The problems with ICOs. Introducing usinvestorsnotallowed.com
I was going to write “three things a like and hate about ICOs” as a reflection on the past year, and segue to introducing TOKEN. But, sitting down, feeling proud about what we are launching today, I was suddenly struck with a crystal clear picture of the problems TOKEN is solving.
The problems with ICOs are not trivial. When the Financial Time’s coverage of the sector is called “ICOmedy”, and Bitcointalk.com’s own ICO announcement section headlines with the moderator’s mock ICO “HoweyCoins”, then a good word to describe the ICO sector could be “pantomime”. The pantomimic behaviour of many ICO proponents reinforces today’s state of affairs. But, to be fair, the sector is maturing fast with more and more MVP-ready projects coming to market.
ICOs started off being a completely remarkable and inspirational thing. Young tech geniuses with a brilliant idea that stole power and control from centralized companies raised untold sums in minutes from regular people from every corner of the earth. And before you think that this is going to be a FUD piece to indulge the naysayers, let me just say;
“I believe that we can get back to ICOs being a completely remarkable and utterly inspirational thing”.
At the core of most ICOs — better called TGE (token distribution event) — is the need to distribute a token that has fundamental utility on a decentralized application. In doing so, no centralized entity will control access to, or use of that application. It cannot be captured by a Board mandated to squeeze every cent of profit from it to satiate the financial hunger of those who own it. Distribution is aided by the fact that the token has value which is verifiable and validated through a blockchain. The market (people everywhere) realise this value and buy tokens, which are later listed on public exchanges and freely tradable. This is an utterly beautiful mechanism. It is absolutely not a security.
It is the quest for a solution to ICOs problems that inspired us to build TOKEN (cheekily placeholdered under usinvestorsnotallowed.com). There follows a description of the things that happen on TOKEN that address the problems with ICOs.
But first an overview. This is best done watching the demo video, or, better, loading up your MetaMask with testTOKEN and giving the Alpha a spin. Basically, the platform allows 1) ICOs and STOs to list their project, and 2) service providers (e.g. events and conferences, white paper design, tokenomics, tokenomic modelling, Ethereum smart contracts, legal review, code audit, incorporation services, ICO launch platforms, whitelisting and KYC/AML solutions, advertising, ICO website design, bounty management, MRV development, public relations, consultants, social media and telegram managers, exchanges etc) to list their service offerings. Both “listings” are done on the Ethereum blockchain.
The platform allows projects to build a Fund comprised of individual offerings from service providers. Each offering has the price that its vendor published and, when all of the required services are added, the project will create its Fund on Ethereum. This is a smart contract into which investors can invest, and where the proceeds are paid, not to the project, but to the service providers. Investors have access to these investment opportunities (which offer large discounts on tokens) depending on their reputation on the site which is derived from their success at rating projects. They also need the platform’s native token called “TOKEN” to access these opportunities.
Not quite grasping it? Well, as I said, its best go to https://usinvestorsnotallowed.com to see it in action. Back to those solutions …
1. Investments in project’s TOKEN Funds go straight to the service providers
There is no risk that the project will misspend the funds raised because the Fund smart contract will ensure use of funds according to the Fund’s design.
2. The crowd sees authoritative project ratings
People can view project lists, ratings, and each project’s Fund’s progress by connecting to the platform with a small amount of TOKEN in their MetaMask wallet. The bone fides of those ratings and other success factors are reinforced by the platform’s incentive structure for investors. Investors get more access and better discounts on project TOKEN Fund’s depending on their reputation score. This reputation score is algorithmically derived from investor behaviours weighted heavily by investment choices and the resulting success of projects.
3. A meritocracy for service providers
The market for service providers to ICOs has exploded because of the value pouring into the space. Good ICOs can raise a lot of money, but only if they can reach a lot of people and have their various KYC and other challenges “ducks in a row”. Service providers have, in general, adopted a pay up front approach which helps filter poor projects thereby protecting their reputation, but exacerbating the issue that rich people can ICO easily whereas the brilliant often cant.
