Crypto Pre Sales 101: Understanding the Basics Before Investing

Crypto presales are a type of fundraising event where new cryptocurrency projects sell tokens or coins to a select group of investors before the public launch or initial coin offering. Presales provide vital early-stage funding for new cryptocurrency projects, allowing them to kickstart development and operations. Historically, some presale investments have resulted in gains of x1000 or more for early investors. Before investing in presales, there are a few factors investors need to consider.

How Crypto Presales Work

A crypto presale provides a way for new projects to raise initial funding and build a community of early supporters while offering investors the opportunity to purchase a token at a discounted price before the public launch. So how does it work?

Project Initiation

New crypto projects create a whitepaper that outlines the vision, technology and roadmap. The project team will determine the presale details, like the token distribution, eligibility criteria, and pricing.

Presale Launch

Presale launches offer investors the opportunity to purchase tokens at a discounted rate. This early access can potentially lead to substantial returns if the project is successful. For instance, the Dogeverse presale launched in April this year, and has raised over $10 million, surpassing its $17 million hard cap. The rapid progress in the tokens presale reflected strong investor demand and interest in the crypto project.

Token Distribution

Once investors review the project’s whitepaper and purchase the project’s tokens, after the presale ends, these tokens can be traded, held, or used after the initial lock-up period. If the project is successful, the value of the presale token could potentially increase significantly, leaving investors with potential gains from their discounted tokens.

What is the Difference Between Crypto Presales and Initial Coin Offerings

Although crypto presale and initial coin offering are used interchangeably, there are a few differences between them, such as timing, investor access, and more. With regards to the timing, crypto pre-sales happen before the main ICO at discounted prices. ICOs, on the other hand, are the public sale of the token.

Additionally, presales are often limited and only a small portion is available to a select group of investors, whereas an ICO is a public offering, which means anyone who wants to can invest and buy the tokens. Furthermore, the purpose of an ICO and crypto presale differs. ICOs are considered public fundraising events, and presales help the project raise the initial funds to generate hype before the ICO. Understanding the difference is important since presales are exclusive compared to the subsequent public sale of a specified token.

6 Factors to Consider Before Investing

Before investing in a crypto presale, several factors must be considered to help make an informed decision and reduce risks.

Crypto Project Vision and Overview

It is vital to understand the cryptocurrency project’s goals and the problem it is trying to solve before investing. Consider the long-term vision and roadmap of the project. For instance, Diverse is designed to launch and operate simultaneously on six different blockchain networks, including Solana and Polygon. Slothana, on the other hand, is built on the Solana blockchain. Diverse and Slothana’s goal is to optimize costs and speed for users. However; Dogeverse has the added ability to improve accessibility and cross-chain compatibility. So, looking at the crypto project’s vision can help you decide which presale token is worth investing in.

The Technical Details

Evaluate the technical feasibility of the crypto project’s underlying blockchain technology and architecture. Understand the project’s approach to addressing the following:

Scalability: How does the project address scalability issues? Does the project have solutions such as layer-2 protocols, like Polygon or Lightning Network, side chains or off-chain scaling?
Security: Assess the project’s security measures and protocols. Look for features such as multi-signature wallets, encryption, and how they safeguard against potential threats and vulnerabilities.
Consensus mechanisms: A consensus mechanism is a protocol used to achieve agreement among participants in a decentralized network. Assess whether the project has proof of stake or proof of work. The consensus mechanisms used in blockchain networks will depend on the specific goals and requirements.

Tokenomics

Analyze the token distribution, supply, and allocation mechanisms, as well as the token’s utility, use cases, and potential for value appreciation. Using Dogeverse as an example, their total token supply is 200 billion $DOGEVERSE tokens. Already, 15% of the total supply has been allocated for the presale, allowing early supporters and investors access to the tokens.

Now, 10% of the total supply has been dedicated to staking rewards, and 25% has been set aside for marketing efforts. Another 10% has been reserved for ecosystem funds which will be used to establish new partnerships, and the remaining 5% has been allocated for liquidity on exchanges.

The distribution of tokens among various stakeholders can affect market sentiment. The total supply of tokens determines scarcity and inflation pressures. How the tokens are allocated provides insights into the project’s priorities, growth strategies, and sustainability. Projects like Dogeverse with strong tokenomics are more likely to withstand market fluctuations and generate returns for investors.

The Team Behind the Project

Assess the team behind a crypto project. Look at their experience, expertise, and track record. Look for information about their previous projects, industry expertise, and track record of delivering on promises. A team that is not responsive to their community, comes across as a team that lacks credibility.

Community and Partnerships

Analyze and look at the project’s community engagement, social media presence, and overall market sentiment. Monitor their engagement, discussion, reviews, and feedback from other investors. Additionally, identify strategic partnerships or collaborations that could ultimately validate the project’s legitimacy.

Legal and Regulatory Considerations

It is crucial that investors understand the regulatory landscape governing cryptocurrencies and token sales. Determine whether the presale token qualifies as securities, if so, these tokens are subject to securities regulations (SEC regulations). Additionally, many jurisdictions require crypto projects to implement Know Your Customer (KYC) and Anti-Money Laundering (AML) regulations. This is to prevent fraud and illicit activities.

Finally, before investing, do as much research into the specific legal framework in the jurisdiction where the presale is being conducted. For example, if you enjoy crypto poker games online, you invest in a token, only to find that the token is in violation of regulatory restrictions. Doing your research is vital to identify tokens that lack regulations making you vulnerable to scams or fraudulent activities.

Red Flags to Watch For

Crypto presales investors have fallen foul to scammers in the past. Some notable presale scams include using Cloudflare hosting and fake news articles. To prevent falling prey to fraudulent presale scams, here are a few red flags to avoid:

Lack of Transparency: Presales with limited information about the project, team, or roadmap are a major red flag. The anonymity of the development team or unverifiable credentials are signs of potential scams.
Unrealistic Promises: Presales that guarantee or promise unrealistically high returns with little to no risk should be avoided. Exaggerated claims about partnerships, technology, or future performance are common tactics used by scammers.
Absence of the Project’s Whitepaper: Legitimate crypto projects typically have a well-defined whitepaper and development roadmap. Presales with incomplete or vague information about the project’s technology, goals, and plans are a red flag.
Lack of Security Audits: Presales that do not have their smart contracts audited by reputable security firms are riskier investments. The absence of clear security measures and compliance with regulations should be avoided.

Tags: crypto