The presence of escrow increases the degree of investor confidence in the project. However, many successful ICOs did not use escrow.
As we discussed in the previous article Escrow is people or services that act as a trusted third party in a transaction between an investor and a project.
Here are several FAQs about Escrow for those who organize ICO campaign.
What should I look for when choosing escrow agents?
You need to read reviews about agents or services, look at their pages in Bitcointalk, Linkeldn, study with which projects they worked before. It must be a person or service whose reputation is impeccable. This is a paid service, its cost is about 3% of the project fees.
Will not escrow hinder the development of the project?
When issuing an escrow, the funds are on the account and are issued to the project in stages, as steps are taken in the Roadmap. You cannot use the whole amount at once, so immediately take this into account in planning your finances.
Can escrow agents disappear with collected funds?
If agents doubt the integrity of the project and the fulfillment of all conditions, they can temporarily freeze funds. In this scheme, the unscrupulous agent cannot independently use the money from the account of the transaction; He needs another key (second agent or project developers). This does not negate the possibility of collusion, so the choice of escrow agents should be approached with caution.
What happens if one of the escrow agents loses the key to the wallet?
Usually, the key to the purse is in two escrow agents, as well as with the developers of the project. Sometimes more keys are issued for reinsurance.
How is the process of approving transactions through escrow?
When the project has fulfilled the stated conditions, the team informs the agents about it, and the agents sign the transaction for transferring money to the project account with their key. The project’s founders still have to sign the same transaction with their own key, and then the network will consider it complete, and the money will go to the wallet.
How to negotiate with escrow-agents about the delivery of funds from the wallet?
The project developers together with escrow agents make a plan for transferring funds from the multi-sig wallet to the project account in accordance with the developed project implementation stages specified in the whitepaper and roadmap.
Is it possible to change the conditions for issuing funds after an agreement with escrow agents is reached (increase the amount, reduce the time frame, etc.)?
If the conditions are spelled out in a smart contract, then, as a rule, you cannot change the terms of the issuance. If we are talking about agents, the conditions can be revised and an additional agreement is created for the contract with the agents.
Is there an automatic escrow system that eliminates the human factor?
One of the new ways to protect investors with assets that were sent to the issuer under the ICO is a decentralized escrow. This method eliminates the risks associated with the dishonesty or lack of security of a particular person used as an escrow agent.
How is the protection of funds when using decentralized escrow?
In the case of a decentralized escrow, the owners of tokens themselves control the redistribution of tokens by the majority of votes, take and execute decisions on the future fate of the assets (continue financing the project or stop it, or generally make a return on investment in case of complete loss of confidence in the issuer).