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ICOs are like weddings: months of planning comes to one big day. If the event goes off without a hitch, it will bring in a lot of money. But with the world watching, the stakes are high. One slip and you risk losing it all: the bouquet, the immaculate wedding dress, and the $20 million in ether you’d been promised. Planning an ICO is hard work. Ruining one is surprisingly easy, as a number of recent projects have demonstrated.
One Shot, One Opportunity
“If you had one shot or one opportunity to seize everything you ever wanted in one moment, would you capture it or just let it slip?” Long before ERC20 tokens were a thing, Eminem penned a treatise on holding the perfect crowdsale. Several of 2018’s ICOs clearly missed that memo, for they seem hell-bent on smothering their crowdsale at birth.
On Sunday January 14 one of this year’s most hyped ICOs, The Key, was scheduled to hold its crowdsale on the NEO blockchain. Following a respite over the festive period, ICOs are back with a bang, and like many crowdsales, The Key’s was hopelessly over-subscribed. What happened over the course of the following 30 minutes was a textbook case in how not to ICO.
First the token price was jacked up 300% shortly before the sale started. Then the site crashed, and then the Telegram group was flooded with spam links, porn and thousands of complaints as the event degenerated into total chaos. The sale sold out in record time, because this is 2018, but the experience soured many aspiring investors. The carnage surrounding The Key’s crowdsale is by no means the worst instance of self-sabotage to have befallen the class of 2018. As the following examples illustrate, there’s more than one way to scupper an ICO.
You won’t read it in their white paper or find it on their website, but crypto projects enter into an unwritten agreement with their investors that goes something as follows: “We promise to sell you tokens at a low enough price for you to be able to flip them for an easy profit when they’re listed on an exchange”. For the team running the crowdsale, it is a case of balancing this objective with protecting its own profits.
Dragonchain went for less than $0.07 in its October ICO before passing $5 on exchanges just three months later. In hindsight, its team could have comfortably doubled the asking price for the token without being seen as greedy. $0.50 for a blockchain music exchange token, on the other hand, seems a little steep. That being said, a token’s value cannot be gleaned from its asking price alone: the total number of tokens minted and the project type must also be taken into consideration. It is common for lending platforms such as Coinloan, for example, to charge much as $2-3 a token at the ICO stage.
Copy another project’s white paper – be it blatantly or subtly – and you’re going to get busted. It happened to Dadi, whose team were caught with their trousers down after pillaging entire chunks of the SONM white paper. It also happened to Tron, even if the full extent of the plagiary wasn’t discovered until after the fact. While Tron’s subsequent decline can’t be attributed entirely to this revelation – the fact that it’s total vaporware probably didn’t help – this chart should serve as a warning to any ICOs coveting the competition:
Don’t launch a decentralized project unless it has a genuine use for a blockchain. We’ve written about pointless tokens in the past, but just to reiterate, if your disruptive idea involves selling dried bananas or issuing a female token to hit back at the patriarchy, one thing you’re not going to hit is your soft cap.
If your project does have a tangible use case – or even a theoretical one, given the current extent of ICO fever – prepare to be swamped. Prepare to have your website overwhelmed, your server downed, your Telegram channel oversubscribed, and your whitelist overbooked. Every ICO dreams of creating a buzz ahead of its pre-sale, or its pre-pre-sale (only plebs buy into public sales these days). Overhype your token generation event, though, and you risk winding up with a lot of unhappy bunnies. Be prepared: pay for proper web hosting, don’t extend more invitations than you can honor, and, where possible, have your smart contract prepared in advance so tokens can be automatically issued as soon as ether is received.
You’ve worked your ass off to get to the crowdsale stage and to be on the verge of receiving millions of dollars must be intoxicating. But if all you’re tweeting about in the days leading up to your ICO is entreaties to buy in and speculation about exchange listings, it’s pretty obvious where your priorities lie. Ease up on the avarice. Otherwise, your investors may conclude that you’re not so interested in disrupting the oligarchies and creating a new decentralized paradigm after all.
It’s fine to hold back some tokens for your team, partners and advisors, and it’s okay to offer discounts to early birds. But start handing out tokens to anyone who flutters their eyelashes at you or lay on discounts for every stage of the crowdsale bar the ultimate day and all you’re doing is cheapening your brand and alienating participants who have to pay full whack. A fairer model used by the likes of Safinus, a platform which allows investors to increase their managed capital, is to apply an opening day bonus and then ease up on the discounts. Reign in the freebies and not only will you earn more ether – you’ll also earn more respect.
What behaviors deter you from investing in certain ICOs? Let us know in the comments section below.
Images courtesy of Shutterstock, Banana Papa, Wikipedia, and Coincodex.
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