Demystifying the Gems ICO

If you're here, I'm guessing you've heard about Gems (think decentralized Amazon Mechanical Turk). You've probably also heard they're doing a token sale soon. Maybe you've been following them for a while, maybe you're even on the whitelist.

This post is meant to help break down the terms of the ICO, since many people might be confused. I have never previously participated in an ICO, so before reading up on it I was definitely confused myself! Since the Gems team had the community choose people who made the whitelist based on their participation in the Gem's community program, I'm assuming this might be the first ICO many others on the whitelist have had an opportunity to participate in.

It is crucial that any of us thinking about participating in the ICO understand how the token sale will run!!

So, let's get into it.

Here's what we know

2 billion tokens will be sold in the ICO

This is 25% of the total token supply. The remaining 6 billion tokens will stay with the Gems team.

The whitelist

There are three tiers for the Token Sale; depending on the tier you're in, you receive a bonus if you place your bid within a designated time period after the auction starts. More information on the tiers can be found on the official announcement of the Gems Token Sale.

Auction format is a dutch auction

"....translation please?"

The goal of any dutch auction is to determine a fair price for an item. This is done by starting the auction at a very high price and gradually decreasing it according to a degradation formula.

How does this all fit together?

Let's say you're in Tier 2 (Emerald) on the whitelist. This means if you make a bid in the first 2 hours of the auction, you get a 15% bonus.

Since the degradation formula for the Gems Token Sale is 600 * (30b - 15m) / (time in seconds) + 15m, let's determine the price per token you'd be endorsing by bidding in time to get that bonus.

2 hours into the auction, according to the degradation formula, the cap is set at a little over $2.5 billion. If at the same time, the total amount of ETH bid were to meet this cap, then the final price per token would be $2.5 billion/2 billion tokens = around $1.25 per token. Note that a cap at this price would already place Gems on the current list of the top 5 tokens in terms of market cap. That would be insane!

...Would you currently value a Gems token at over $1? Well, from my understanding, if you wait to bid at the lowest price in time to get the 15% bonus, you'd be indicating that this is the highest value a Gems token is worth to you. KEYWORD=highest. The cap keeps decreasing as the auction continues until the total ETH bid matches the cap, so the price you pay per token can only decrease. However, in the event that the total ETH reaches the market cap at a higher price than you hoped, ...tough luck.

I'm whitelisted. I want the bonus, but don't want to get stuck buying an overpriced token.

With the bonuses being time-sensitive, you will have to weigh the pros and cons of bidding early enough to get the bonus!
If the cap is reached early on, contributors might regret taking advantage of the bonus only to end up with what they perceive as an over-priced token. On the other hand, if the cap is reached much later on in the auction, contributors who bid during the bonus timeframe will be happy they did so. And, of course, if you are eligible for the bonuses and your perceived value of the token aligns with the bonus time-frames, then bidding in time to get the bonus is a win-win situation (i.e. if you're in the Emerald tier and value a Gems token at $1.25, then, by all means, toss in some ETH in time to get that bonus!)

Blah blah blah. I'm whitelisted. What happens if I toss in some ETH in time to get my bonus?

As an Emerald tier contributor, let's say you bid 5 ETH one hour into the auction. With the 15% bonus, you get by contributing within the first two hours of the auction, your bid counts as 5.75 ETH. Let's say that the total contribution equals the hard cap (as determined by the degradation formula) at time t=6 hours into the auction.

Plugging this into the degradation formula, 6 hours into the auction would give a hard cap of about $850M. Since 2B tokens are up for grabs, this means the price per token is decided to be $850M/2B = around $0.42. For this example, let's say that the price in USD for 1 ETH is the $1150 (current price as of Jan 24, 2018). That means your 5 ETH contribution (with the bonus, 5.75 ETH) bought you 5.75ETH * ($1150/1 ETH) / ($0.42/1 Gems token) = 15,744 Gems tokens.

And, if the total contribution equals the hard cap at time t=9 hours, this yields a hard cap of about $570M, making the final price-per-token $570M/2B = around $0.28. So in this scenario, your 5 ETH contribution (with the bonus, 5.75 ETH) bought you 5.75ETH * ($1150/1 ETH) / ($0.28/1 Gems token) = approx 23,600 Gems tokens.

The cap decreases as the auction continues, so, after tossing in some ETH, the number of tokens you'll receive in return depends completely on how long the auction will run for!

photo source

To wrap it up

this post is in no way meant to predict what the price-per-token will be at the end of the Gems Token Sale. It's meant to help people better understand the way this ICO will be run. Especially since a lot of us are new to ICOs, understanding the ins and outs is crucial!

I hope this info saves you some time and brings you more clarity on Gems ICO details! This post took a long time to prepare; if you found it helpful, please upvote!!

And of course, please let me know if I am missing or misunderstanding anything. Thanks! Have a great day.