How to run the perfect ICO
The past year has seen a dramatic rise in the number of ICO’s, with hundreds of new projects launching. In recent months there has been a marked improvement in how these ICO’s are being run, but too many are still being operated in an unclear and disorganised fashion.
There are a number of simple rules that projects could follow to ensure a well run process.
No gas wars, no whales
Perhaps the most egregious example of ‘gas wars’ (which essentially means that people pay high transaction fees so that their transaction goes through quickest and therefore they get to purchase the most tokens) was the BAT sale in May, where almost 50% of the tokens were bought by 4 addresses and one address alone purchased 24% of the entire supply. The sale of $36m was completed in 24 seconds and shut out normal investors.
Limiting people to a daily cap (as seen in the example of Request.Network and many others) makes it fairer for everyone. Whale concentration isn’t just bad for normal investors, it’s bad for the company doing the sale, as it engenders ill will and shuts out a potentially large user base of their product (especially so in the case of something like BAT).
Too many projects obfuscate what should be readily available information such as:
How will the funds be used? Teams very often just write general notes such as this example:
“ChainTrade plans to invest the proceeds of the Token Sale in the following activities:
- Strengthen development team / development of core product
- Multiplatform support
- Legal proceedings for regulatory approvals
- Sales & Marketing
- Strategic partnerships in the finance industry
- Administration and operations
This list is not limitative and will be adjusted as may be required by the business”
If you’re aiming to raise millions of dollars, you should have a clear idea as to what you will actually spend this money on.
What will happen to unsold tokens?
If the answer isn’t “all unsold tokens will be burnt” then be very wary
What is the vesting period of the teams tokens?
This should be a minimum of 12 months but ideally it would be staggered across 12/24/36/48/60 months
No bonuses without good reason
Often projects offer pre-sale or earlybird discounts. Sometimes these are justified e.g. a pre-sale is run a year before in order to produce a working prototype prior to the ICO. In this event, given that investors will have had to lock up their ETH/BTC, presale tokens would justifiably be cheaper than the main sale.
However, a lot of projects run a pre-sale just before the main sale (some have the pre-sale ending the day before the ICO) which makes a mockery of it. There is no justifiable reason for having a pre-sale in this context, nor to have any discounts (and the discounts are often substantial, upwards of 40-50%). Others give Day 1/Week 1 investors a steep discount – again, this is a misguided tactic. It unfairly targets those who get in later and provides easy and immediate profits which people happily take advantage of, suppressing the price out of the gates.
Tokens should be locked up until after the ICO finishes
Some ICOs choose, rather bafflingly, to allow for their tokens to be traded whilst the ICO is still ongoing. This is nonsensical and can only be a negative. In the case of Ripio, tokens were trading at a discount to ICO price on EtherDelta while the ICO was still ongoing.
Teams should lock tokens up until the conclusion of the ICO but then unlock them for trading within a short timeframe thereafter (up to 7 days is reasonable).
Teams should make sure they have the resources to respond to questions and to be as open and transparent as possible about the sale. This involves communicating on Reddit, Telegram, BitCoinTalk, Twitter, Slack and any other outlets.