Explaining Dynamic Pricing: The Simple and Fair Pricing Structure We Use For Token Sales

At Token Foundry, we use dynamic pricing to let the demand for a token and the token sale performance dictate the final price of each token– rather than the token seller setting the price themselves.

In other industries or use cases, dynamic pricing might seem counterintuitive. But, for the time being, we feel this is the simplest and fairest token pricing structure for purchasers. In addition to every purchaser paying the same price per token, another significant benefit of dynamic pricing is that if the sale target (hard cap) is not reached, purchasers get a better token price than originally anticipated.

For newcomers to token sales, we have broken down dynamic pricing to help you understand why we believe it is the fairest and simplest way to set the price of tokens.

Dynamic Token Pricing Formula

(Total USD$ amount of tokens purchased) / (Number of tokens being sold) = Final Token Price

That’s really it. At the end of the sale, we just take the total USD$ amount of tokens purchased in the token sale, and divide it by the total # of tokens being sold, which is a constant (more on that below). Let’s take an example token sale to fully understand how it works both before, during, and after the sale.

Example Token Sale:

• Total Token Supply: 1 Billion
• Tokens Being Sold in Sale: 500 Million (50% of Total Supply)
• Sale Target (hard cap): $20 Million

For all token sales on Token Foundry, all tokens being sold in the sale (e.g. 500 Million) will be distributed to purchasers regardless of amount raised. For example, if the $20M sale target (hard cap) is reached, the 500M tokens being sold will be distributed proportionally amongst the $20M worth of purchasers; if only $10M worth of tokens are purchased in the sale, the 500M tokens being sold will be distributed proportionally amongst the $10M worth of purchasers; if only $5M worth of tokens are purchased in the sale, the 500M tokens being sold will be distributed proportionally amongst the $5M worth of purchasers. This is what enables dynamic pricing to work.

Initial Token Price Calculation:

($20M) / (500M tokens) = $0.04 per token (max price)

We intentionally show the max price before and during the token sale so purchasers can see the worst-case-scenario price they would pay for each token. This enables them to make an informed decision on how many tokens they want to buy, and the maximum it’s going to cost them (in terms of USD$). After the sale, the actual price is adjusted based on the above formula and the final results of the token sale.

For other dynamic pricing models, vendors might show a moving price per token which would rise throughout the sale. We prefer to show the max price as a constant during the sale, to avoid misleading early purchasers who thought they would receive more tokens than they end with if, for instance, they purchased tokens early and then the hard cap for the sale is reached.

The max price is also useful for being able to properly evaluate other factors such as network value. Even if you don’t care about network value, it’s important to be informed and understand what it is and how it can potentially impact the future price of tokens you are purchasing.

As it relates to token pricing, a higher token price means a higher network value and vice versa. As a general rule of thumb when purchasing tokens, a lower initial network value for a token is typically beneficial for the buyers and users of that token. With dynamic pricing, if the sale target (hard cap) for a token sale is not reached, both the token price and network value of the token will be lower than what it would have been had the sale target had been reached, which most token buyers would consider to be a good thing. Surprisingly, a token sale not ‘selling out’ is actually beneficial for the people who bought tokens in that token sale. Token purchasers should keep this in mind when deciding to buy tokens in a token sale.

What Happens During the Sale When Buying Tokens?

As mentioned above, before and during the sale, we use the max token price for purposes of calculating the maximum (in terms of USD$) you would need to pay in order to purchase the amount of tokens you want. The ‘total amount owed’ is the amount you send to the token sale contract when completing your purchase.

Example 1: Purchasing 10,000 tokens

($0.04) x (10,000) = $400 (total amount owed)

Example 2: Purchasing 50,000 tokens

($0.04) x (50,000) = $2,000 (total amount owed)

What Happens After the Sale Ends:

Using the Dynamic Token Pricing Formula shown above, once the sale ends, we take the final USD$ amount of tokens purchased in the sale, and divide it by the total number of tokens being sold (500M), which as explained above will always be the same amount (500M) regardless of the USD$ amount of tokens purchased.

Final Token Pricing:

Example A: $20M worth of tokens purchased in the sale (hard cap reached)

($20M) / (500M tokens) = $0.04 per token

Example B: $10M worth of tokens purchased in the sale

($10M) / (500M tokens) = $0.02 per token

As you can see, if less money ends up coming into the token sale, those who did purchase tokens in the sale benefit by getting a better price per token.

So How Many Tokens Do I End Up Getting?:

Once the final token price is determined, you will receive an amount of tokens equivalent to the USD$ amount of tokens you purchased in the sale (ex. the ‘total amount owed’ from before) divided by the final token price. So using the different token amounts and final token pricing examples from the two sections above, here are a few different scenarios.

Example (1) + Example (A): USD$ Amount Purchased: $400; Final Price: $0.04 per token

($400) / ($0.04) = 10,000 tokens (amount received)

Example (1) + Example (B): USD$ Amount Purchased: $400; Final Price: $0.02 per token

($400) / ($0.02) = 20,000 tokens (amount received)

Example (2) + Example (A): USD$ Amount Purchased: $2,000; Final Price: $0.04 per token

($2,000) / ($0.04) = 50,000 tokens (amount received)

Example (2) + Example (B): USD$ Amount Purchased: $2,000; Final Price: $0.02 per token

($2,000) / ($0.02) = 100,000 tokens (amount received)

In summary, dynamic pricing benefits purchasers by allowing demand for the token and token sale performance dictate the price of the token, rather than the issuer setting the pricing themselves. It’s our goal to attract large numbers of value-add purchasers to networks, as decentralized networks are reliant on actual usage and network effects for their success. Hopefully this post has helped to pricing, since it’s important for all those participating in our token sales and the token economy to understand.