Initial Validator Offering (IVO)
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Get Ready for the Future of Crowdfunding
Overview
In this article, you will find out about a unique crowdfunding tool that will soon entirely revolutionize the cryptocurrency industry. We will revisit the legacy kickstarting mechanisms such as StakeDrops and Initial Coin Offerings to later deep dive into our latest industry standard.
IVO TLDR, and what to expect?
- Invest in crypto and enterprise businesses without spending any of your existing assets
- Keep full custody over 100% of your investment with the ability to pull out at any time
- Maintain full liquidity over your investment, trade and participate in DeFi at the same time
- Mitigate volatility risk, by not having to exchange any of your existing assets for tokens
- Invest with a negligible risk exposure while enabling new startups to profit and innovate
Background
The concept of token sales is not new and comes back to July 2013, when Mastercoin held a first Initial Coin Offering, later followed by the Ethereum ICO, which in 2014, raised 3,700 BTC in its first 12 hours of operation. Ever since the exponential rise of ICO’s helped the cryptocurrency industry to fuel its growth and played a major role in the bull run of 2018, this trend continued until 2019 but later lost its momentum due to regulations; scam projects exploiting the concept as well as falling bitcoin prices, and a general increase in risk exposure of the ICO investors.
ICO Downsides
- Requires (investment) exchange of tokens or fiat currency for tokens
- Investment can’t be pulled out in case of project’s failure to be deployed
- High exposure to market volatility and risk of “ICO token flipping”
- Lack of privacy and risk of identity theft
Since 2018 the concept of ICO’s and creating a better way of token distributions was attempted to be revitalized into lockdrops by Edgeware, and stakedrops by projects such as Keep Network which in short introduced a concept of time-locking assets on one network to, later on, distribute new tokens on another. Those ideas, although provided alternative token distribution mechanisms, could never compete with ICO’s. The only efficient way projects deploying stakedrops and lockdrops could incentivize their operations was by selling their own, pre-mined tokens on exchanges while forcing everyone else to “mine” through locking assets thus creating the illusion of token scarcity. The obvious downwards market pressure due to such practices highly invalidated the ideas and is not providing the incentive level known from ICO’s.
Lock/StakeDrops Downsides
- Poor or no incentivization mechanism for projects deploying LockDrops
- Downwards market pressure on the LockDrop “miners”
- Exposure to the market volatility of the tokens locked
Fast forward to 2019, and a unique idea, coined by Kira Core to revolutionize crowdfunding space — The Initial Validator Offering. With the rapid growth of the staking industry and the rise of the first delegated/nominated Proof of Stake networks, it finally becomes possible to deploy a new type of token offerings utilizing the staking mechanism.
To fully grasp the importance of the concept and its impact on the cryptocurrency industry we will present in this article a simplified concept, advantages, disadvantages, and solutions that will rapidly accelerate the growth of the IVO’s, staking industry and flourish the Proof of Stake paradigm.
What is Initial Validator Offering
The IVO is a crowdfunding mechanism where investors place their existing tokens or assets at stake using one or many PoS networks to “interchain-mine” a new token instead of liquidating their valuable assets to acquire new, highly speculative tokens.
In short, investors delegate their tokens to validators charging a commission off all block rewards, and instead of receiving the same token they staked — investors receive a newly minted token. The new asset that is being “interchain-mined” is then pegged to the value of their old token, so that for each one cent earned by the IVO validator, the investor receives equivalent one cent in the new token.
The Initial Validator Offering enables investors to maintain full custody over all their existing tokens, while “interchain-mining” new assets. Furthermore, IVO projects are coerced to deliver on their promises because if investors get disappointed with their progress they can re-delegate all their assets to other validators at any time. In other words, new projects can fundraise their operations without being able to “run” with investors' money, as it was often taking place in case of legacy ICO’s.
Risk, Reward and Money Flow
There ain’t no such thing as a free lunch, and just like with any investment mechanism there are risks to which both the network and IVO investors are being exposed to. On the investor side, just like in case of LockDrops there is a major risk of the locked asset volatility, and on top of it the risk of validators being slashed. On the network side, there is a possibility of “assets centralization” (Security Leaks) resulting in a single validator acquiring the majority of the voting power.
Some people might ask, if investors do not spend any money, then how do projects fund themselves through IVOs? In simple terms, and in most cases, the majority of funds come from block rewards and inflating the token supply, so passive token holders who do not stake, such as active traders and actors not interested in securing Proof of Stake networks, are the ones paying for this innovation to happen. Depending on the network maturity and incentivisation model, capital accumulated by IVO validators can also be a result of network fees paid by the users to execute smart contracts or submit transactions to the distributed ledger.
Challenges and Solutions
There are currently multiple challenges that the Proof of Stake networks must solve in order to position Initial Validator Offering as the number one crowdfunding mechanism in the cryptocurrency space. Kira Core aims not only to mitigate those issues but bring the idea even further, and make it a viable alternative in funding non-crypto startups. In other words, we can make Initial Validator Offering a tool that will merge crypto and real-world industries.
Kira Protocol is going to deliver the first Proof of Stake consensus that will make it possible to safely stake both cryptocurrencies and real-world assets, rather than a single token with dubious value. Kira introduces The Multi Bonded Proof of Stake (MBPoS), where Security Leaks (one validator acquiring the majority of voting power) are not possible, and all assets at stake maintain full liquidity thanks to the concept called Staking Derivatives.
How does MBPoS relate to IVO
The Multi-Bonded Proof of Stake enables IVO investors to safely and trustlessly stake highly valuable cryptocurrencies such as Bitcoin, but also real-world assets such as digital fiat or commodities, all without limiting their liquidity. This means you will be able to crowdfund your new venture or non-profit, without the need to convince your investors to spend or convert their valuable assets for cryptocurrency tokens.
Automation, Automation, Automation
Besides the MBPoS, the next step of bringing IVO to a wider public is going to be a full on-chain automation of the Initial Validator Offering by creating a blockchain application (module or webassembly contract) that will enable automated, fully trustless and transparent token distribution.
One of the goals of the Kira Protocol is to fully integrate On-Chain IVO mechanism with a Multi-Bonded Proof of Stake consensus to help new interchain ecosystem projects to benefit from its superior security guarantees, especially when it comes to crowdfunding through “interchain-mining”. As a result Kira Core thrives to create an unstoppable network effect where new projects crowdfunded through IVO mechanism can themselves be used to safely and efficiently host more IVO’s. We believe that through this mechanism, the new exponential growth of the cryptocurrency industry can be achieved on an unprecedented level, due to the inflow of real-world assets into the so far limited economy of the cryptocurrency ecosystem.
Epilogue
To summarize, Initial Validator Offering can provide the best of both worlds — ICO and LockDrop, as well as the high incentivization level and security, but without a single one of their disadvantages. The biggest barrier to adoption is not technology, it is education and spreading knowledge to make the industry aware of the new trends that will forever change the future of the cryptocurrency space.
Authors
Milana Valmont, Co-Founder & CEO
Mateusz Grzelak, Founder & CTO
