Blockchain investment expert Nick Evdokimov has been operating in the blockchain sphere since far 2011, long before the new revolutionary technology attracted millions of enthusiasts, retail investors, and institutional money. He turned to this emerging field after his work in search engine optimization brought him success. Nick’s further accomplishments followed him as an investor, token designer, blockchain evangelist, fintech leader, and author of seven marketing books, including a textbook on contextual advertising for MBA students.
Nick is the founder of ICOBox, the world’s largest service provider for ICO solutions. With a total capitalization hitting $500 million, the company has generated more than $1 billion in ICO investments for its customers in 2018 alone. Basing on the acquired experience, he recently shared some of the insights into what makes a blockchain startup a worthwhile investment.
According to Nick, there are several things to look out for in a project’s white paper that will indicate which tokens will produce good returns. These are:
- Token economy
In other words, this is a blockchain startup’s business model, which just like any economy, relies on supply and demand. This way, if the startup produces a healthy amount of natural demand over speculative demand, it will be a success. According to Nick, in order to achieve this tokens should be placed at the center of a project’s functionality:
“There is a natural demand which is generated by the business itself, and an artificial one produced by speculation and various circumstances in the market. Natural demand is very important for us. The business should operate in such a way that tokens are its core element so that the company could transfer one hundred percent of its cash flow into the token economy. In this case, the business would buy up tokens with the profits it yields. So here tokens are a centerpiece, and this is important for us when we decide whether or not to invest in a startup.”
- Distribution model
Another important thing is the how tokens will be distributed. Before making a decision, investors should be aware of how much of a token’s supply is allocated to each party: the team, founders, advisors, and investors. This will determine the influence a project retains over the amount of tokens in circulation. In this regard Nick advises:
“One must always pay attention to how distribution programs are arranged. We should see that in the distribution program only a certain percentage of the tokens have been distributed among investors. It is necessary to pay attention to how the management of the remaining percentage of tokens is conducted. We can always assume that a good scenario is when the startup says that we will not sell off some part of the tokens during some time. For example, the startup keeps all tokens for itself and its advisors and founders during a year. In this case, it determines your priority right to sell off tokens.”
- Tools to reduce token circulation
Last but no least, given circulation reduction introduces scarcity, investors should understand a startup’s policy concerning the methods of reducing the amount of tokens in circulation. As the basic economic law states, the less tokens are available on the market, the more value one token has. Therefore, when natural demand for a token grows, the token’s price increases even more if supply is reduced. For Nick, this is crucial to pay attention to:
“You have to look at how much percent of its income is used to buy tokens and burn them. If this is the case, then you should perfectly understand that the startup emitting tokens cares about the interests of token holders.”
These are primary considerations when analyzing any white paper. Other considerations that are just as important are whether the market has a real need for the product or service, and how effective could the team be in developing it. Any blockchain startup worth investing in should have good answers to all of these questions.