Initial Coin Offerings (ICOs) Flashcards
7 cards from real CCE practice questions. Tap to flip, then mark Knew It or Still Learning — missed cards come back until you master them.
Read the first 7 Initial Coin Offerings (ICOs) flashcards as text
What is a 'pre-mine' in the context of cryptocurrency ICOs, and why can it be controversial?
Answer: When a project's founders create and allocate a large percentage of tokens to themselves before the public sale
Pre-mining involves allocating tokens to founders before the ICO, which can be controversial if the percentage is large, as it dilutes public investors and creates misaligned incentives.
What is the significance of 'Regulation S' for ICO issuers targeting international investors?
Answer: It provides a safe harbor from SEC registration for offerings made exclusively to non-US persons outside the United States
Regulation S exempts securities offerings from SEC registration when sales occur outside the US to non-US persons, which is why many ICOs blocked US IP addresses.
What is a 'decentralized autonomous organization' (DAO) in the context of ICO-funded projects, and what notable incident highlighted its risks?
Answer: A blockchain-based organization governed by token holders via smart contracts; highlighted by The DAO hack in 2016 where $60M was drained
The DAO was a landmark ICO-funded decentralized organization that suffered a $60M exploit in 2016 due to a smart contract reentrancy vulnerability, leading to the Ethereum hard fork.
What does 'token velocity' mean in token economics, and why is high velocity generally considered negative for token value?
Answer: How frequently tokens change hands in transactions; high velocity means holders spend rather than hold, reducing demand and price
High token velocity means tokens circulate rapidly without being held, reducing the demand needed to sustain price — a fundamental challenge for pure utility tokens.
What was the approximate total amount raised by ICOs at the peak of the ICO boom in 2018?
Answer: Approximately $7.8 billion
ICOs raised approximately $7.8 billion in 2018, making it the peak year for ICO fundraising before regulatory crackdowns and market downturn significantly reduced activity.
Which of the following best describes 'anti-dilution protection' that sophisticated ICO investors sometimes negotiate?
Answer: A provision ensuring early investors receive additional tokens or adjusted prices if future rounds sell tokens at a lower valuation
Anti-dilution provisions protect early investors by adjusting their token allocation or price if subsequent funding rounds occur at lower valuations than their investment.
What is the primary risk of investing in an ICO project that lacks a 'minimum viable product' (MVP) at the time of its token sale?
Answer: Investors are funding a concept with unproven technology, increasing the risk that the project never delivers its promised platform
Without an MVP, investors have only promises and a whitepaper, making it extremely difficult to assess technical feasibility and significantly increasing the risk of total loss.