Escrow is people or services that act as a trusted third party in a transaction between an investor and a project. They control the withdrawal of money after the completion of the ICO and transfer them to the project or return to investors.
Escrow can be translated from English as a conditional deposit of a money amount from a third party. On the Internet escrow-services work as follows: the investor’s funds are transferred not immediately to the project, but to the independent third party — the guarantor-service — and they are saved until the project fulfills the declared obligations. Only then the project team receives the funds.
What is the main function of escrow?
The main function of escrow is the proper provision of the obligations stipulated in the Whitepaper and Terms & Conditions of the project.
How does escrow work?
The funds are collected on a Multi-sig wallet, access to which is only available from escrow agents and teams. Usually 2 agents are assigned. The Escrow agent checks whether the project fulfills the requirements governed by promises, whether certain terms are observed, etc. If all requirements are met and obligations are fulfilled to investors, the start-up will be able to use the funds on the Multi-sig wallet. The money is issued in stages, for each period of the project.
An example of using Escrow
In practice, it looks like this: for example, the project within the ICO has raised $ 1 million. The business model implementation plan is divided into 10 periods. The first $ 100 thousand project receives from the Multi-sig wallet immediately after the end of the collection phase. Next, the escrow agent oversees the fulfillment of the stated conditions, the integrity of the issuing project, the compliance with the deadlines and, in the event of the successful completion of the plan phase, issues the next part of the amount.
If the project uses escrow, is it reliable?
The fact that the project has a mechanism provides additional protection. The team can not independently spend the collected money without the digital signature of the agent. Agents also decide whether the money collected during the ICO is spent properly.
What happens if the project does not collect the necessary amount for ICO?
If this is prescribed in terms of fundraising, the funds will be frozen, and then returned to investors.
How will the funds be returned, what mechanism of identification of investors and who specifically returns?
Typically, investors are identified with the help of the KYC system (with English Know Your Customer — know your customer). As part of the procedure, the investor provides a scan of passports, a communal account and other documents. The funds are returned by agents-escrow to specified investors’ purses.
Is it possible to invest in the ICO and to return the funds if you have deposited funds through an escrow account?
It depends on the project that conducts the ICO, and the conditions prescribed in the Whitepaper. Most often, funds can be obtained through escrow, if the project has not collected the necessary amount for the ICO, and the team is slowing down with development, that is, it does not fulfill its obligations.
Is the availability of an escrow 100% guarantee of investment safety?
Unfortunately, there is a great potential for fraud in escrow: this is only a tool, and it can be used for different purposes.