Unsold Tokens: Keep, Burn or Airdrop them? — Part 1
As variations of initial coin offerings (ICOs) and token generation events (TGEs) emerge, new, innovative models of token distribution are developing outside of the norm.
The FundFantasy token sale is running from January 25 — February 25, 2018. One factor that sets us apart, is how we plan on handling unsold tokens upon the conclusion of our ICO.
“Capped Token Sales” always declare the amount of tokens to be minted, as well as the proportion of it that is “reserved”, while the rest is to be sold on the crowdsale. Back when ICOs were new, token sales accepted Ether as payment without much trouble. However, due to Ether’s evaluation and volatility many ICO’s have come to the point where their price per token (if priced in ether) now implies hundreds of millions of dollars in valuation. Often, this was not intended when the declaration took place.
For this reason it is also customary to cap the token sale in terms of USD. However this may mean that there will be tokens left unsold after the crowdsale, especially if Ether continues soaring as it did in the past few months, as the USD cap will be reached before all of the tokens were sold.
It has become standard practice to burn the tokens which were left unsold, but as we will demonstrate in this article and the next one — this is inevitably followed by dilution of participants in the crowdsale (the only exception is when 100% of the tokens are sold, i.e, ETH devaluation).
Therefore, rather than burning unsold tokens as many ICOs do, we will redistribute them proportionally to investors via Airdrop. This means that when the ICO ends, users will receive an additional amount of tokens according to their token holdings. This also means that if a user has bought 1% of the tokens that were actually sold, he will receive 1% of the unsold tokens, right after the ICO ends. Consequentially he will have 1% of the total amount of tokens offered for sale.
The alternative of destroying the remaining unsold tokens can, and almost always does, result in a “dilution” of the investor’s share of the total token supply. We believe that a model of redistribution is beneficial to those who back the project because it serves to maintain the market share of ICO participants.
Typical ICO distribution
There are two main types of token distribution: an uncapped sale at a fixed price, and a capped sale at a fixed price. There are various other types and models, but this is beyond the scope of this article.
In an uncapped token sale, there is no limit to the number of coins that will be sold. An increase in investments equals an increase in coins, which could theoretically, go on forever. In the words of Etherium founder Vitalik Buterin, “Nearly every uncapped sale is criticized for being “greedy”… they give participants high uncertainty about the valuation that they are buying at.”
On the other hand, this type of token sale allows for greater participation and may allow for a reduction in the tendency for giant investors to monopolize the sale. According to futurist and AI specialist Nick White, however, “as an investor although you know the price of the tokens you are buying, you don’t know the implied valuation of the project because you don’t know how many tokens there will be by the end of the sale. So even though this may allow you to include smaller investors, these smaller players may get a raw deal if too many coins are sold… The uncapped model has no cap to the amount of money [the team] could raise.”
A second option is a capped sale at a fixed price. This differs from the above in the way you would expect it to — there’s a fixed amount of coins minted and available for purchase, and they remain at a fixed price regardless of circumstances.
In White’s words, “the advantage of this is that it gives a fixed valuation for your network which makes the process very transparent for investors. If investors believe your network is worth more than the valuation implied by the token price, they can feel confident in purchasing your coins.”
Additional models to the above include hybrid capped sales, reverse dutch auctions, Vickrey auctions, proportional refunds — each with their relative pros and cons and reasoning behind their implementation.
Our approach
FundFantasy’s ICO model differs from those outlined above. Our model is a capped sale, at a dynamic price. This is due to a whitelist-exclusive, post-sale proportional-redistribution (or Airdrop) of every token that is not sold.
We know, this sounds complex. We’ll break it down for you in the second part of this topic.
