Why Do Most White Papers Suck?
In my capacity as the Head of Tokenomics at the Startup Station, I have read an innumerable number of white papers. As can be expected, given the 55% failure rate of ICOs as of Q2 2018, the vast majority of them are not very good. As a result, I want to share my experience regarding the three most important areas that I’ve found to be especially weak. There are, of course, other areas that could be improved; however, these are the three areas that investors care the most about and that are most commonly poorly conceived or communicated.
The Business Use Case
Despite the blockchain’s potential, it is not a panacea for startups. In order for an ICO to be successful, the underlying use case for the blockchain must be compelling and easily understood. If the reader doesn’t immediately grasp the value of the proposed token, especially for utility tokens, then a) investors are unlikely to respond positively, and more importantly, b) it will be difficult to convince the target end users to purchase and use the proposed tokens, thus hindering adoption. As a result, all ICOs should clearly and convincingly answer the questions: “Why is the blockchain necessary for your proposed ICO?” and “Why is the blockchain a better solution than any alternative traditional approach?”
The Tokenomics Section
In 2016–2017, a successful ICO did not need to put much time, effort, or thought into the tokenomics section of their white papers. The excess demand for cryptocurrency exposure and the assumption that almost any token model is a good token model won out. Since then, investors have become more scrutinizing as the sophistication level of the average ICO investor has increased. Indeed, according to Bitcoinist.com, ICO failure rates hit a high of 55% in Q2 of 2018 and most of the money raised was concentrated in fewer projects.
To improve the probability of a successful ICO launch, the tokenomics section of white papers must now include much more than the standard soft and hard cap, ICO price, pre-sale discount tiers, the type of token economy, and any cliffs. Today, investors want their funds to go towards both a useful addition to the blockchain environment, and one where their money can generate returns via expected token price increases. A high-level white paper should now include a detailed tokenomics section where the authors demonstrate a thorough understanding of how the token will be used, the sources of variation of token price, potential downward pressures on token price, and a comprehensive econometric analysis of the overall token economy in the secondary market.
Link between the Use Case and Token Economy Structure
Given the previous two areas commonly found to be lacking in recent white papers, it should not come as a surprise that the third area is the link between the two. Despite the increase in sophistication among investors, there is still not enough emphasis placed by ICOs on the rationale for the token economy structure given the business use case. Instead, these areas are a) often left wanting, as I explained above, and b) disconnected in terms of how the two parts of the ICO and eventual secondary market fit together.
If all white papers received top grades on these three areas, it is quite likely that the failure rate of ICO launches would be significantly lower that we are seeing today.
