SwissBorg Alpha: Navigating the Workings of Early-stage Investments

• What is an early-stage investment in cryptoassets? A project (often in the crypto industry) is looking to raise funds to develop its services by issuing new tokens that can be purchased by investors (professional or retail). In general, the fundraising happens in several stages, where early investors get a discounted price for the tokens. Once issued, the tokens are generally not listed on any exchange, which means that investors are not guaranteed to be able to resell the tokens immediately and might have to wait until the project develops and matures.

In short: Early-stage cryptoassets investments typically involve acquiring unlisted tokens from brand-new projects, offering unique opportunities at a higher level of risk.

• Regulation of early cryptoasset investments: Early investments in cryptoassets frequently occur in jurisdictions where token issuance is not regulated, increasing investor risk due to the lack of clear regulations and lack of investor protection.
• Regulatory requirements for early-stage projects: In the jurisdictions where token issuance is regulated, early-stage projects must comply with specific frameworks. These frameworks are designed towards protecting investors, and may require an array of information, usually contained on an official document called “white paper”. Investors may consult the white paper to understand in detail the inner workings of the product, the team members, the issuance of the token, and the possible governance rights that such tokens may award the investors with.
• Regulatory approval and investor trust: In some jurisdictions, a regulatory approval can be given upon the release of a white paper, indicating a crypto project's compliance with legal standards, enhancing investor trust and security.

• How should you approach an early-stage investment? Carrying out thorough due diligence, including researching the project’s team, roadmap, market size, traction, and fundamentals, is vital for early-stage crypto investments.
• How should you handle investments in new crypto projects? Evaluating a new project's white paper, use case, and underlying technology is essential to understand its potential and risks.
• How is an investment in early-stage cryptoassets different from purchasing traditional shares? Rights attached to cryptoassets typically differ from those attached to traditional shares. The rights attached to shares are defined by law (such as voting rights or dividend rights), whereas, rights attached to a token are defined solely by the token issuer (the project). To understand the rights attached to early-stage cryptoassets, you therefore need to carefully read the white paper.

• What should investors note when investing in early-stage crypto projects? Early-stage crypto projects are inherently higher risk, with the potential for high rewards, but also total loss due to their speculative nature. High volatility and potential for significant losses are common in early-stage crypto investments due to the lack of maturity of the project.
• What is a vesting schedule? Vesting schedules are time frames over which the tokens you have purchased are distributed to you, in periodic instalments. This means that you do not receive your tokens right after your investment, but over a pre-defined time period. Token distribution schedules are critical in early-stage projects, impacting value and potential return.
• What is the rationale of vesting schedules in crypto investments? Vesting schedules, like a 1-year cliff, prevent immediate selling and promote long-term investment strategies: investors need to be involved in the project and not looking for pure speculation. Vested token distribution aligns investor interests with the project's long-term success.
• Vesting schedule risk: A scheduled distribution of tokens means that the investor faces the risk of seeing the project suffering from internal or external fraud or even going bankrupt, becoming so unable to distribute the rest of the tokens.
• Liquidity of unlisted or low-cap cryptoassets: Unlisted or low-cap (a project with a small market capitalisation) cryptoassets generally have limited or nonexistent liquidity due to the absence of right-at-hand buyers, potentially leading to slow sales or reduced prices.

• Managing portfolio and reacting to losses: Diversification is key to managing a crypto investment portfolio and mitigating risks associated with market volatility. Not putting all your eggs in the same basket is an essential rule for any type of investing, and it becomes even more relevant when managing high risk investments such as cryptoassets. 
• Choosing projects that ensure protection of the investors’ assets: Separating investor funds from the company’s own treasury is essential for safeguarding against operational and insolvency risks. This healthy practice is often called “segregation of funds”.
• Picking a project that has processes in place to mitigate risks: Operational transparency and regular financial audits are effective strategies to mitigate risks in crypto projects. You should aim for projects that communicate transparently about their organisation and internal processes and, if possible, are being audited by reliable experts.  
• Having a good understanding of the rights attached to the tokens: Assessing rights and ownership, often limited for token holders, is crucial in early-stage investments.
• Avoiding emotional attachment to a project: Getting emotionally attached to a project might obfuscate an investor’s judgment, leading to miscalculations, to stake excessive amounts, to overlook possible red flags in the organisation, to experience FOMO (fear of missing out), and henceforth to hefty financial losses. 

• Promotion of cryptoasset investments: Ethical standards in promoting cryptoasset investments require communication to be fair, clear, and transparent, avoiding any misleading message. This is to ensure that you receive reliable and balanced information (e.g. highlight of the risks and not only the benefits). 

Conclusion: Success in early-stage cryptoasset investments requires understanding the risks, regulatory landscape, and the need for thorough due diligence and strategic consideration. As a rule of thumb, invest only in what you understand, stake only what you can lose, and take one extra moment to make sure you are not driven by FOMO.