What Is a Crypto Presale and How Does it Work?
Crypto presales helped launch some of today’s leading crypto projects, including Ethereum, the second-largest cryptocurrency by market capitalization. But what is a crypto presale, and how does a presale work? In this guide, we’ll explain crypto presales as well as how they fit into the big picture for investors and project teams.
Crypto presales serve as a fundraising method for crypto projects, allowing early investors to buy tokens prior to launch and providing funding for the project as well as marketing efforts for the upcoming initial coin offering (ICO).
Key Takeaways
- What does presale mean? Presale in the cryptocurrency sector relates to a brief window in which tokens are sold at a discounted price for early-bird investors. Think of it as crowd-funding but for new crypto projects.
- Presales offer ground-floor buying opportunities with potentially outsized gains.
- A lack of regulatory clarity creates uncertainty for both projects and investors.
- Risks for crypto presale investors include scams and the inability of projects to compete.
What are Crypto Presales?
Ever wondered what is a presale in crypto? A crypto presale is a funding tool for new crypto projects. Typically, the team details the project plan, often including a white paper explaining the project’s mechanics as well as the problems it solves.
Interested investors then purchase the project tokens, typically using another cryptocurrency as the funding method. For example, Ethereum’s presale in 2014 exchanged one bitcoin for 2,000 ether (ETH). The exchange rate decreased over the 14-day presale, ending at one bitcoin for 1,337 ether.
Based on prices at the time, early Ethereum investors purchased pre-mined ETH for under $0.30. By 2021, ETH hit an all-time high of nearly $4,900.
Presales represent one stage in the process of launching a cryptocurrency, and not all projects use the tool. Crypto presales are often offered to a select group of investors, with an ICO coming later, opening up token sales to a wider audience.
Early-stage crypto projects often have limited resources for development. A presale offering helps to bootstrap the project while also providing a potentially outsized profit opportunity for early investors.
Risks Associated with Crypto Presales
By definition, presales involve unproven projects. While a project team may detail their plans for the crypto project, there’s no guarantee that the team will execute well on those plans. However, there’s also the wild card to consider: luck. Dozens, perhaps hundreds of crypto projects, solve similar problems, but only a handful go on to become leading crypto tokens. Investors face a risk that the tokens may not have any meaningful value.
Time represents another risk. Even if a project is ultimately successful, the money invested by buying presale tokens may have performed better elsewhere. As another consideration, presale tokens may come with a lockup or vesting period, meaning that you may not be able to sell right away. After launch, prices could dive with no way to exit.
Sadly, there’s another possibility. The presale may be a well-marketed presale scam. The mechanics of presales typically require investors to purchase presale tokens with another cryptocurrency. There’s a possibility that the tokens will never be delivered to your crypto wallet — or that they will be worthless because the project is not as initially described. The term rug pull aptly describes this scenario, and in the largely unregulated global crypto market, rug pulls have become commonplace.
Also, beware of imposter sites. Scammers sometimes create a lookalike portal to mimic a real presale site.
Pros and Cons of Crypto Presales
Presales provide early access pricing. However, prices could fall following the ICO. Additionally, the US Securities and Exchange Commission (SEC) has charged some projects, such as LBRY, with the sale of unregistered securities due to their token sale. LBRY tokens that once reached an all-time high of $2.50 now trade for a fraction of a penny. Weigh the pros and cons carefully.
Pros
- Early access at ground floor prices
- Discounts may be up to 50% off ICO launch prices
- Provide funding for promising startup projects
- Potentially higher returns compared to ICO purchases
Cons
- Token prices may fall after launch
- Buyers face a sometimes complicated process for buying and claiming tokens
- The presale space is rife with scams and rug pulls, but also well-intentioned projects that can’t deliver as promised
- Regulatory concerns
Crypto Presales Roadmap
A presale, sometimes called a pre-ICO, typically marks the first step in the distribution process for new tokens. Often, presales use stages to measure how much of the presale inventory has been sold or to mark fundraising progress. Token prices may increase as the presale reaches a new stage.
However, many token launches follow a similar pattern, starting with the presale and ending with an ICO, IDO, or IEO.
