Why we gave up the idea of IEO and what will happen with tokens
EVEN Foundation was established at the end of 2017 and is supported by private venture investments. The idea of any investment is to multiply the initial amount. Venture investors sell a share in the project, token holders sell them on an exchange. The dynamics of asset prices depend on the expectations of investors and on instruments that provide income from these assets, such as dividends.
VC or ICO?
EVEN rely on both ways of attracting investments: traditional venture capital and crypto markets. In the first case, we sell a share of the company, demonstrating positive project dynamics and prospects. In the second case, we sell a limited supply utility token, which brings dividends.
Brief description of the mechanism of the token value support:
- initially, the token is issued in limited supply, sufficient for the launch of the platform and the application;
- after the launch of the platform, the token mining begins;
- token owners receive income from PoS-mining and operations in the EVEN Network.
Before the launch of the platform, we distribute ERC20 token, and after the launch, it can be exchanged for a native token. At the moment, the token is not for sale. It can be acquired as an airdrop or as the bounty reward only. We plan to list the token on exchanges during 2019. Although it can be done without an initial token offering, we are still looking for such an opportunity.
IEO: expectation and reality
At the beginning of 2019, the community started to widely discuss the IEO, although the first fundraising events on the exchanges were held in 2017. After the decline in the ICO market, this new phenomenon looked encouraging. Many advantages of IEO were mentioned:
- exchange analysts select the best, most promising projects;
- the investor does not need to do due diligence of the project, as it is now the responsibility of the exchange;
- the project does not waste huge marketing budgets, as the exchange promotes it.
Exchanges receive their fee from the collected funds, which means that the deal is win-win for all parties.
In March, we began to actively explore the subject and entered into negotiations with several exchanges. Negotiations with one of the exchanges lasted about a month. The dynamics of the negotiations were as follows. We met with representatives of the exchange at the event and tried to draw interest to our project. The preconditions which we discussed were promising: the exchange receives several percent fees after the fundraising. Then our project went through a selection process, in which the exchange examined us and announced a positive conclusion. We were ready to shake hands and launch IEO. But then new details appeared.
Where IEO can lead your project
We sum up our experience of negotiations and information from other market participants with whom we were able to discuss this topic.
Costs are higher than expected
In addition to a share of the raised funds, exchanges charge a fixed fee for IEO and listing, which is 5–20 BTC depending on the size of the exchange.
Do not rely only on the audience of the exchange
In fact, an exchange has requirements for a project community. An exchange efforts to attract an audience are not enough. In particular, the number of users of the exchange that offered us an IEO, according to Similar Web was significantly lower than the statistics that the exchange showed us.
The market making
Let’s call a spade a spade: it’s all about a token pump. Most exchanges require to ensure the liquidity of the token by deposit for market making. Moreover, they oblige the project to raise the price of the token after IEO and keep it high for a certain time. There is a system of fines that are paid from the collected funds or from the deposit.
All this requirements significantly increases the IEO entry threshold to projects. As a result of token pumping and fines, the project is likely to remain without funds for further development and fulfillment of obligations.
Investor risk
It would seem that there is nothing wrong for investors among the features of IEO listed above. They even win if the project ensures the liquidity of the token. But the final goal of the scheme is to attract external money from investors.
It should be noted that the IEO scheme is not transparent to the investor. Exchanges openly invite projects to fake trading volume. Thus, an unknown token attracts attention with sharp price raise and high trading volumes. Real investors start to purchase it. All investors who have not sold token till the end of its pump would lose. Considering that at the result of this fundraising the project does not receive money for development, then there is no chance that token price will rise in the future and return money. However, the investors who understand the IEO dynamics and manage to sell fast, still have an opportunity to earn.
At the moment, more than two dozen exchanges offer IEO services, about two hundred fundraising campaigns have been completed. Only few of the tokens can be found on CoinMarketCap. Here are some typical charts of such tokens:
The token price has sharply risen and then has fallen, also sharply and probably forever.
We believe that the main responsibility of blockchain startup to token holders is the delivery of those products that were promised. Unfortunately, in practice, only a few percents of companies fulfill their obligations. But it is the outcome that ensures the further growth of the token rate. Conversely, a sharp price rise often shows the speculative nature of the project.
EVEN Foundation is ready to develop the promised products for venture investments without a token sale. In this case, the token will be distributed to the community through a marketing campaign, mining, and also it will be listed on exchanges. There is nothing new in this approach, for instance, Bitcoin did not run an ICO. But perhaps we will launch an initial offering and sell a certain share of the tokens if the market conditions are favorable. In any case, we remain transparent to our community and intend to stick to our commitments.