TOKEN creates a meritocracy for service providers through an on-chain rating function by projects that used their services. As a result, the best service providers get higher and higher immutable reputation, which serves to reinforce the success likelihood of TOKEN Funds that they are included in. This is a virtuous circle.
4. ICO starting point
TOKEN delivers a new starting point for ICOs. Think about the scenarios that are typical today: Scenario 1. Rich people want to “do an ICO” to make money. They buy their help, consultants, media and solutions and launch their shi*coin on the unsophisticated masses (that is not derogatory, it refers to most people not really having the time or capacity to analyse an ICO properly). Scenario 2. Marketing experts who quickly got up to speed on ICO buzz words launch their website and token with little more than a few “reputable” names and faces on their website, and a buzz-wordy white paper. They get their millions and then ask, “What now?”
Projects initiated on the TOKEN platform won’t have successful TOKEN Funds unless a sophisticated investor community agrees with their project enough to put their own money into it. In the majority of cases this means in practice that the project will have an MVP (minimum viable product) alongside a strong technical vision and credentials. Therefore, those coming to market with successful TOKEN Funds a) have the partners needed to do it right, and b) have the right product, strategy, and team. Note what a contrast this is from the current “advisor” thing. Advisors shouldn’t be the reason a project is good, or, worse, a marketing tool. They should be reasonably remunerated to offer technical advice and mentorship with some consequential fairy dust if their reputation merits it.
Consider too, if investors with stellar reputation on TOKEN (their identity might be public or not) back a project’s TOKEN Fund this will be a major market signal (currently this is happening through VCs coming into the market but TOKEN will democratise this). Contrast this to an “advisor” not investing but being paid a percentage of tokens and, perhaps even, ICO funds raised just to allow their name to be associated with the project mainly for marketing reasons.
The strong starting point of a TOKEN platform readied TGE is the perfect solution to tokenised investments. Undoubtedly, the masses will consume and trust the authoritative data coming from TOKEN, and back projects accordingly. Perhaps this crowd will reach orders of magnitude where the best ICOs and STOs can be funded in minutes by tens of thousands of contributors each contributing a modest amount.
It is for these reasons that we have boldly made our goal 70% of the entire early stage token investing market. TOKEN could become the de facto launch platform. TOKEN holders benefit as traction develops, have no reason to go elsewhere, and they have every reason to support the integrity and success of TOKEN.
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p.s. a word about KYC …
The first big reality check for ICOs was KYC, and with it came the first handshake with the real world of regulation and regulatory control. Money laundering is no laughing matter either from a punitive stand point or in relation to consequences of unfettered financial flows into crime. But before going all legal, consider that ICOs could potentially remain KYC compliant if maximum contributions were kept low enough. Many ICO’s telegram groups have over 100,000 members. If each paid $100 the project would raise $10 million. Many regulators would little to objection about this approach remaining free.
Some Swiss projects have taken the view that contributions less than 4000 USD are KYC exempt, and they are possibly correct. After all, the banking sector operates on similar principals. Add to this the emerging philosophy that ICOs are $5–20 million fundraising events with any extra capital required secured later through retained token’s value on exchanges and you can see that no-KYC ICOs are very possible. In the case above, only 1250 and 5000 $4000 contributors are needed for $5million and $20million ICOs respectively to remain under (Swiss) KYC levels (arguably).
I have not seen many ICO solution providers aiming to hold on to the beautiful freedoms that ICOs heralded — something so “other” to equity and corporate finance. Most solutions pander to the financial sector — trying to be friends with it. It’s becoming all about them rather than all about the people. Imagine a $20million ICO where the average contribution was, as illustrated above, $100 — that would be amazing and completely aligned with the goal of decentralization through token distribution. It would be very easy for a jurisdiction to cement regulation that definitively allowed this, and then it’s just up to us to find a technical solution.