Are ICO ratings important?
The number of ICO-projects continues to grow, and so does the number of people willing to invest in them. However, beginners find it difficult to figure out which projects are worth investing in, and which ones are not. Just like in traditional industries, the rating of an ICO should be an indicator of the project's reliability and promising outlook. It would be logical if projects with high ratings raised more funds. However, this is not always the case.
First of all, it should be noted that the market of rating services for ICO is quite monopolized. The situation is similar to traditional rating agencies, where the main role is played by the "Big three". Similarly, in blockchain industry, there are four leader agencies are singled out, which estimated approximately 3,000 to 4,000 projects. Although there are over 40 rating agencies in total, the overwhelming majority of them rated a significantly smaller number of projects - no more than 1000. Thus, only a few agencies form the market picture, and this can negatively affect the general awareness of investors about the project.
Having analyzed the ratings of the top-20 projects by money raised (10 projects in 2017 and 10 projects in 2018), TFH AI analysts concluded that such projects got high ratings from agencies only in 50% of cases, which did not prevent them from raising up to $ 250M. At the same time, projects that managed to get high rating raised on average about 1,5 times less funds. It turns out that the rating of the project wasn’t really taken into account by investors when they were selecting an investment object.
In the case of scam projects, the rating does not correspond to the amount of funds raised, too. Among the projects that were rated low, there are not only those that raised as much as $90M, but also the projects that later turned out to be quite successful and brought substantial returns to their tokenholders.
Apart from weak regulation and immaturity of the industry, the reason for this paradox may be as follows. Most of the parameters that agencies rate is standard (team, transparency of the project, MVP, roadmap, etc), but the evaluation procedure itself is not transparent. The role of expect’s ratings is great, which can be very subjective and even biased. What is important, no agency uses automated rating with clearly defined criteria for each parameter. There are several agencies that use bots, but for the most primitive check-lists, and not for a full evaluation of the project. Perhaps the use of data analysis techniques, including natural language processing and machine learning, and more transparent evaluation criteria, could increase the credibility of rating agencies and their role in the crypto industry.
To sum it up, the ratings of ICO-projects do not always correspond to reality. In 2008, inadequate ratings led to the collapse of financial markets, and in order to prevent such a situation in the ICO market, it is mandatory to improve the rating methodology and make it as automated as possible.