Been doing some research on ICO (initial coin offerings) coins, assets, and companies. And I just realized right now there is nothing stopping the initial stake holders from putting in their own money or Bitcoins into the ICO and then paying themselves back with either a high salary or some other means that look legitimate.
In effect, it would make the ICO look as if it was well funded fooling everyone else into funding the project.
The only way to defeat this type of shenanigans is by having transparency and seeing where all the money came from. If one can track down where most funds are coming from we can avoid these shenanigans.
I'm sure down the line regulation will encapsulate this funding technique eventually and bust everyone that has done this. So its best to stay anonymous if anyone is doing this type of marketing tactic.
Technique seems to be:
- Show a very promising technology thats on the way.
- Code up something that seems like it works.
- Ask for funding and give investors a higher % of return.
- Show that you raised millions of dollars to prove large stakeholders are onboard.
- Pay investors back a large % of their money.
- Pay yourself and your friends a large salary to get your initial funds back.
Not a scam necessarily, but one can see it as a very smart marketing tactic. But end result is the uninformed public is left with the bag.
I wonder if all the ICO related companies or devs did this. It's very tempting i'd imagine.
The basic idea is the same as running a crowdfunding campaign where you ask for $1000, but you were only able to raise $700 and its your last day before the campaign ends. What do you do!?!? Put in your own $300 of course just to get the $700 from everyone else. Which is fine for small potatoes like that, but what if it involved millions of dollars? Is it still fair anymore? Or was the public fooled?
Now the question is which ICO's could have executed such a marketing technique to a large extent? Not naming names, its just something i recently realized of how profitable an ICO can be if executed properly.