Suppose you have a product fully developed and want to distribute 90% of your tokens, does the no-cap still apply? Is it still an ICO?
Suppose you do it in rounds, does selling 1% for $10M and keeping 99% for the developers sound fair? Especially if the developers only need $10M?
What about selling 1% with no cap to set the price like EOS and repeating the process until you get what you "need"? Who determines "need" and "scope" anyway?
What about the value of a wide distribution and community buy in it generates?
What about allegations of centralized control caused by selling a small percent?
Don't the developers make much more profit by selling in the future (after they have delivered the product) and isn't the idea of "developers getting rich" the very thing articles like this are complaining about?
How do developers prevent copy-cats from stealing code if they don't have market effect of vested interest of token holders?
If only a small amount is outstanding wont this also inflate market prices and cause people to lose money when future rounds dump on the market?
These are tokens not securities, no one, not even the developer, can be expected nor demanded to do anything on behalf of tokens. If you want securities then you want to play under the existing regulations which will only allow the rich and connected to invest.
A few is 3! You have broken the "law of few" by 6. ;) It's all inchoate so no list can cover every scenario.
Yes. This is based on today's environment and the externalites to the space of an uncapped sale.
Sort of. Depending on the mechanism, it's "fair," but perhaps not advisable. The sheer dollars at risk are a material issue more than the valuation imo.
The team should determine need and scope. If they can't, they are probably not a good team. Refer to "raise money in tranches," a superior alternative to "raise all the money we can and now."
Distribution is important but can be solved by other means. No crowdsale will be perfect.
I am unclear on what this means. But at least partipcants ex ante know the valuation they get in the Gnosis scenario.
No, They only get rich in the future if they do well. It's conditional, not guaranteed, and it's aligned with the outcomes of their investors. This is why payouts in the future, vesting, not taking a big payday in the beginning, are important -- they align incentives appropriately. In the real world, I don't get paid my lifetime potential earnings up front in a lump sum. If I did, I would probably apply myself at work differently.
This is an issue for all FOSS and all projects in this space for the most part. One can argue that the more $ raised, the greater incentive for a copycat before there are non-monetary barriers. This is distribution issue and a delivering a working product/ecosystem, not a money issue imo.
Potentially no, potentially yes. This is why character matters in leadership. You need people who will do what's right for all stakeholders and balance the project's financing needs with investor outcomes. If AAPL needs to raise $5bn and it makes sense, that new supply of AAPL stock won't negatively affect the extant stock's value. Same goes goes Melonport or Dfinity's next rounds.
SEC has been clear as it doesn't matter how you want to lawyer it, ICO and token promoters have responsibilities to those to whom they sell tokens. I am not interested in securities law or lawyering Howey test, that will be done for us in the future. There is a clear expectation that if you have a project and you raise money, you are expected to do right by your investors (or donators or token holders). It's not a strictly legal standard (yet), but it's a very prudent ethical standard. Again, each project gets to choose for themselves. This is a standard the community holds projects to as determined by me.
I would like to see an ICO that distributes tokens through an uncapped process of staking, but only taking a small % of capital.
For instance, if you want to buy into a popular new protocol, you stake an amount of ETH for two weeks that represents the max you are willing to invest.
When the staking period is done and the number of ETH has been counted, a maximum of X ETH would be collected from all staked accounts.
If $100 million ETH is staked, and the project needs $5 million, they will take 5% from each stake and return 95% of the ETH staked to investors, along with the tokens.
Too complicated for my simple list, but directionally good. The end point for ICO structures seem like it will be something like we see in regular capital markets (subscribe and allocate ratably with some tweaking) or one of Nick Johnson's auction contract dreams.
Yes please, you speak from my mind! Carve this into the stone.
ICOs seem to be "the new black". Well are you surprised? Who wouldn't wanna get paid before the work has been done?
I don't mean to be hating these projects, many are solid and really interesting.. but do you really need $100M? I don't think so. As one redditor nicely put this:
Ok... So Tesla started with $7.5M in funding, and SpaceX with $20M. The first was to revolutionize the car industry and maybe save the planet and the second was to build rockets and eventually getting us to Mars. VS. ICOs raising 100 millions to build... messaging apps. I'm I missing something ?
– source
This is insightful. You should do a post solely about the do's and don'ts of investing in ICO's, mainly because most people will be investing in them rather than creating them
Great list of ICO do's and don't, and although I doubt those starting such a project will listen, I'll be using this as a "acid test" in my investing review. I also agree with you, Luke is a model online citizen.
Good post. Interesting to see I'm not the only one that is thinking about this. I found that running a business depends on having enough money to run the business but definitely not to much. We give this icos to much money so they are less intended to do an amazing job, they don't have to work to become a profitable business because in their eyes they are already. Do you know this interesting site? https://www.coincheckup.com I'm really enthusiastic about this site, they let you analyze every single coin out there.
