What makes a good Token Sale?

5 min readJun 19, 2017


There are hundreds of token sales out there. The prospective investor or speculator is faced with the seemingly impossible task of figuring which one to support. A surfeit of choice often leads to no choice at all. I propose that applying a set of filters to token sales can winnow the field to those more likely to succeed.

I have read about a dozen white papers, various token valuation models, and general thoughts about applying some kind of filtering heuristic to the hundreds of token sales. The following is my attempt to synthesize all of the information that I have read into a usable set of filters.

Note that in some of the discussion that follows, I propose questions for which I don’t necessarily have answers. But these questions are meant to further discussion, not to give definitive answers.

Does the technology require a decentralized solution? Not all ideas benefit from decentralization, and even some ideas that could benefit from decentralization don’t perform optimally if decentralized.

For example, the SONM project proposes a decentralized global supercomputer. Does supercomputing benefit from decentralization? If so, why? Project teams should explain why decentralization will outperform centralization. And the answer to this question isn’t “It’s new and exciting” or “Look at how much money all these other token sales raised!” There needs to be a real justification for the use of a blockchain-enabled network.

Does the proposed network have the potential for exponential growth? To the extent that platforms like Facebook are very valuable, it is because the network — the social graph — has grown exponentially over time. So, too, it should be for an token sale: the larger the network that lies atop the token system, the more valuable the tokens will be.

Niche markets are niche for a reason. Consider AICOIN, which is an token sale that claims to combine artificial intelligence with some kind of token to generate wealth in trading financial securities. I don’t see the potential for exponential growth here. If there is no potential for an exponentially growing network, the upside is limited.

Does the token increase in value the more it is used? Issuing tokens just to issue tokens doesn’t create value. Tokens that are used for specific, actionable tasks should increase in value over time. Note that sub-units of tokens can be used.

I’m not aware of any tokens that match this filter, yet, since the field is still new. Many of the projects that may pass this filter haven’t yet started transacting products and services. Are there any token projects out there that pass this filter?

Is the underlying technology already built and running? Ideally, the underlying technology that the token scheme uses should be created and running by the time the tokens are put up for sale. This accomplishes two things: (1) it proves that the team’s technologists are capable of seeing a project through to completion; (2) it ensures that buyers of the tokens won’t be paying for development work of the underlying technology, but rather will be buying for the transactional potential of the tokens.

Quite a few token white papers are written in a very academic and theoretical style. It is hard to tell whether the proposals made reflect real, working technology, or are simply the outgrowth of a grad student’s thinking about cryptocurrencies and decentralized computing networks. There is nothing wrong, of course, with academic research, but if I am investing in something, I want to invest in something that is real, tangible, useable, and in a working state. I don’t invest in research.

Here, for example, is the abstract for ALGORAND, a white paper written by an MIT professor:

A public ledger is a tamperproof sequence of data that can be read and augmented by everyone. Public ledgers have innumerable and compelling uses. They can secure, in plain sight, all kinds of transactions — such as titles, sales, and payments — in the exact order in which they occur….Algorand is a truly democratic and efficient way to implement a public ledger. Unlike prior implementations based on proof of work, it requires a negligible amount of computation, and generates a transaction history that will not “fork” with overwhelmingly high probability.

This sounds interesting, as many academic inquiries do, but show me the product. Prove to me that you can create the technology, and that the market for your token exists.

Does the company or team have first mover advantage? First mover advantage isn’t always required (see Facebook vs Friendster or Myspace), but it is often a benefit. If the team doesn’t have first mover advantage, why does the team have a better shot at success than its earlier competitor(s)?

The benefits of first mover advantage are context-dependent. In some cases, first mover advantage has proven to be fatal. Facebook succeeded where MySpace and Friendster failed. On the other hand, Apple continues to dominate the smartphone market.

But, to the extent that token networks with exponential potential can successfully grow that network to its potential, being the first in the market can be very powerful. It is hard to dislodge a company that benefits from network effects, as we see with both Intel and Microsoft. The astute observer will note here that neither Microsoft nor Intel were first in their markets, and that’s true. However, they continue to do business due to their network effects. When you combine first mover advantage with strong network effects, you have a very formidable competitor.

Do the assumptions about potential token users makes sense? If the target token users are a specific demographic group, such as college students, is it correct that college students would be interested in using this token for its designed purpose? Is there a mismatch between the intended group of token users and some characteristic about that intended group?

This falls under the rubric of “Know your customers.” Let’s make this a bit more concrete. Let’s say a team comes up with a token, which we’ll call Textbook, that allows for college students to transact, on a decentralized basis, for new and used textbooks. (We can even call sub-units of this token Chapters and Pages.) Let’s further posit that the tokens are tied to a debit card issued by Visa. Does the target demographic (college students) have any interest in this? Without having validated that your target demographic is interested in this use case, and is able to use it, your project may well be dead in the water. Map this mental model to other tokens: does the use case of the token map well to its targeted demographic?

Does the team have the technical knowledge and experience to complete the project? Blockchain and cryptocurrency technologies are relatively new, complex, and subject to hacking attempts. Does the team have the requisite experience (technical and management) to deal with these challenges? Can they deliver on their promises?

Given the hacking of the DAO in 2016, which happened in spite of the team members’ deep knowledge and experience, it is clear that distributed networking technologies and cryptocurrencies are complicated technologies, and that they make attractive targets for hackers. Successfully managing a token sale requires a rare combination of both technical and management skills. Quite a few of the teams that I’ve seen don’t seem to have that deep background.




Principal at Yang Ventures. Crypto, tokenization of traditional assets, finding liquidity for illiquid assets