Stage 1: Presale (Pre-ICO)
Presales may be limited to select investors or may only be available through a special portal where you buy tokens to be distributed after the presale ends.
Stage 2: Pre-ICO Marketing
Often, a presale serves as a way to gauge interest and raise funds for marketing the ICO. The additional exposure can help build buzz around the ICO, possibly boosting prices through increased demand.
Stage 3: ICO, IDO, or IEO
Following the presale, projects have the option of launching through an ICO, using a similar portal to buy and claim tokens. However, projects can also launch through a decentralized exchange by creating a liquidity pool (IDO). As another option, projects can launch through an exchange using a launchpool program.
Regardless of which method a project uses to distribute the initial token supply, many legitimate projects will also work to gain exchange listings on top-tier centralized exchanges like Binance and Coinbase. As the tokens reach a broader market, prices may rise faster than if only available through decentralized exchanges.
How To Find Presale Cryptos
If you’re looking for projects to consider and where to buy presale crypto, Cryptonews has already compiled a list of crypto presales you can review. Similarly, you can evaluate Ethereum ICOs. An ICO typically follows a presale in the launch process. However, there are other sources you can use to research ground-floor opportunities for new projects.
- ICO Drops: The ICO Drops site provides a calendar of active and upcoming ICOs.
- PinkSale: The Pinksale site lists presales and IDOs. The site also indicates whether the project team has passed KYC (Know Your Customer) identity verification. This step can help investors avoid scams and rug pulls.
- CoinMarketCap: Famous for its coin stats, CoinMarketCap also provides an ICO calendar. Many of the listings are for IDOs, initial DEX offerings. In this type of launch, the token is first offered through a liquidity pool on a decentralized exchange.
- Crypto Twitter (X): Twitter remains a hotbed of activity for all things crypto, including presale chatter and ICO announcements. Consider who is promoting the project and their reputation in the space.
- Exchanges: Some crypto exchanges, such as Binance, Bybit, and MEXC, offer launchpad programs for IEOs, initial exchange offerings. In this case, the new tokens are often exclusive to a particular exchange during the IEO, giving investors a chance to buy before the project tokens reach wider markets.
Regardless of which platforms you use in your hunt, do your own research as well. Earlier, we discussed potential scams in the space. It’s trivial to make a professional website that could potentially bilk millions from bargain-hunting investors.
Ideally, the team behind the project has provided their identities, which you can then research further to determine if they have the skills to make the project a success. However, this often isn’t the case, and the top protocol in the crypto world, Bitcoin, was created anonymously.
How Can Someone Participate in Crypto Presales?
If you’re buying through a launchpad program on an exchange (IEO), participation rules differ. For instance, you might need to stake a token like BNB to earn the new token. However, most direct or hosted platforms require users to connect a crypto wallet and make the payment in a preselected cryptocurrency like ETH or USDT.
- Connect your cryptocurrency wallet. Choose a supported crypto wallet. For example, MetaMask supports several popular Ethereum-compatible protocols. However, for Solana-based tokens, you’ll likely need a Solana wallet such as Phantom or Solflare.
- Choose the correct network. Some portals may support multiple networks, and possibly even Layer-2 networks like Arbitrum or Base. Select an appropriate network based on fees and where you hold your crypto for the purchase.
- Buy tokens. Make your purchase on the platform. Take notes and screenshots of important details like distribution dates as well as a claim URL address.
- Claim your tokens. When you’re able to claim your tokens, visit the claim URL to move your new tokens your crypto wallet. In some cases, the tokens will be transferred to your wallet automatically when the presale ends.
- Hold, trade, or deploy your tokens. You might want to sell some of your tokens right away if the market takes off. This strategy lets your recoup some or all of your initial investment. Alternatively, you may want to hold for a better price or put your new tokens to work through staking or other decentralized finance (DeFi) protocols.
Beware of anyone trying to help you claim your presale tokens on social media or discussion boards. A common scam is to pose as support or just a helpful netizen and attempt to have you provide your wallet seed phrase. Anyone who gets your seed phrase can empty your crypto wallet.
What To Do After Purchasing Presale Tokens
What you do with your presale tokens is up to you. If you intend to hold your tokens for the long term, you can consider moving your tokens to a cold-storage hardware wallet to better protect your crypto assets.
