As terrible as investment bankers are — at least they are playing a repeat game. So when they coordinate an IPO they have an incentive to leave some value on the table for investors. That way they come back for the next IPO.
From the perspective of a single network like Tezos the lure of an uncapped ICO makes perfect sense. Why not let ‘market forces’ decide and maximize the amount raised on the one shot you have.
The problem is that this sucks all the value out of the ICO, and leaves little upside for the new members of the community and drastically increases the chance of huge losses for early investors.
It is a repeat game for the rest of us, and when an ICO inevitably collapses and becomes worth a fraction of its ICO value then that is bad for the entire community on two fronts 1 — Less people are likely to participate in future ICOs and 2 — Regulators wake up as soon as investors begin taking losses and incurring damages.
Re point number 2 — I am particularly worried with Tezos because of the involvement of Tim Draper — if this goes south it could be very bad for the community from a regulatory perspective.
To me it seems quite clear that uncapped is bad for the community. But theres more…
I also think uncapped is also likely very bad for the specific networks when looking at it from a long term perspective.
These networks are valuable only as much as the scalable communities they are able to build around them. That’s in fact what makes them so unique — their ability to reward lots of people for work being performed on the network’s behalf, at practically unlimited scale.
It’s in each coin’s/network’s best interest to create wealth for those that support it early — it leads to a stable base of continued long-term support.
By not putting a cap on their ICO Tezos risks putting themselves in the same class as Gnosis (and also to some extent Zcash whom I think didn’t do their early investors any favors as a result of their deceptively inflationary coin supply). My hypothesis is that this slighting of the initial supporters will come back to bite all of these networks.
Here is a great article on ICO best practices from Chris Housser — he makes a number of great arguments for best practices around ICOs. Of particular interest to this post are his thoughts around caps:
“a cap is beneficial to limit founders’ greed. Founding teams run ICOs to gain funds to develop the project they are working on. Generally, founding teams retain around 20% of the tokens (or 95% for Gnosis). In my opinion, $10 million should be more than enough to cover salaries, legal, marketing and other expenses for the foreseeable future.”
Yes — 10mm should be enough to cover any expenses related to bootstrapping the network. Since they don’t get a shot at a ‘B or C’ round one could argue that a little more than that is needed, but too much more than 10mm actually serves as a disincentive to ship anything.
Lets push all networks to utilize a cap so that early supporters can share in the gains — we want the community to grow, stay engaged, and work together to build the long-term collective value.
This is the promise of our industry; lets live up to it together.
PS > This post is in no way a reflection on the technical merits of Tezos. From a high level I think the governance problems they are tackling in the blockchain space are very real issues and their solution is novel. I wish them and their backers the best of luck.