Nice list, but I have a few questions for you:
Suppose you have a product fully developed and want to distribute 90% of your tokens, does the no-cap still apply? Is it still an ICO?
Suppose you do it in rounds, does selling 1% for $10M and keeping 99% for the developers sound fair? Especially if the developers only need $10M?
What about selling 1% with no cap to set the price like EOS and repeating the process until you get what you "need"? Who determines "need" and "scope" anyway?
What about the value of a wide distribution and community buy in it generates?
What about allegations of centralized control caused by selling a small percent?
Don't the developers make much more profit by selling in the future (after they have delivered the product) and isn't the idea of "developers getting rich" the very thing articles like this are complaining about?
How do developers prevent copy-cats from stealing code if they don't have market effect of vested interest of token holders?
If only a small amount is outstanding wont this also inflate market prices and cause people to lose money when future rounds dump on the market?
These are tokens not securities, no one, not even the developer, can be expected nor demanded to do anything on behalf of tokens. If you want securities then you want to play under the existing regulations which will only allow the rich and connected to invest.
A few is 3! You have broken the "law of few" by 6. ;) It's all inchoate so no list can cover every scenario.
Yes. This is based on today's environment and the externalites to the space of an uncapped sale.
Sort of. Depending on the mechanism, it's "fair," but perhaps not advisable. The sheer dollars at risk are a material issue more than the valuation imo.
The team should determine need and scope. If they can't, they are probably not a good team. Refer to "raise money in tranches," a superior alternative to "raise all the money we can and now."
Distribution is important but can be solved by other means. No crowdsale will be perfect.
I am unclear on what this means. But at least partipcants ex ante know the valuation they get in the Gnosis scenario.
No, They only get rich in the future if they do well. It's conditional, not guaranteed, and it's aligned with the outcomes of their investors. This is why payouts in the future, vesting, not taking a big payday in the beginning, are important -- they align incentives appropriately. In the real world, I don't get paid my lifetime potential earnings up front in a lump sum. If I did, I would probably apply myself at work differently.
This is an issue for all FOSS and all projects in this space for the most part. One can argue that the more $ raised, the greater incentive for a copycat before there are non-monetary barriers. This is distribution issue and a delivering a working product/ecosystem, not a money issue imo.
Potentially no, potentially yes. This is why character matters in leadership. You need people who will do what's right for all stakeholders and balance the project's financing needs with investor outcomes. If AAPL needs to raise $5bn and it makes sense, that new supply of AAPL stock won't negatively affect the extant stock's value. Same goes goes Melonport or Dfinity's next rounds.
SEC has been clear as it doesn't matter how you want to lawyer it, ICO and token promoters have responsibilities to those to whom they sell tokens. I am not interested in securities law or lawyering Howey test, that will be done for us in the future. There is a clear expectation that if you have a project and you raise money, you are expected to do right by your investors (or donators or token holders). It's not a strictly legal standard (yet), but it's a very prudent ethical standard. Again, each project gets to choose for themselves. This is a standard the community holds projects to as determined by me.
I would like to see an ICO that distributes tokens through an uncapped process of staking, but only taking a small % of capital.
For instance, if you want to buy into a popular new protocol, you stake an amount of ETH for two weeks that represents the max you are willing to invest.
When the staking period is done and the number of ETH has been counted, a maximum of X ETH would be collected from all staked accounts.
If $100 million ETH is staked, and the project needs $5 million, they will take 5% from each stake and return 95% of the ETH staked to investors, along with the tokens.
Thoughts?
Too complicated for my simple list, but directionally good. The end point for ICO structures seem like it will be something like we see in regular capital markets (subscribe and allocate ratably with some tweaking) or one of Nick Johnson's auction contract dreams.
Yes please, you speak from my mind! Carve this into the stone.
ICOs seem to be "the new black". Well are you surprised? Who wouldn't wanna get paid before the work has been done?
I don't mean to be hating these projects, many are solid and really interesting.. but do you really need $100M? I don't think so. As one redditor nicely put this:
I'm still launching and crying at the same time..
This is insightful. You should do a post solely about the do's and don'ts of investing in ICO's, mainly because most people will be investing in them rather than creating them
Good Posts . I hope they Will act like this.
Very good writing and interesting, very fondly if only to comment without reading without care.
Great list of ICO do's and don't, and although I doubt those starting such a project will listen, I'll be using this as a "acid test" in my investing review. I also agree with you, Luke is a model online citizen.
Good post. Interesting to see I'm not the only one that is thinking about this. I found that running a business depends on having enough money to run the business but definitely not to much. We give this icos to much money so they are less intended to do an amazing job, they don't have to work to become a profitable business because in their eyes they are already. Do you know this interesting site? https://www.coincheckup.com I'm really enthusiastic about this site, they let you analyze every single coin out there.
Disclaimer: I am just a bot trying to be helpful.
I agree with all of these. Issuing tokens for the sake of tokens without much thought is unnecessary and reckless.