“When money realizes that it’s in good hands, it wants to stay and multiply in those hands.” — Idowu Koyenikan
By Ross Cormack (https://medium.com/@rosshuntercormack)
The Ethereum Foundation rocked the blockchain world when they launched their pre-sale in July 2014, selling a claim for future utility tokens. Their token sale raised approximately US$18,400,000 equivalent over the 42-day sale, although the tokens would go on to be worth over 1,000 times the pre-sale price. This remarkable success has spurred on hundreds of blockchain projects to raise funds by selling tokens.
Investors are of course interested to know how these funds will be spent.
This is of particular interest to us at EdgeFund, as we are currently drafting our road map, finalizing our token distribution, and estimating the costs involved in taking the project through to platform launch. Our market research has led to an interesting assessment of the approaches utilized by other blockchain ventures. We have collected data on the structure of token sales, including typical crowdfunding duration, the use of minimum and maximum funding limits (so-called ‘soft caps’ and ‘hard caps’), number of rounds of token sale, bonus schemes, and how the funds generated will be spent.
A brief analysis of a set of blockchain related ventures, some of which have already undertaken a token sale and some of which are up and coming, has provided useful insight into crowdsale token allocation and intended use of revenue distribution, as well as afforded an opportunity to gain an understanding of some of the mechanisms employed to encourage participation and investment.
18 blockchain ventures have been assessed for the purposes of this article, some of which are betting and gaming related, others chosen from a top 10 ICO whitepapers blog post, and the remainder are based on blockchain projects EdgeFund have followed over the last couple of years. The majority of token sales are complete, but a selection of up and coming token sales have also been included in the review (Table 1). All token sales crowdfunding details were collated from the respective blockchain project whitepaper.
Table 1: Blockchain Projects
What is an Token Sale?
An token sale is a method used to raise funds for blockchain projects. A percentage of the total tokens are sold to those interested in investing in the proposed concept during the project’s development. This can be done in one or several rounds, and the funds raised help fund the project’s development undertaken by the founding team.
The most common approach for crowdfunding via a token sale is using a two-phase approach involving a pre-sale period, later followed by a main crowdsale event. A token pre-sale is an event that is primarily focused on first gaining the interest of private investors, although often it is later opened up to the public. The fund-raising targets for token pre-sales are usually lower than that of the token main sale, and tokens are sold at a discounted price. Any funds generated during this phase are used to cover initial operational costs.
10 of the 18 blockchain projects assessed had or will have a minimum cap (‘soft cap’) which is the minimum amount of contributions that a token sale needs to generate to be considered successful. All projects had or plan to have a maximum cap (‘hard cap’) which is a fixed value that signifies the end of the sale should it be reached before the sale end date.
Of the 18 blockchain projects assessed, the quantity of tokens to be issued by the project to the public during the token sale ranges from 35–90% of all tokens available, with 67% being the average.
The rest of the tokens are commonly allocated among a variety of categories as demonstrated in Table 2.
Table 2: Token Sale Average % Token Allocation
Use of Contributions
The funds generated are usually distributed to cover a number of business expenses including research and development, operations, ongoing marketing and legal requirements. Depending on the nature of the venture and their specific token sale model, a fraction of the funds is also distributed to security, accounting or is used as some form of contingency.
For the blockchain projects included in this review, it is clear that there is a reasonably wide variation in the percentage of funds allocated to each of these business units. Table 3 shows the average distribution of funds generated to a variety of blockchain project business expenses.
Table 3: Use of Contributions
Minimum Viable Product
Only 4 of the 18 token sales assessed had a Minimum Viable Product (MVP). An MVP is considered to be at least an alpha version (a working prototype) of the future product. It is a product with a minimum set of features designed to get feedback and make changes in the project. Although not yet that common in the industry, if an MVP is available, this instills trust in the product. 5 of the 18 ventures assessed had MVP in design which means the final complete set of features is only designed and developed after considering feedback from the products initial users. 7 from 18 had no MVP, and for 2 projects it was unclear if they developed an MVP or not.
Every token sale chooses its own specific bonus and discount structure that normally occurs during the pre-sale process. Of the 18 blockchain projects analysed, 15 employed some form of bonus scheme during the token pre-sale in order to attract early investors. Examples are fixed bonus schemes, a tiered bonus, a quantity bonus, a time bonus and an engagement bonus.
Table 3 below provides an overall summary of the results of this analysis.
Table 3: Summary of Blockchain Project Token Sale Details
This analysis did not differentiate between pre-sale and main sale token allocation and distribution as there are inconsistencies in the data that is publicly available.
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