The Importance of Token Distribution and 6 Tips on How to Do It Properly
By now, just about everyone has heard of blockchain — the underlying technology behind the success of Bitcoin. And while Bitcoin is the most famous application of blockchain technology to date, it is not the only one.
Savvy entrepreneurs have started taking this technology even further, creating additional platforms, apps, and coins based around blockchains. Although this article will focus on the fashion industry, all these new blockchain platforms have one thing in common — token distribution was vital in getting them off the ground.
Blockchain and Fashion
Due to its nature, you can apply blockchain technology to many different industries. When it comes to fashion, this can take several forms. Of course, the simplest is to allow payment with Bitcoin and other cryptocurrencies. But, you can also do so much more.
Nowadays, customers care about transparency. They want to see that the apparel they’re buying comes from sustainable sources. They want proof that the entire supply chain adheres to ethical practices. And by allowing you to create records which are easy to access but practically impossible to falsify, blockchain technology can satisfy that need.
There are other potential benefits as well. For example, this technology can allow fashion designers and consumers to interact more directly. This list could go on, but the point is clear — blockchain and fashion are a good mix. That is why creating such a platform can be a very sound business decision, which brings us to the main point of this article — managing token distribution.
What Is the Point of a Token Distribution Event?
Let’s say you’ve found a way to combine blockchain technology and fashion into a service which can create a unique and valuable experience for its users. Now you need the funds to actually get it up and running. While you can ask a bank or a venture capital firm for the money, it can often be much better to turn to your future users to get the financing you need.
So, you create special tokens for your platform and offer to sell them to anyone interested. This is an Initial Coin Offering (ICO), and it is what token distribution basically boils down to.
Now, the appeal of ICOs is easy to explain. People buy your tokens while they’re relatively cheap and hope their value increases with time. Essentially, this form of token distribution is a way for users to get in early. It’s a risk, but it can pay off handsomely. People have recognized this potential, and there have been many successful ICOs. The exact numbers vary according to the source, but billions of dollars have been raised.
How to Organize a Successful ICO
As mentioned, an ICO is a popular form of crowdfunding. However, there have also been many unsuccessful ICOs as well as outright scams. As a result, people will place your token sale under a lot of scrutiny before they part with their money. By following these tips, you can increase the odds of organizing a successful ICO and raising the funds you need.
1. Explain the Reason for the Token
Before you do anything else, you need to have a clear reason for creating the token. Since we’re talking about fashion, will the tokens allow the users to preview unreleased collections? Or maybe you’ll use them as a mechanism for governing the platform, meaning token holders will get to vote on important issues.
Whatever the case, tokens work best when they truly support your business model. They shouldn’t be just about raising funds — instead, they should promote cooperation and growth.
In other words, when you offer to sell your tokens, the first question people will ask is why they can’t simply use Bitcoin. Therefore, you need to have a good answer to this.
2. Build a Great Team
It goes without saying that you need to surround yourself with people who can help you deliver the final product. But when it comes to ICOs, your team isn’t just there to work in the background. Instead, your team members are also crucial for marketing.
Show the interested parties you have the required expertise. Hire external advisors with a successful track record in blockchain. These things matter, and people will look for them.
3. Choose the Stage
You may organize an ICO when you only have a concept. Alternatively, you can build a beta version of the platform first and only sell the tokens afterwards. The latter is good for attracting people as they will be buying into something which is already functional, but it also means you need to fund that initial development on your own.
Figure out your finances and see which of the two options works better.
4. Decide How Many Tokens to Sell/Keep
You can try to sell an unlimited number of tokens — this can give you more funds right now. But the more tokens there are, the less unique each one is due to the large supply. This makes them less valuable for subsequent trading. To combat this, you may impose a cap on the number of tokens offered. There is no right choice here, it is simply a strategic decision you need to make.
Also, no matter how many tokens you sell, you will keep a certain percentage for yourself. This is important for your personal finances and can also give you the option to sell those tokens at a later date if you need more funding.
5. Write a Bulletproof Whitepaper
The whitepaper will be your main marketing tool, so make sure it’s as good as you can get it. Explain the value your tokens bring but don’t overpromise. Explain how you’ll handle the legal aspects. Show a detailed roadmap of the different stages of the project. Mention the risks and how you plan to mitigate them.
Also, have professionals from different fields review the whitepaper.
6. Promotion
Finally, make sure to promote your ICO. Use industry blogs, Reddit, and social media to get your message across and let people know about your ICO as well as the platform that you want to launch. Respond to any questions and try to build a community around the project.
STOs
When it comes to raising funds using tokens, an alternative to an ICO is an STO (Security Token Offering). The difference is in the type of the token.
The token you offer during an ICO functions exclusively within that platform and gives access to a product or a service. And until the platform launches, those tokens cannot be used even for that. However, a security token is a genuine security in the traditional (financial) sense of the word. This means security tokens are financial assets that can be traded and whose value comes from external and tangible sources. They also give certain proprietary rights to their owners. It’s like purchasing regular securities, only it is done using blockchain technology.
Many of the tips we mentioned for ICOs apply to STOs as well. But, there is one important note. Since security tokens are actual securities, the relevant laws and regulations apply to them. This means it is even more important to ensure everything is covered from the legal aspect. And since these regulations differ according to jurisdiction, it really pays to have expert help when you’re organizing an STO.
Final Words
Whether it’s fashion or any other industry, blockchain offers an exciting way to break new ground. There is a lot of potential here to create interesting projects, but their success can depend on how you handle the token distribution. Hopefully, this article has cleared up some doubts and given you tips you can put to practical use.
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