New investors who want to get in early on a new cryptocurrency will usually opt for crypto presales. This is because presales offer the promise of buying tokens at discounted prices before they are listed on public exchanges.
Any newcomer to the scene might have heard that crypto presales are the way to go, but there may still be questions like how these presales work and what a new investor should watch out for. We answer those questions.
What is a Crypto Presale?
A crypto presale is a fundraising event that happens before an initial coin offering or token generation event. It occurs when a blockchain project sells tokens to early investors, often at a discounted price. They do this to raise capital and start a conversation about the token publicly. A good example of this is the Bitcoin hyper presale. They advertise the first Bitcoin layer 2 chain, which is going to be the fastest in Bitcoin history, and already, many articles have been written and conversations have been struck to get the news out there. In the world of startups, the equivalent would be seed funding. Once the money is there, the developers will use it to build the product, expand the team, or cover marketing costs. In return, early investors get tokens in the hope that they will rise in value once the project launches publicly.
The Structure of a Presale
A key thing to note about presales is that they aren’t all the same. Each team and project has a different approach depending on their product and the target market, as well as the expectations that they have. Some of the different presale structures you’ll find include:
Private vs. Public Presale
Typically, presales often come in two phases. The first is the private presale. Here, there is limited access, and only venture capitalists, early backers of the project, or whitelisted investors can participate. Others might not even know about it. At this time, the tokens are sold at the lowest prices. The public presale will usually happen some time after the private one. Most anyone can participate, although there could be KYC checks and regional restrictions.
Token Pricing
Presale token prices are usually below the anticipated market price. The goal is to gain a lot of early support and having the same prices in the presale as when the token is now on the market is counterproductive. Some presales have multiple rounds, each with a slightly higher token price. Investors are then pushed to buy in early as the rewards will be much better.
Hard Cap and Soft Cap
Any fundraising event has a target. There is a certain amount that is needed, and all the work is put in to ensure that the target is reached. A soft cap is the minimum amount that the project needs to move forward. If it isn’t reached, funds might be refunded. A hard cap is the maximum amount the project is willing to raise during the presale. Setting a hard cap matters because, as a project is starting, teams will want to create trust and build good working relationships with investors.
Vesting Periods
Some investors have, in the past, tried to sell all their tokens as soon as the currency went to market. To avoid this, tokens bought in presales are now often subject to vesting schedules. Investors will now get only a portion of their tokens immediately, and the rest are unlocked gradually over weeks or months. This helps to protect the token from tanking at launch.
How to Participate in a Presale
If you’re considering being part of a presale, there are a few guidelines to follow.
Step 1: Do Your Research
Read the whitepapers and look up any information you can about the team behind the token. Check their social media presence for detailed information. If there isn’t any real information about the token or if the team is anonymous, you may need to be cautious.
Step 2: Join the Whitelist (if needed)
Once your research is done and all is in order, you can opt to join the whitelist. Some presales require you to sign up in advance, and they will have strict KYC checks for you to go through to be let in.
Step 3: Set Up a Wallet
Most presales ask for payment in cryptocurrencies like Ethereum, Binance Coin, or stablecoins. You’ll need a crypto wallet that supports the project’s blockchain.
Step 4: Send Funds and Receive Tokens
Once the presale opens, you send funds to the project’s smart contract address. In return, you receive the project’s tokens, or a placeholder token that will later be swapped for the real thing. Always double-check the address and make sure you’re using the official site. Scammers often create fake presale sites.
Conclusion
Crypto presales offer a chance to get in early, but they come with a lot of risk. For every success story, there are countless flops and scams. If you’re thinking about joining a presale, do your homework, understand the risks, and don’t let hype cloud your judgment.
