I worked on this with Alexander Perkins an avid math and fintech mentor of mine who has been involved in cryptocurrency for the past few years. This is a list of things to watch out for in token sales.
This is not investment advice.
These are the token sales we’d take interest in:
- Technology must solve a difficult problem that requires decentralized transaction verification. If the product can work without a token, then it should not have a token. Merely ‘’tacking on- a token to a product that does not require a blockchain is not kosher and would not fly. Token must be essential to the core function of the technology.
- Transactional verification blockchain must have potential for exponential growth. The value of a coin increases commensurately with the growth of the network size, so the network must have potential for exponential size. Coin holders purchase tokens at ICO because (1) they expect the value of the tokens to increase as the demand for consumptive use of tokens increases with network growth. and (2) they expect higher utility for personal use in consumptive value of token stemming from network growth. As such. the tokens cannot be a niche market, because it wouldn’t have exponential growth. Total Addressable Market (TAM) must have potential for 1 B+ transactions annually.
- Token must have consumptive value on platform. Token must enable an action on platform. Tokens increase in value because the demand for the performable action on platform increases (i.e. the “consumptive value” of the token increases). As the candidate blockchain network increases in volume exponentially, the demand to perform decentrally verified action — facilitated by the token issued during ICO — increases.
- Base technology is already built (and preferably running). Completion of technology and MVP is not necessary before we accept a client and start work with them. but it is necessary before we run their ICO. If the tokens don’t have consumptive value from t = 0, it could be bad.
- Company is uniquely positioned as a first-mover and has monopoly potential. We should pursue truly Zero to One technologies that have the potential to become monopolistic competitors. TokenSales are compensated largely in coin proceeds (and since they will be locked up and reasonably illiquid until the technology gets big) tokensale platforms want to pick companies that will become the hegemonic competitor in the space it stakes a claim in. Everyone likes winners and these criterion will pick winners.
- The topography of the intended market of users of tokens should match their accessibility. For example, a token sale that requires a large data plan on a cell phone or utilizes the cell phone as a key identifier is a bad example, because prepaid phones in developing countries are the norm and data plans are expensive to download heavy apps.
- Teams to be backed should have a prolific history of building and developing technologies. Technology novices with zero knowledge of an entrenched market are unacceptable. Technology novices with strong in-depth market knowledge are acceptable given that they have enough strength in their proposition to add appropriate technical fortitude to their team.
- Is there a community of early adopters that’s ready and enabled?
A lot of people in the fintech space are passionate technologists. I administrate and created several closed facebook groups for fintech, crypto mining, and institutional Yen/USD/Crypto funding sources.
If you’re technocratic, understood what’s above, and are building out an ICO/Token offering that meets the above criterion, then ping me at email@example.com or tweet to me @datarade.