Escrow (in English, Escrow) as applied to raising investments refers to special accounts or wallets of intermediaries where the funds collected during a token offering, for example an ICO, are kept. The main idea is that the project team does not receive the entire amount at once. Instead, funding is released in installments as the pre-approved development milestones set out in the roadmap are completed.
Such a scheme serves as an additional guarantee for the participants of the fundraising. If the project fails to fulfill its obligations for the next milestone, the remaining funds are not transferred to the team, which reduces the risk of misuse or outright fraud on the part of the organizers. Access to the money is usually controlled by an independent guarantor or a mechanism requiring the confirmation of several parties, which makes the handling of the funds transparent.
Why escrow accounts are needed when raising funds
- protecting investors from fraud by the project's creators;
- milestone-based funding tied to the roadmap;
- discipline in spending the raised capital;
- increasing participants' trust in the project.
The presence of an escrow mechanism does not remove the need to verify the project independently, but it is an important sign of the team's responsible approach to managing the collected funds and reduces the risks for participants.
