LTO crowd sale model
Finally: a fair crowd sale model partly based on first-come-first-served. Take a look at our smart contract code and discover how to participate in the sale.
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Last week, we explained our approach to ensuring a fair token distribution for different sale rounds by restricting large allocations with the bridge troll. Now let us explain how we designed a capped, inclusive, and fair crowd sale.
The goal of a crowd sale is to properly distribute tokens among the most wide group of participants and ensure that everyone has a chance to participate.
Having a large following is great. However, it also introduces one problem: the amount of money that wants to get in is larger than the hardcap of the project. This is usually solved by imposing a more stringent KYC process or by organizing quizzes, lotteries, etc. These are supposed to increase the threshold to participate so that only the most interested participants will go through all the stages and will be given a chance to take part…
Like, for real?! This approach has proven multiple times to be extremely easily gamed by bots registering multiple accounts and then selling to real community members. That is not how it is supposed to be done.
Imposing a personal cap gets gamed as soon as the cost of breaking the rules is lower than the potential reward.
Proportional Token Allocation model.
The Proportional Token Allocation model was proposed in EIP 642.
The total number of tokens being sold is given up front as well as the total amount of money being raised. This sets a “cap” in a sense, but the difference is that the total amount of money that can be pledged to the ICO is allowed to exceed this cap. The token sale goes on taking in as much money as investors are willing to commit, very much like an uncapped sale, until the sale ends. At the end of the sale, the sold tokens are distributed according to the proportion of money invested by each participant and all excess contributions are refunded.
So as an example, if 2 investors placed 300 ETH and 100 ETH in the token sale that was capped at 100 ETH, 75% of the tokens for sale would go to the first investor and 25% would go to the second. Then, 225 ETH would be refunded to the first investor and 75 ETH would be refunded to the second investor.
This solves the cap issue. But are there any problems remaining?
Such a contract has a starting and ending time, and all the parameters can always be checked in the smart contract code. The problem it creates is that every rational participant will simply contribute at the last minute of the sale (to potentially get their ETH back right away).
A contract remaining empty until the last minutes can be deemed by potential participants as unappealing, leading to a reverse snowball effect where no one wants to participate. It is a common problem with private rounds too, but that is being gamed by projects saying “oh we are almost closed, jump in quick”— people FOMO in, as verifying their statements is hard. However, with Smart Contracts, everything is on-chain and verifiable.
Therefore, there needs to be a push for participants not to wait until the last minute. This will also incentivize long-term supporters who were going to participate anyway. We are doing this the following way:
- There is a bonus which starts at 7%, with every next transaction getting 0.05% less bonus (7%->6.95%->6.9%…), down until it goes to 0% [or 6 hours since the start of the sale — this is subjected to change]. This means there can be a maximum of 140 transactions with a bonus. This incentives potential participants not to wait till the last minute, but the size of the bonus is not big enough to create an unfair advantage. It is also a small FCFS (first come first served) feature which the OGs might like. ;)
- Unsold tokens are burned. That’s right, after the contract time runs out, any unsold tokens are automatically burned. This ensures that those potential participants who like the project and will participate are not risking a big free circulating supply, since a lower demand at crowd sale implies an even lower valuation and circulating cap later on.
Summary.
- There is an ETH cap of the crowd sale (to be pegged to USD depending on the amount allocated to the sale) — we cannot collect more than that.
- The peg decides the ETH price of one token (0.03 USD).
- There is no personal cap per se—you can essentially send any amount (check the guide at the bottom for the two-stage process).
- Should any tokens remain unsold, they are burned automatically.
- If the cap is ‘oversold’, you get both a proportional amount of tokens and a proportional ETH refund at the end of the sale.
- Let’s call it the “LTO model” now! ;)
Always verify! Thanks, blockchain.
You can verify the code of the smart contract on GitHub. We will also publish the “stamp of approval” from the auditors before the crowd sale.
Keep in mind we might still adjust a few things:
- Starting/ending time of the contract.
- Personal cap: above and below 40 ETH.
- Addresses of the bridge, wallet address etc. — will be set upon launch, the current addresses are just for testing purposes.
- The withdraw function defines when tokens and the excess ETH are released (before that time only we can call the function and everything is distributed automatically, but after that time every participant will be able to call the contract and get tokens without our involvement). We plan to have no delay in this at all, but we will update you pre-crowd sale.
How to participate in the crowd sale
You simply need to follow these steps:
- Register on the community platform. LTO Points are an additional community building programme, they are not required to participate in the crowd sale.
- Pass KYC on the platform (to be open around January 10). There will be two procedures: simple KYC with 40 ETH personal cap, and a stringent KYC with no personal cap. More news to follow.
- Send ETH to the smart contract address from a wallet which private keys you control (beware of scammers, we will have the address displayed on the official website: www.LTO.network).
That’s it! The contract will either burn unsold tokens or re-distribute the excess ETH back to you. Check out more at Twelve Days of Content.