In some cases, you may be able to deploy your tokens on a DeFi platform, possibly staking to earn additional rewards or using your tokens as collateral on a lending platform. Another option could be to provide liquidity on a decentralized exchange.
Lastly, depending on the tokens you’ve purchased, you may be able to use yout tokens to unlock features on a DeFi platform. For example, on some platforms, owning the platform token may grant you access to additional features or earning opportunities.
Famous Cryptos That Had Presales
Some of today’s most used blockchains got their start with presales. Among these are Ethereum, with its native cryptocurrency (ETH) now the second-largest cryptocurrency by market capitalization. EOS also makes the list, having raised the largest amount ever in a presale/ICO offering.
- ETH: Ether, the native asset for the Ethereum blockchain was offered as a presale in 2014 with an initial exchange rate of 2,000 ether for 1 bitcoin. Today ETH trades at less than 20 ether to 1 bitcoin.
- EOS: The EOS blockchain launch began with record fundraising, generating more than $4 billion for the project in 2018. However, in 2019, the SEC fined Block.one, the company behind the project, citing a lack of transparency. Delayed launch also contributed to the project’s struggles, causing the price of EOS to plummet from its high of $22.89 to under a dollar.
- TRON: The TRON network launched at $0.0019 during its 2018 ICO. The chain’s native cryptocurrency (TRX) later reached an all-time high of $0.3004.
- BNB: The BNB token that powers the BNB Smart Chain launched at an exchange rate of 2,700 BNB to 1 ETH in 2017, about $0.15 per BNB at the time. By 2021, BNB had reached an all-time high of nearly $700, making it one of the most profitable crypto investments in history for early investors.
- XTZ: The Tezos blockchain project raised more than $232 million in 2017 when launching the XTZ token. Similar to EOS, the project faced legal challenges, including a class-action lawsuit that alleged the initial sale was a sale of unregistered securities. XTZ reached an all-time high of $9.18, a 20x gain from its launch price of $0.47.
- SOL: The Solana blockchain, famous for its speed and affordable transactions, had several funding rounds, starting with a private sale at $0.04 in 2018. A presale in the same year priced the SOL token at $0.20, followed by another presale round in 2019 at $0.225. By late 2021, SOL reached an all-time high of $260.06.
Bottom Line
Presales are often the first step in fundraising for new crypto projects. Buying early can help maximize return on investment. Early Ethereum investors saw ETH rise in price from $0.30 to nearly $5,000 at the peak.
However, there are no guarantees, and some well-known projects have crashed in price following launch. Now that we’ve answered the ‘what is a crypto presale?‘ question it’s time for you to research your choices carefully before making an investment decision, and as always, invest only what you can afford to lose.
FAQs
Is it good to buy presale crypto?
Some crypto presales can be extremely profitable as prices rise after launch. However, there are no guarantees the project will launch or meet its goals. Scams are also common in the space.
How do I get pre-sale crypto?
You can find listed presale crypto offerings on sites like CoinMarketCap, PinkSale, ICO Drops, and Cryptonews.com. Some exchanges, like Binance and Bybit, also offer early-stage token launches. Purchase methods vary but often involve buying the presale tokens with another cryptocurrency.
What happens when you buy a coin at presale?
The mechanics of the sale can vary, depending on the platform. In many cases, you’ll make the purchase first and then receive or claim the tokens using your crypto wallet when the presale concludes.
How long does a crypto presale last?
Presale durations vary, typically lasting just weeks. However, some presales use fundraising goals rather than time-based milestones.
References
- Sale of the Century: The Inside Story of Ethereum’s 2014 Premine (coindesk.com)
- SEC Granted Summary Judgment Against New Hampshire Issuer of Crypto Asset Securities (sec.gov)
- PinkSale KYC (pinksale.finance)
- In Full – The Complete ICO Calendar (coinmarketcap.com)
- A blockchain start-up just raised $4 billion without a live product (cnbc.com)
- SEC Orders Blockchain Company to Pay $24 Million Penalty for Unregistered ICO (sec.gov)
- $232 Million: Tezos Blockchain Project Finishes Record-Setting Token Sale (coindesk.com)
About the Author
About Cryptonews
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