Hardcap reality
CoTrader’s sale is coming this month (http://bit.ly/2t95car), so it’s time to discuss tokenomics. Some crypto ICO companies like my own CoTrader aim to set low hardcaps like $10M while leaving some tokens for later to incentivize further development of the roadmap. This is in contrast to so many other companies that aim to raise as much ICO funds as possible up front and run away with the money. Projects that believe in themselves tend to want to sell less now, and leave some tokens for later big product and marketing expansions, rather than try to cash-grab as much as possible now, before people figure out they have no viable product, or logical explanation why they should use blockchain.
Ethereum’s ICO was “just” $15M. Remember reality? Where $15M can fund 100+ man-years of engineer salaries, even in Western countries? This is some food for thought for those that feel like an ICO below $30M is a “small project with small aims and means”.
Product delivery. Many companies don’t get to any actual blockchain MVP ever, even after raising 10s and 100s of millions of dollars, let alone before the ICO. CoTrader wants to help improve that standard. CoTrader already has a working MVP at demo.cotrader.com that runs on the actual blockchain, the Ethereum testnet Ropsten, and is looking to take it live perhaps even before the ICO. This is rare. Those that care about community want to discuss
Token metrics. A low hardcap is often considered good for investors as it creates limited supply and unmet demand. A low tokens sold percentage can also be helpful to long term health of the project. If a high % is sold, like 65–75%, after any airdrop etc, perhaps 80% is given to the public. There are then perhaps 0–10% tokens left for the company (after the team 10–20%). The company then has little incentive (and funds from further token sales) to progress the project forward further. Of course, the concept of decentralized sales is that you sell once, with all development done already. But that’s virtually never the case. The usual case is companies raise 10s-100s of millions, without users or even a product, then go off to do who knows what.
Enter the DAICO sale structure, where milestones are rewarded with further sales with the tokens left over. The problem is it’s hard to enforce this milestone-based releases, especially since milestone plans do change, and often rightly so, especially in the fast paced world of crypto.
A simpler way to incentivize companies to progress their projects is to have a large % of tokens, such as 40–70%, vested with company over a relatively long period of time, like 3–4 years, as these tokens can then be sold to progress the project forward. And they can be sold at higher amounts if there are good project updates.
Some worry that a high amount of tokens vested such as 50% would be trouble in terms of decentralization. However, eventually the tokens would be sold to the market, but by people that are in the best situation to progress the project with the funds
Other worries are inflation related. If only 20–30% of the tokens are in circulation, then releasing 50+% even with 4 year equal vesting, means that there would be inflation that starts high but falls quickly. The selling of additional tokens can be locked for at least 6–12 months, while making milestone updates bringing positive news, Inflation in cryptocurrecy ICOs often pale in comparison to the rise of tokens, which often increase in value by 10x, 100x, in weeks, or sometimes even 1000s fold in as little as 1 or 2 years.
In the pre-ICO era, companies would typically not sell more than 20–30% equity in a funding round. This is because it doesn’t make sense to sell so much before having a chance to prove anything. It’s interesting to consider this when following current ICO token metric trends, which are in fact selling fewer tokens in their first token generation events (TGE).
A bit about CoTrader: the world’s first trustless investment funds marketplace. CoTraders are investors that can invest together with the proven best fund managers, without their funds l eaving their hardware wallets’ control. The blockchain in our case allows highly desirable control over invested funds in ways that’ve never been possible before. CoTrader is therefore the killer blockchain app. CoTraders send funds into Smart Funds, where only the depositor can every withdraw them. Fund managers can only make trades on CoTraders’ behalves. Proof of fees, ROI history, and total control of assets is on the blockchain, written into public smart contracts. The biz model is a small 0.1% of trades and about 1% of performance fees from fund managers. Both exchanges and fund management are huge industries. Crypto exchanges alone process 10s of billions per day. Global fund management is an $85 trillion industry.
What are your thoughts on the topic? Polite and thoughtful comments and discussions are very welcome.
