Unsold Tokens: Keep, Burn, or Airdrop them? — Part 2
In Part 1 of this series, we covered typical ICO distribution and introduced our model — capped sale at a dynamic price, with a post-sale proportional-redistribution of every unsold token. It’s a mouthful, so let’s look at this step by step.
The “capped sale”
FundFantasy’s hard cap is set at $15 million USD, or 60 million FundTokens (FUNDZ) — whichever value is met first. This cap is in place to account for the volatile nature of Ether. If the price of Ether remains where it currently is, the hard cap of $15 million USD will be reached first, leaving tokens undistributed. Should the price of Ether dip lower than $250 USD, 60 million FUNDZ could be sold without ever reaching $15 million USD.
Given this, why is the price dynamic?
The dynamic, i.e. changing, price of FundTokens is due to the bonus schedule and, in case Ether stays high, due to the post-sale airdrop. The bonus schedule means that individuals purchasing in the first 8 hours of the token sale will receive a 25% bonus on their purchase which translates to a 20% discount. The bonus rate drops from this point onwards, to 15% for the following 16 hours, to 5% bonus for the rest of the first week, and eventually, to a 0% bonus for the remainder of the ICO.
And why Airdrop?
Let’s move on to what is arguably the most standout piece of our model; the post-sale proportional redistribution, or Airdrop, of tokens that have remained unsold at the end of our ICO. Once the token sale ends, all remaining tokens will be proportionally distributed to those who participated in the presale and the public token sale. We feel this is a necessary approach for our ICO for two reasons:
- We believe if a project chooses to set transparency and predictability as its values, choosing a capped sale is the preferred model, and the amount of tokens to be minted must be declared in advance.
- Using this approach, there is a chance that tokens may go unsold after the ICO, due to demand, or to ETH volatility impacting the hard cap. From an investor’s perspective, the way these tokens are managed will influence the valuation of their investment.
Typically, unsold tokens are managed in the following ways:
- The tokens can stay within the hands of the team/founders/advisors/angels etc.
- The token can be destroyed forever, what is commonly referred to them being “burned”. This reduces the total supply of tokens available. In comparison to the first option, this is more beneficial to an investor.
- They can be Airdropped proportionally to participants in the crowd sale.
Like most things, this is best understood looking at real-life situations rather than theoretical rhetoric. Let’s follow the journey of Investor A, let’s call him Bob, under these two scenarios, plus our airdrop method. Let’s assume the following scenario unfolds at our ICO:
Of the total supply of tokens (80million FUNDZ), 75% are offered to the public (60million FUNDZ). At the end of the ICO, 60% of these have been sold (36million FUNDZ) and 40% have not been sold (24million FUNDZ). Bob bought 1% of the tokens that were sold to the public (360,000 FUNDZ), individually accounting for 1% of token sales.
- Keep: If unsold tokens stay with founders/advisors, from an investor’s perspective this is not the best option, as these tokens represent additional supply that may threaten valuation and result in higher token prices. Under this policy, Bob will have 0.45% of the total token supply.
- Burn: Under the token “Burning” policy, Bob will have 0.64% of the total token supply.
- Airdrop: Under the Airdrop distribution of unsold tokens, Bob has 0.75% of the total token supply.
Between these scenarios, Bob holds a higher proportion of the total token sale and is in a better position as an investor under our Airdrop method.
Since the total market cap will always be determined by the market post listing on exchanges — what matters to the investor should be his share of the total market cap. The seasoned investor knows that the price is a derivative of the market cap, and not the other way around.
Possible criticisms — and our responses
Of course, no method is without potential for criticism. One criticism of the Airdrop model is that distributing unsold tokens will reduce the token’s value. However, a position value equals price *quantity. In the Airdrop model your quantity increases to cover for the price decrease, meaning that your total position value is fixed. Once the token is listed we expect a very steady and predictable rise due to increased demand as the platform gets more traffic, and decreasing supply — as more people play, the total supply will decrease by 0.5% for every entry-fee paid in FUNDZ. The only individuals whose token value is diluted as a result of this policy are the founders, developers, and advisors — and not investors.
Under an Airdrop strategy, the investor’s share of the total token supply is always higher when compared to a burning strategy. The only exception to this, is when every single token is sold. In this case, they are equal.
Objectively, we conclude that our model is a superior strategy that has been developed with our investors’ best interests in mind.
Visit our website and sign-up for pre-sale and participate in our token sale. It’s a winner.