We got curious and simulated the capped micro-rounded bonus tactic. Any takers?

by Alex Lee

26 June 2018, marks the end of the biggest initial coin offering (ICO) in history which saw EOS raising over USD 4 billion in an epic 355 days token sale.

How EOS did its ICO?

The EOS team describes an example distribution schedule, in which an initial 5-day ICO period will be used to distribute 200,000,000 EOS. In this period there will be no cap in the amount of funds raised. However much funds are raised during the initial period, the 200,000,000 EOS tokens will be distributed proportionally to the funds raised.

After this initial 5-day ICO period, there will be 350 consecutive 23-hour ICO periods in which 2,000,000 EOS tokens are distributed in each period. The distribution mechanism in these periods will be exactly the same as in the initial 5-day period

You may read the rationale and benefits of EOS distribution system on other articles, such as this blog https://steemit.com/eos/@trogdor/the-eos-ico-for-dummies

Can other projects follow suit?

Events like these may give wrong impression that token sales are easy when in fact only half of the projects were reported to collect more than $100,000. The same report also noted that the average fund raising campaigns increases from 30 days to 2 months compared to past year.

Could a longer token sale period help projects to achieve its funding objectives? Perhaps, especially when project requires longer run time for its marketing activities to take effect. It may suit projects that are only willing to invest more in marketing upon receiving some result in token sale.

Other project may well follow EOS approach, though with some modification to overcome some of the challenges. The challenge is when the project has yet to achieve widespread recognition thereby limiting the number of people participating in its ICO. Due to the nature of its distribution could risk raising only a little amount of funding from only a handful of contributors. When this happens a lot of the token would be distributed to just a few people. Likewise, funding from one or a few whales will also result in them gaining majority portion of the token pool. There are many known problems associated to having too few people gaining control to large amount of token, which will not be elaborated in this article.

Introducing An ICO Approach: The Capped Microrounded with Bonus

The Parameters:

  1. Cap for overall and on each round.
    • Overall Target amount a.k.a hard cap
    • Number of token for sale for each round
    • Overall time or period of sale and also for each round
  1. Bonus at every round (in absolute term or percentage)

I will illustrate this approach using a mock scenario with the following assumptions.

Assumptions

  • Reaching the hard cap is not a must, which means the project is still able to proceed with lesser funding collected. However, a soft cap can be set.
  • Private sale is run concurrently throughout the campaign period. Note: the minimum contribution amount shall be set for private sale.
  • Project intends to go for crowd sale which means marketing to the community at large must be done to a certain extent (and will continue to be done over crowd sale). See the minimum marketing activities below
  • As marketing campaign progresses, the project receives increasing interests from the public and naturally (hopefully) there are substantially more contributors at every round.

 Minimum marketing activities must still be in place and can be done at no extra third party costs

  • Complete website. A website with just subscription to its email newsletter will not work
  • Content is king. Write about your project, repurpose and distribute the articles across multiple channels i.e: blog, forums, Medium, Reddit, LinkedIn, Twitter, Steemit, and etc. It may seem like a lot of work but if a piece of article is written, you’re already half way there. With content repository properly set up, it’s a matter of repurposing the same content and posting it to the various channels.
  • Social media set up and gain followers. Any effort is better than none i.e: get your circle of friends to join, get free speaking slot in events and promote your channels, run simple bounty program such as airdrop tokens for those who join your Telegram group. Once they are in, start engaging them using the content above, breaking them into bite size and post it up over a period of time.

Doing the above shows, at the very least, you are ready for business. When people visit your website, they could get some winformation; they could download the whitepaper and engage with project members. Similarly when visit your social media channels they could see some hype hence the chances of them following your social media or subscribe to your newsletter is higher than a quiet channel. And the more people join the more it attracts subsequent followers and the cycle continues and the hype of your project goes up a notch and the chances of anyone contributing to your project goes higher too. This applies to both private and public investors.

A Sample Scenario:

Hard cap: USD10mil

Token for crowdsale 500 Mil

Bonus token for crowdsale: 3.118 Mil

Period: 16 Weeks

(click on the image to download the Excel file)

The token for crowdsale doubles every week (or every 168 hours), starting from low number.

This prevents small number of people gaining large amount of token when the marketing activities of the project has not gain momentum. At the end of each week, the number of token is distributed proportionately to investors’ capital. This distribution goes on for another 3 weeks. At the end of every 4 rounds, the bonus is then distributed proportionately to all the investors’ capital over the 4 weeks. Similar to traditional ICO approach, the diminishing bonus is to incentivize people to contribute earlier.

At any point when the amount of capital raised has reached the hardcap, the remaining bonus outside its current round will be distributed proportionately to all the investors’ capital over the fund raising period.

If the project fails to reach its softcap, the project may opt to refund investors’ capital.

The Benefits

  • Remove arbitrarily setting the price of the token sale. This allows the market to decide the price of the token
  • Fair and auditable distribution scheme in which everyone can verify their and others’ contribution and amount of token received.
  • Incentivises early contributors. Some individuals may be able to determine when to participate in each round but every individual has the same opportunity to participate.
  • The amount raised is capped to avoid being perceived as greedy or to mitigate risk of regulatory scrutiny.
  • Suitable for projects that requires a longer runway for its marketing activities to take effect
  • By progressively increasing the amount of token for sale, this reduces the chance of small number of contributors gaining large amount of token (assuming that board awareness and interest about the project is achieved over time).

As you may be aware by now, there are a number of ways this approach can be modified further. For instance, introducing cap to the token one can buy in each round, distribute bonus in a different way, introducing locking for certain investors, shorten or prolong campaign period and etc. I believe ICO approach has to be tailored for every project considering the resources at hand. Moving ahead, as the industry finds its equilibrium, we will see the birth of more innovative ICO approaches.

Further reads:

https://blog.coinbase.com/the-perfect-token-sale-structure-63c169789491

https://vitalik.ca/general/2017/06/09/sales.html

https://people.cs.uchicago.edu/~teutsch/papers/ico.pdf

http://news.8btc.com/icos-dead-90-of-247-newly-listed-crypto-tokens-fail-to-hold-its-ico-price

https://news.bitcoin.com/less-than-half-of-icos-survive-four-months-after-sale-study-finds/