.
BIM token set the minimum purchase value at 0.1 ETH and the maximum purchase threshold was 500 ETH. The presale lasted between April 26, 2018, and May 24, 2018, with a soft cap of 2000 ETH.
The Pre-Sale Strategy
It is quite challenging to participate in any ICO pre-sale for people living in the US. DAO Maker lists the supported countries enabling investors to determine whether they qualify for a token sale that might interest them.
Furthermore, StarTerra, an Initial Decentralized Offering (IDO) platform powered by the Terra (LUNA) blockchain, also lists the jurisdictions in which it is allowed to operate. But, Solanium and PolkaStarter have no restrictions. These platforms have been responsible for the rise in the NFT market that has powered the crypto space to new levels in 2021.
Related: Vera’s Polkastarter IDO launch Set to Disrupt the NFT Industry
Although there is no consistency, anyone who wants to participate in the pre-sales can use tools like Pylon to bypass the system. Thus, the real issues are not related to access, but the challenges that come with the investment strategy. One risk is betting on a coin that is yet to launch. These projects are faced by delays in most cases while some do not launch altogether resulting in losses for the early investors.
Thus, any investor who wishes to participate in an ICO pre-sale must ensure that the development team is known publicly to avoid cases of rip-offs and rug pulls. Also, the team needs to have the ability to complete the task at hand. In this case, long work histories with completed projects build some credibility for the team.
Furthermore, endorsements by top-level developers like Do Kwon on the Terra blockchain are a good sign for a token presale. The IDO must also go well to increase the likelihood of a huge coin surge in the first week of launch.
In the case of LOOP, the team created an entire website around the coin. Anyone who participates in the Loop Markets gets LOOPR coins that they can sell and stake for the LOOP coins. The team made an exhaustive social media site, a blockchain version of Medium, as part of their project, which attracted a lot of interest from investors.
How To Check The Viability of A Token Presale
In the end, before investing money in an ICO pre-sale, you need to determine whether the coin mechanics make sense. Will the team release a lot of coins in the official ICO such that whatever you buy in the presale will get diluted to almost no value? Also, consider the lockup and vesting period.
Investors need to review the documentation for the coin release schedule that is normally a 4 to 10 year period. If developers are quick to dump their coins shortly after the ICO, the price will crash as they cash out their value.
Secondly, investors need to find out whether they will be locked into a holding period like the project’s developers. Also, the genuine coins have a vesting period that enables investors to get bigger profits in case they do not sell immediately after the ICO launch. Normally, if you find a vesting period, up to 80% of the value arises from the hold.
Tools like Pylon come in handy since they enable investors to deposit their money without worrying that the project will fail. Pylon ensures that the investor will not lose anything since they get all their initial deposit back, although the vesting period is long.
Through Pylon, the developers get money from the yield of the investor’s money on the Terra blockchain using Anchor I. Hence, if a project gets $10M in deposits and features 12 months of locking and vesting, they get $1.5M to launch their project from the Anchor yields. Therefore, the idea behind Pylon eliminates most of the risks associated with IDOs.
Important Steps To Participate In An ICO Token Presale
In the presale, a percentage of the available tokens is released to the early investors. If some of the tokes are unsold by the end of the ICO pre-sale, they are moved to the crowdsale.
An ERC-20 compatible Ethereum wallet is needed and should be compatible with the ERC-20 standard. Once the wallet is set up, the investor should transfer their ETH to a wallet of their choice, including Mist, Jaxx, and MyEtherWallet. On the day of the sale transaction, investors should prepare their Ether in advance for transfer.
The investors can then wait for the ICO pre-sale opening and follow updates from the developers to determine whether there are any last-minute changes. The exchange rate may change according to market fluctuations.
Once the presale opens, investors can transfer the amount of ETH they wish to contribute to the project using the provided address. Mostly, the token presale address is displayed on the verified official sources.
Thus, investors should avoid sending funds to addresses supplied by unofficial sources. Only use the ERC-20 compatible wallets mentioned in the project to make a successful transaction to invest in the ICO pre-sale.
Finally, investors need to check on the project’s news feed often to track the sale progress, mostly if they wish to buy more tokens later. After the presale closes, the crowdsale is held at a scheduled date.
Tips For Participating In The Token Presales
Investors need to keenly watch the exchange rate since it might change before the start of the sale as a result of significant market fluctuations. Thus, check these rates before acquiring the tokens.
Beware of phishers and fraudsters. Investors should check URLs, type the addresses or bookmark them to ensure that they are using the real address stated on the project’s official site. No genuine project asks investors to transfer ETH directly.
Never invest blindly. Always read the project’s whitepaper carefully to ensure that your money is going into a project that has enough potential to increase the token’s value in the long term. It is important to know that you are contributing to real projects that are not a scam.
Review the team behind the token presale to determine their previous experience. This check lets investors determine whether the team is trustworthy and competent to invest in their idea optimally. If the project proves to be genuine, it is advisable to participate in the ICO presale to get a good bonus once the official ICO crowdsale is launched.