What did I learn from tokenizing a rat mascot?

Hello world!

It’s been a month and a half since we’ve started a project called Trivial.

A month and a half since my first meeting with the team, less than this since we launched our website and about a week since our first ICO of a physical item ended. Now we are in the middle of an auction and we just have launched another ICO. Quite fast, right?

If you’re interested in the Trivial project, our motivation, questions that have appeared during the first ICO of a physical object ever (!) and lesson learned from all of it, this note is for you.

TL;DR

How do you set up a blockchain oriented startup in less than a month?

And the longer version:

Step one: The idea

The idea was to create ICOs on Ethereum platform using smart contracts.

ICOs (Initial Coin Offering) are mostly used by emerging startups to get funds on projects based on cryptocurrencies. They work as follows: project is tokenized (meaning: it distributes its own tokens which are basically a cryptocurrency) and a great part of those tokens is put up for sale. Initially they don’t represent any value. When you buy tokens (and pay in cryptocurrency), you become somewhat a shareholder of the project. This event is called an ICO. People participate in an ICO mostly for two reasons: they want to support the project or they have future profit in mind. If the project becomes a success, the tokens will probably be worth more than during ICO sale. This way of collecting money is similar to IPO (Initial Public Offerings) or crowdfunding on platforms like Kickstarter.

Our idea was based on this mechanism, but we had in mind a different way of using it. We wanted to tokenize physical objects, in order to give people the chance to buy a part of it. Firstly we thought of art pieces. We could carry out a different ICO for a different art piece. After that, an item’s tokens could be traded on an exchange platform and at the end of the process, an art piece would be sold on auction to the final buyer. To sum up: selling an item would take three steps — ICO with tokens distribution, a period of time for trading those tokens and an auction for closing the sale.

Why did this concept appeal to us? We’d figured if you want to invest in the art world, there’s high entry level. Meaning: you need to be quite rich to be an investor. So why not give everyone the opportunity to be an investor with minimal contribution.

ICO mechanism also brought new reflection: what if someone doesn’t see themself as an investor but more as a contemporary Maecenas? In the end selling part of an art piece (in our project that is a percentage of tokens) allows the artist to earn some money before they can sell it to the final owner and this process can take months or even years. Moreover: if you have a part of an item and this, for example, gives you the rights to borrow it for some time, isn’t it the sharing economy we’ve all been reading about for last few years?

Yes, tokens and ICO mechanism do provide us with some powerful possibilities.

Step two: The world out there.

Everything looked great on the paper, but we had to validate our idea. How many people are well-versed with the art world and simultaneously are familiar with blockchain and are willing to participate in an ICO?

This was time for the first pivot in the project; we decided to expand the range of items for sale on Trivial to any objects without a predetermined value or one that is hard to define (Items that are one of a kind, with a flaw or a great story behind them e.g. limited edition of a board game or a Star Wars movie poster with an autograph).

Secondly, we knew it’s hard to pick every item worth buying, so in the long run Trivial needs to be open to everyone — not only to buyers but also sellers willing to put something up for an ICO and auction.

Thirdly, we’ve acknowledged that even though ICO, smart contract and tokens had been the buzzwords for last few months, the process of tokenizing objects still requires some clarification.

Step three: The background work.

To make it work, we needed a team of programmers and designers that are not easy to scare (mostly with deadlines and ever-changing ideas). At this point I’d like to thank our team from 10Clouds — without them we wouldn’t be able to put Trivial into action for months! Thank you, guys!

Also our Trivial’s core team — we had few days to get along with each other, to recognize our best skills (and where/when/how to use them in the project). We also needed to agree from day one that we don’t have one specific job but our job is to get things done. And seriously, it is more important than it appears to be.

We decided that the first three sales would appear on the Trivial platform as a test.

As the first item ever to be tokenized we chose… a rat mascot. Something of little value, definitely not one of a kind. Just to be sure everyone will know it’s a test.

Manufactured probably in China, there are thousands almost exactly like this one — sold cheaply around the world. This one was given to the founders of Trivial by Kacper Wikieł — founder of GetLine.in.

For the Rat ICO, there were 1 mln tokens distributed; 35% stayed with the seller, 5% with Trivial (since we were the seller in this case, overall we had 40% of tokens) and the remaining 60% was for sale.

We decided to carry out an uncapped ICO (no upper limit for contribution) what in consequence means, contributors don’t know how many tokens they buy (they send Ether, but the exact percentage of the item they bought can be established only after the ICO ends — when it’s clear how much Eth was paid-up overall. This happens because the contribution is counted like this: Eth, sent by a single person, is divided by the whole sum. That’s how we know what percentage of tokens someone bought).

In case of the rat, we had over a dozen contributors. Rat mascot’s collected 0.571 Eth, so its value is now set at 0.952 Eth probably becoming one of the most expensive rat mascots in the world. Definitely, the only one being tokenized on the blockchain.

The next step was token trading. We wanted to test EtherDelta or the 0x protocol. Unfortunately, before we did any of this, someone called an auction. The smart contract provided a condition, that in order to start an auction you need to have at least 25% of the tokens. And indeed someone did have that much. Now we’re in the middle of the auction (which is set to last at least two weeks). In the meantime, we’ve set another test ICO — with a gold chain instead of a rat mascot (and yes, this time there will be time for trading tokens!).

In two weeks from now we’ll do one more test and after that, we’ll start selling items for real. Also we plan to open the platform for sellers in less than two months. So anyone who’s interested in selling something unique will be invited to participate.

Step four: Questions & lesson learned

The first test made us realize there are some issues we we would love to test out:

• Uncapped ICO model is great from the seller’s point of view. But how does it influence the ICO participant if they don’t know in advance how many tokens they bought?
• How long should the period between an ICO and an auction last so there is enough time to trade the tokens”?
• When should we “freeze” the item’s tokens? (Now the participants are able to trade tokens to the point when the auction starts. What happens if we prolong it to the moment of a final bid?)
• Who should call an auction? Always someone with 25% of tokens? Or maybe the seller?
• Do we want an auction where the highest bid wins (open ascending price auction) or is it better to do the opposite (open descending price auction)?
• Right now the only way to change the location/curator of the object is the auction. This was the easiest option to implement, but it also removes the tokens from the circulation. Long-term we will want to have other options for changing the physical location without the removal of the tokens.

There are many questions like this and probably no “one solution”, but rather possibilities matching different types of items. And yes, we still need to answer them.

In less than two months we (10clouds team included!) have built an operating platform, started two ICOs of physical objects and are in the middle of redesigning and opening the website for sellers.

We decided that instead of trying to figure out every possible situation, it’s better to make something work and be prepared to implement critical amendments as soon as possible.

We don’t know how the project will look like in a few months, what kind of skills it will require from us but what we can do is to keep an eye on the market, on the ICO developments, tokens trading and mostly on the response from the blockchain community.

And this is what we count on — your feedback, which is essential for Trivial to grow to become a considerate platform for blockchain community and beyond.

Thank you.