Token sales have made people millionaires overnight. Regular people like you and me got an opportunity to invest in great projects early on, that later skyrocketed in price. In the process, a new breed of wealthy cryptocurrency millionaires were born.
But the most beautiful thing about token sales is how they have democratized capital raising. Anyone from anywhere in the world can now invest in global projects for an equal shot at enormous returns. In the past, these opportunities were exclusive to accredited investors and venture capitalists.
What are token sales?
Token sales are a crowdfunding mechanism where investors receive cryptocurrency tokens in return for their cryptocurrency contribution. Smart contracts power over 97% of token sales, and only accept contributions in cryptocurrency. Ethereum is the leading platform for token sales, with over $1.5 billion raised in the last 12 months.
Indeed, token sales are a booming industry. It’s no wonder why money regulators and money managers, like venture capitalists are so keen to enter the space. The latter group, worried about their fading traditional role in the funding link are now also taking part in token sales, just like the rest of us.
How do token sales work? An Example
Initial coin offerings are the best example of how token sales operate.
A blockchain project that is looking to raise money issues an announcement of their intentions. The team puts out a white paper, promotes their upcoming sale and shares an overview of the project and the economics of the token & sale. On the day of the crowd sale, a smart contract running on Ethereum automatically accepts funds via cryptocurrency, and every address associated with an investor in the sale receives a portion of the project’s token in return.
The following guideline breaks it down.
The Complete Guide to Token Sales
If you have come across an upcoming token sale and wanted to participate, this comprehensive guideline will help you get through the whole process successfully.
Research the project online: forums, videos, chat rooms, white paper
Decide how much to allocate to the token sale
Get yourself a cryptocurrency wallet and secure it
Buy and deposit enough Ethereum into your wallet
Make your contribution at launch of the token sale
Your tokens have arrived
Read up more on the project through online research
You need to know what you are buying, and a bit of online research on the token sale will go a long way. The information you find will help to inform your decisions — like whether to participate or not, and how much to put into the sale.
When a startup announces an upcoming token sale, they first release investor material. A white paper is made available, detailing the project. Here you will find information about the problem they are trying to solve, their proposed solution, information about their technology, and team details.
Besides the white paper, there are neutral reviews of the project across a variety of platforms. Reviewers include: video bloggers, podcasters, ICO websites, and online forums. Get a feel for people’s perception, analysis, and opinions, as you’d be surprised at the number of people eager to share information.
Decide how much you want to allocate to the token sale
Here is where your prior research comes handy! How much are you allocating for the token sale? Token sales can be a great diversification asset class for your portfolio, but you also don’t want to expose yourself to too much risk.
From the project details you have researched, you now have an idea of the project’s vision and goals, and how much they plan to raise. Next, find out details about the tokens economics: how many tokens are available for distribution, are all tokens available for distribution, or are some of them vested for hitting milestones? If yes, then what is the ratio of tokens in supply versus locked up?
You need these numbers to arrive at a price per token. The token may be priced at a premium or have no fixed price. It’s normal for varying token sale models to price tokens differently. The end goal is to determine what the price per token is and the percentage of the total supply that is for sale to investors.
With this information, decide on how much you would like allocate to the sale and calculate your percentage share that you will receive from the supply after the sale. Next, take some time to think about how much of your overall investment portfolio to allocate. Set aside this allocation for the next step.
Get yourself an Ethereum Wallet and secure it
Having an Ethereum wallet is a prerequisite for taking part in any token sale. Projects typically accept Ethereum contributions, but occasionally will make an allowance for other cryptocurrencies like Bitcoin and Zcash. Your wallet is registered in a database to receive tokens during the allocation phase.
Out of the many Ethereum wallets available, two of them come highly recommended.
- Metamask wallet which is a chrome browser plugin
- MyEtherwallet (MEW) accessible via browser
Your wallet holds your Ethereum funds, so make sure it’s secure. Your wallet has an associated private key that you need to secure, as this key grants ownership and control over any tokens and Ether sent to your wallet. Be sure to backup your private key by following the step by step instructions on our wallet.
If you have a hardware wallet like Trezor or Ledger, you only require MyEtherWallet to authorize a contribution at the time of the sale.
Your wallet is the only way to receive issued tokens. Make sure you backup your wallet’s private keys!
Sign up for the token sale
Occasionally, you may have to sign up on a website before the token sale launch. Pre-token sale sign-ups come with perks such as bonuses or discounts. This step, however, is available on a per-project basis, and not all sales will have this step.
If this step is not available, find out the date of the sale and mark it on your calendar. The time of the crowd sale will inform your next step.
Buy Ethereum for your wallet
Your Ethereum wallet will need some ether for the crowdsale. You need to buy some Ether and deposit them to your wallet.
Exchanges are the easiest place to buy Ether. Pick one from pure cryptocurrency exchanges such as Bittrex or Poloniex or hybrid exchanges like Kraken, Coinbase, and Bitstamp. If you have to sign up on an exchange that takes a while to get registered, do it weeks before the sale.
After your purchase, withdraw Ether from your exchange to your wallet. Some exchanges have a strict policy against contributing ICOs from the exchange’s wallet, so you are better off using a separate wallet.
Ideally, you want enough time between buying Ether and when the sale kicks off, but you also want to cushion yourself from Ether price fluctuations. Ether prices go up and down and buying too early might lead to some losses or gains from the volatility. Therefore, time your purchases in line with your calendar.
Have the right amount of funds ready in your wallet by the time the sale begins.
Make your contribution at the token sale launch
You are now ready to make your contribution and claim a share of the token distribution. You have details of the duration of the sale and an official wallet address where you are expected to send contributions.
Token sales generally share wallet addresses hours or days before the sale starts. Keep your eye out for announcements from the project’s team. You can’t go wrong with Twitter, slack, telegram and the company’s website.
Token sales last anywhere from a couple of hours to a full year. Most of them take two weeks to a month. Any shorter or longer periods are exceptional cases.
Taking part early on gets you bonuses or discounts meaning more tokens for less Ether. For example, the Crowdwiz token sale has a 15%, 10% and 5% bonus on the 1st, 2nd and 3rd day respectively.
Check to confirm you are within the contribution limits before sending your contribution to the official wallet address. There is always a minimum and maximum contribution threshold, so check what those limits are and stay within them.
Use your wallet to send your funds and keep your private key safe after the contribution. Your token balance will reflect on your Ethereum wallet in due time.
Your Tokens Arrive
After the sale, your Ethereum wallet will have your token allocation balance. Your address is registered and mapped to the project’s database, so they know where to send all the tokens.
The project takes anywhere from a couple of weeks to four months to send your tokens. During this time, tokens are not available on exchanges. Until the official distribution, the tokens are in hibernation while the company sorts out the distribution process.
As long as you have your Ethereum wallet and private key, your tokens are reserved for you. Keep yourself updated on any announcements from official communication channels, as they will share a timeline and the exact date to expect your tokens.
With your newly issued tokens, you can choose to trade, transfer or hold them. They are as good as any other cryptocurrency on the market.Exchanges list the newly issued tokens for the wider market. New buyers and interested traders bring demand and liquidity that you can sell into or buy more from.
If you are lucky, your tokens will be worth much more than your initial purchase price.
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