Although the cryptocurrency market, and hence the ICO sector is growing rapidly, some ICOs are experiencing extreme price drops and negative hockey sticks. That could be due to so-called unfair advisory deals.
Advisory deals: How consultants are remunerated
Advisory deals are not a bad feed model for ICOs: the project’s consultants are rewarded not in fiat currencies, but in the token that is issued as part of the token. While this model may create a certain interest on the part of the consultants to really make the project a success.
Special deals for influencers
Nonetheless, advisory deals are exploited and serve merely as a cover for other types of business. This will hire influencers as advisors. In fact, they are not really advising the project, but are giving the project a certain edge in marketing through its role as an influencer. Again, this is not a reprehensible principle when ICOs use influencers to promote the project in marketing terms. After all, it’s similar to stock market or football stars promoting products and projects.
However, it is critical that the compensation model is based on enormous discounts. As it is speculated, influencers receive tokens with a discount of 80% or even 90% on the regular ICO price. The usual investor is thus subject to these investors enormously, because he enters on normal terms without discount.
Why Influencer Deals Lead to Hockeystick Trajectories
Depending on the extent to which these deals take place, this may lead to hockey stick trajectories of token values due to the market power of the influencers. This means a course that resembles a hockey stick, so a very steep course, which then reaches a plateau. The reason for this is the fact that investors who have entered into a huge discount may only be interested in short-term investments. If these sell their tokens to take quick profits, they are far superior to other investors. Because: If you have received the tokens with a discount of 90%, then even with a sale at 50% of the official price an acceptable profit remains. For ordinary investors, this results in a huge loss because they have entered on worse terms.
How do I recognize evil influencers?
Recognizing projects that use this method is very complicated. Finally, the use of influencers as a marketing tool is not per se to be rejected. Therefore, it is difficult to distinguish between “good” and “bad” influencers from the outside. The only way to sense suspicion is to scrutinize the advisory roles: can the counselors provide real guidance through their skillset and experience, or does the composition give the impression that the advisor role serves as a compensation model for other activities? In addition, it may be observed that some people are often involved as advisors in various projects – then it can be based on past ICOs to check in certain dimensions, whether the above-mentioned course indicators have occurred.
In fact, it has already happened that an ICO has uncovered this practice and even confirmed the allegations made by the team. Not least, the Financial Times reported.
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