Initial Coin Offering
If you’re in any way involved with blockchain space, you’ve probably heard of Initial Coin Offerings (ICOs). In short, ICO is a process where start-ups, companies, organizations, protocols or other projects in the crypto space decide to sell their tokens. It can be either public or private.
I’m reading about the subject and, as it is recent, there is little literature on it. There are several reasons why someone should perform an ICO. It can be a form of financing when you have a good idea but don’t have the money to put it on the market. It can be a way to get liquidity for your token. It can be a form of advertisement for your product/service and others.
The first ICO I attended was organized by Binance and was for the Lazio (European football team) fan token. There was a $20,000 limit, and the token cost $1. I set aside $2,000 for this ICO, and I had to make an average balance on my account for 7 days. The window to participate in the ICO was very short, and because of my time zone, I had to wake up at dawn to click the button and participate. To my surprise, I managed to buy only 1 token.
Of course, I got frustrated. Even more when I saw the starting price on the market around $20, it peaked at $26, and I sold mine for $18, and today, it’s worth $6. I wonder how much I would not have made if I had bought 2,000 tokens or invested more and bought 20,000, which was the limit.
The problem is that this ICO system ends up favouring the richest or those who have more resources available at that time. The tokens were distributed by dividing the amount you put in reserve by the total amount deposited. The result is multiplied by the number of tokens available to the ICO. In the end, if you have little money, you keep 1 token and earn $19 in profit. If you have a lot of money, well, you can figure it out.
I’ve participated in other ICOs at PancakeSwap, and it’s the same story. They call it IFO, Initial Farm Offerings, which is the same thing, but with a different (flavour) name. They have a mechanism to try to mitigate this issue. They distribute the tokens into two groups. There is a maximum limit that each one can invest in in a group, and it is around $100. This ensures that everyone who deposits the money to buy the tokens there will buy the same amount. The other group is the same as the Binance model; whoever has more takes more.
I’ve been thinking about it since then, and I think I’ve come up with an idea of how to make it fairer, from the point of view of those who have less money to invest. As this article is already too big, I’ll detail my idea in the next post.
