What is an ICO Pool?
Last Updated: 1st November 2018
An ICO pool is a collection of investor funds, pooled together with the sole intention of investing in an ICO. Pools are typically overseen by a group of individuals who manage the contributions made by each investor. Upon the participation of an ICO pool, investors are typically then given access to the pool’s research, giving them the opportunity to assess the quality of any ICOs for themselves.
ICO pools can take on two distinct forms:
- Trustless Pools
- Non-Trustless Pools
Trustless Pools use smart contracts to ensure that no party has direct control over investors' funds, which consequently, requires no trust to be placed in the individuals managing the ICO pool. Ether is sent to a smart contract address which displays the recipient ICO address, as well any other important piece of information. The smart contract is open-source, and thus investors can review its validity before sending any funds. Once the pooling process is complete, the Ether is sent directly to the ICO’s Ethereum address, with investors then receiving the ICO tokens in proportion to their initial investment.
Non-Trustless Pools do not utilize smart contracts, but instead mandate that the collection of investor funds be done by pool managers. Investors send funds to an Ethereum address specified by the pool mangers, who then have the responsibility of sending those funds to the ICO address. It is the responsibility of the pool mangers to then redistribute the received tokens to the correct investors.
ICO pools are a response to a growing trend of ICOs deciding to raise their required investment in what are known as, private presales. Private presales are closed to the public and are exclusively only open to Angel investors or venture capitalist firms, i.e. individuals or institutions who can afford to invest a large sum of money.
Many ICOs are choosing to suspend their public sale, which occurs after the private presale, due to being able to raise the required investment in the presale stage. As a result, many retails investors are finding that they are unable to invest in a project of their interest. Therefore, by participating in an ICO pool, a retail investor can instantly increase their bargaining power by aggregating funds and investing along side other individuals.
As ICO pools are simply an aggregation of investor funds, ICOs are starting to offer pre-sale discounts to any pool that may be interested in investing their project. Therefore, it is likely that a retail investor may receive more tokens investing an ICO pool, as opposed to investing on their own.
Pros & Cons of ICO pools
- Access to pool resources
- Potential ICO discounts
Access to pool resources – Depending on which ICO pool you join, investors are usually granted access to pool research in order to allow them to evaluate the merits of the pool’s target ICO for themselves. In addition, participants of the pool are able to deliberate amongst themselves as to the quality of an ICO, therefore improving the decision-making process.
Potential ICO discounts – As mentioned before, due to the large sums of money an ICO pool can raise, some ICOs are incentivizing investment into their project by offering discounts. Such a discount would not be available to retail investors, and as such, it may be beneficial for an investor to participate in an ICO pool if their sole goal is to maximise their tokens under ownership.
- High risk
- Non-Trustless Pools require trust
High risk – Investing in ICOs is high risk, and such a risk is further compounded when the investment medium used is an ICO pool. In the case of a trustless pool, guaranteeing the validity of a smart contract is not necessarily a straightforward process for those who are non-technical.
Non-Trustless Pools require trust – An investor must place faith in the pool management team that they will send the Ether to the correct address, as well as consequently redistributing those ICO tokens to the correct investors. It would be a straightforward process for pool managers to violate the trust placed in them by investors, and instead used the Ether, or token, for personal gain.
Participation in ICO pools have the potential to be lucrative, however, they do not come without their own risks.
It is always encouraged that investors thoroughly do their own research prior to participating in an ICO pool.