Designing the “fair token distribution model”
Here at Thetta.io, we are building a “Microcompany tokenization platform”. You can find more information this in our upcoming blog posts.
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Of course, as any blockchain developers who have been involved in the development of several ICOs, we thought about launching our own ICO campaign.
Our primary goal is to protect all parties: our investors, core team, community and clients. We spent many days discussing and analyzing what options we have.
We are ready to introduce you to our “curated list of ICO approaches” document. We hope you find it helpful. Scroll down to the end to locate the link.
What is a “Fair” ICO?
The amount of capital being raised through token sales breaks new records every week. But this rush to ICO continues to hurt the quality of offerings. The large majority of ICOs have been poorly designed and executed. As a result:
- Investors/buyers are suffering great losses;
- Other projects has nothing to do but to act in a same way in order to compete.
While #1 is very easy to understand, let us describe more what we meant by #2.
“Tragedy of the Commons” or a Single Actor vs a Community
The tragedy of the commons is an economic theory of a situation within a shared-resource system where individual actors (in this case, projects or companies) acting independently according to their own self-interest behave contrary to the common good of all users by depleting or spoiling that resource through their collective action.
“Public crowdfunding still suffers from a tragedy of the commons problem. Everyone will want the benefit of the crowdfunded efforts but is incentivised to sit on the sidelines and hope others chip in.”
“Everybody is in the Bubble” situation
Getting huge amount of money is not so bad for the team and founders, but is very unpleasant for the whole market and the community (politics may say “society”). This leads us to these consequences (you decide, whether it is good or bad):
- Blockchain developers are overevaluated and are hard to hire
- Ads in a specialized news media are now at 10x price
- Bloggers and some “rating agencies” are corrupted, i.e. can post a “positive DueDil report” for X BTC
- (it is not that hard to continue the list…)
This is good for you if you are the blockchain developer or a specialised media.
This is bad for you If you want to build a blockchain-based MVP of a product that required $500K before and will now need an astonishing $5M.
Here is an awesome quote describing that in colors, by Stefano Bernardini:
But we also get the catch-22. If everyone around you is raising tens of millions, who’s the fool? If you’re not gonna do an ICO for your new Mars colony, then someone else will — and people will give them money.
So now you’ll have to compete with someone that has a lot more cash than you.
But the market and technology will continue to develop
What can we do before an ICO is started to improve the situation described above?
- Perform better due diligence by professionals with a high reputation;
- Get clues from the “wisdom of the crowds” (i.e. prediction markets);
- Verify the project team and reputation;
- Demand improved legal token sale aspects;
- Demand improved token sale mechanism:
- Require refund functionality;
- Require an ICO to be multi-rounded with several milestones;
- Require the use of tap (see DAICO);
- Require token sale to be capped;
- Prohibit team from controlling the majority of tokens (avoid central banking);
“So what would a good token sale mechanism look like? One way that we can start off is by looking through the criticisms of existing sales models that we have seen, and coming up with a list of desired properties.”
Disclaimer: This article only covers technical improvements!
Let’s start by diving deep into the options regarding current token sale models.
Curated List of ICO Approaches
You can find our curated list of ICO approaches here: https://www.gitbook.com/book/thetta/ico-models/details