Making sense of this year’s outrageous ICOs

By in Expert on November 25, 2017
  • While capital is extremely important, the ICO has another powerful effect: It gets your tokens into the hands of people who are incentivized to help your network grow.
  • The only way to ensure that everyone who wanted to participate had an opportunity to do so was to run an uncapped ICO, which led to ridiculous amounts of money being raised at absurd valuations for seed stage projects.

Tushar Jain, Multicoin Capital writes (key points selected):

While capital is extremely important, the ICO has another powerful effect: It gets your tokens into the hands of people who are incentivized to help your network grow.

Because of the pseudonymous nature of Bitcoin and Ethereum (your addresses are not tied to your real identity, and you can create as many addresses as you want, perpetrating what is known as a Sybil attack), initially, there was no easy way for the team running the ICO to limit any given individual’s investment.

The only way to ensure that everyone who wanted to participate had an opportunity to do so was to run an uncapped ICO, which led to ridiculous amounts of money being raised at absurd valuations for seed stage projects.

Protocol development teams set their ICO fundraising targets extremely high because they have enormous capital needs and know they will not get another chance to raise capital.

ICO presale structures drive FOMO Most ICOs are structured with several layers of presales preceding the actual public token sale.

Since tokens, unlike restricted stock in a startup, are liquid, investors are willing to invest more in a presale or ICO: They know they can offload their tokens to the market.

Better ways forward Several protocol development teams have implemented ICO policies that are positive and responsible: Filecoin forced investors to have a lockup period for their tokens, which meant investors more carefully weighed the decision to invest.

0x required investors to preregister for the ICO and implemented investor identification requirements to limit how much any single investor could purchase, which solved the token distribution problem without requiring an uncapped ICO.

Civic provides a mechanism to prevent Sybil attacks and has been used by recent ICOs (including that of 0x) Funfair announced it would have two rounds of fundraising; as it turned out, the company didn’t need the extra capital, so it didn’t raise it and burned those tokens instead.

Service providers, such as investment banks, are offering to advise protocol development teams on how to structure their ICO according to best known practices.

Read the full article: https://venturebeat.com/2017/11/25/making-sense-of-this-years-outrageous-icos/

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