What is presale?
Presale refers to the early stage of a cryptocurrency or token sale, before the public sale. Developers hold a presale to raise initial funding and test demand for their project. Presales are open to a select group of investors rather than the general public. Buying presale gives you the chance to purchase tokens at a discount compared to the public sale price.
Why do projects hold presales?
There are several key reasons why crypto projects conduct presales:
- Raise initial capital – Presales allow projects to raise funds needed to complete development and launch their product/platform.
- Gauge demand – Presales give projects insight into market interest for their offering before holding a wider public sale.
- Reward early supporters – Presales reward early backers and crypto enthusiasts who believe in the project with lower token prices.
- Test tokenomics – Presales allow projects to model and test their token economics before full launch.
- Fund marketing/operations – Presales provide projects with capital needed to fund marketing, hiring, and other operational costs.
Overall, presales allow projects to bootstrap their network and community before having a large public sale and launch.
Who can participate in presales?
Unlike public token sales which are open to anyone, presale allocation is limited. Common criteria for participating in presales includes:
- Being an active community member/early supporter of the project.
- Holding a certain amount/tier of the project’s existing tokens.
- Having a history and track record of investing in similar projects.
- Getting an invitation or whitelist approval from the project team.
- Participating in the project’s contests and social media campaigns.
- Contributing to the project via content creation, bug reporting, etc.
Essentially, presale participants are selected from committed supporters and experienced crypto/blockchain investors who believe in the project early on. The limited allocation and participation criteria makes presales more exclusive than public sales.
What are the benefits of buying presale?
There are several potential advantages to getting into a project’s presale:
Lower token prices
The main benefit of buying presale is getting tokens at a significant discount compared to the public sale price. For example, a token with a public sale price of $1 may be available for $0.50 in the presale – representing a 50% discount. The token price is usually lowest in the earliest presale rounds and increases in later rounds as the public sale approaches.
Early liquidity rewards
Some presale formats like IDOs (Initial DEX Offerings) list the token immediately on decentralised exchanges (DEXs) after the presale. This allows presale buyers to start trading the token and potentially profit from early price movements and liquidity rewards.
Exclusive access
Participation in presale rounds requires you to be whitelisted by the project first. This exclusive access allows buying tokens ahead of the general public. Holding a project’s tokens early can lead to other benefits like governance rights.
Presale bonuses
Projects often offer bonuses like extra tokens or merchandise to participants in their presale rounds. These rewards add value on top of just buying the tokens at a discount.
Community participation
Joining a project’s community early allows presale buyers to contribute to the network, share feedback with founders, and help drive value and awareness for the project from the start.
Less risk of scams
Well-known projects with strong communities tend to have more vetted, legitimate presales. Strict KYC and onboarding for presales lowers the risk of fake projects or scams compared to public sales.
What should you look out for in a presale?
While presales offer great upside potential, you need to be careful when selecting which ones to participate in. Here are some factors to evaluate:
Legitimacy of the project and team
Research the project founders’ backgrounds, qualifications and track record of delivery. A project with an anonymous dev team should be viewed as a red flag.
Stage of project development
The project should have a testnet, MVP or proven progress so far. Be wary of projects doing a presale before they have anything substantial built.
Realistic roadmap and milestones
Look for detailed short and long term plans for development, launch, growth. Check if the team is hitting stated targets and deadlines consistently.
Network activity and community engagement
Look at the level of developer activity, user traffic and overall interest in the project’s social channels, forums, Discord etc. More engagement signals stronger community support.
Fair presale structure and terms
The token unlock schedule, vesting periods, early investor allocations should be reasonably fair. Make sure the presale price per token is justified relative to the public sale.
Utility and tokenomics
Evaluate if the project needs a token at all, and how much sense the economics like supply, distribution and burning make in the long term.
Competition and market fit
Research existing solutions in the niche and if there is a clear gap in the market the project is filling. Assess if the team has sufficient differentiation and competitive advantage.
How to participate in a project presale
The exact process to buy presale tokens will vary by project. But the general steps are:
Step 1: Get whitelisted
Whitelisting involves sharing your personal/KYC details and crypto wallet address with the project. You’ll need to complete any steps outlined by the project like joining their Telegram or Discord group.
Step 2: Wait for presale allocation
The project team will review whitelist applications and approve participants who meet their criteria. You’ll get notified if you successfully get an allocation in the presale round.
Step 3: Prepare funds
Have funds ready in your wallet to make the purchase when the presale window opens. You’ll likely need to hold the project’s native token to participate, or use an accepted currency like BNB, ETH, USDT etc.
Step 4: Buy tokens during presale window
Follow the link and process shared by the team to buy the tokens within the allotted presale time frame. Double check token amounts and wallet address before confirming purchase.
Step 5: Add tokens to wallet
After purchase, add the custom token to your wallet using the contract address provided so that you can view the new tokens.
Step 6: Wait for listing
Hold the presale tokens in your wallet until the public listing date when trading goes live. Many teams will airdrop bonuses before listing too.
What happens after buying presale tokens?
Here are some next steps to take after you buy tokens in a presale round:
Hold or trade tokens
Once the token lists, you can choose to hold your tokens long-term for potential appreciation, or sell some to take profits and get initial liquidity. Make sure to account for any vesting periods.
Earn staking, governance rewards
Many projects offer rewards like yield for staking your tokens, or governance rights for voting on proposals when you hold their tokens.
Track growth and development
Stay involved with the community and track the project’s progress towards their roadmap. Offer feedback and ideas as an early supporter.
Qualify for future rounds
Having a history of presale participation and holding a project’s tokens can qualify you for allocations in subsequent rounds as the project grows.
Claim airdrops and bounties
Complete any tasks like social media engagement to qualify for airdropped tokens or other bounty rewards before public listing.
Write reviews and share feedback
Share your honest presale participation experience online to boost awareness and build reputation as an early adopter. Documentation helps the project improve and educate others.
Risks and downsides to buying presale
While presales can be very lucrative, they also come with certain risks to consider:
Regulatory uncertainty
Presales happen directly between project teams and buyers, so may not adhere to securities regulations in some jurisdictions.
Liquidity risk
If there is low demand once the token lists, you may struggle to find buyers and exit your position at a good price.
Scam risk
Anonymous developers or fake presales can lead to rug pulls and losses. Always DYOR before sending your money.
Volatility and crashes
The crypto market’s inherent volatility can see tokens crash in value shortly after listing, erasing potential gains.
Vesting periods
Lockup periods restricting sales of presale tokens limit your ability to take profits or cut losses in the short term.
Project failure
There’s the risk of the project not succeeding long term due to issues in development, adoption or market fit.
Opportunity cost
Funds committed to buy presale tokens are locked up and can’t be used for other opportunities in the meantime.
Conclusion
When done right, getting into select presale rounds can be a high-reward investment strategy in crypto. You gain exclusive access to buy tokens early at a discount, reward early supporters, and benefit from network growth if the project succeeds long term. However, you need to be selective and cautious with presales to avoid scam risks and liquidity issues upon public listing. Overall, presales allow backing promising projects early, but require thorough research and an investor mindset comfortable with risk.