Understanding Token Sale Structure of Your ICO
A key factor that determines the success of your ICO is transparency. One of the factors that illustrate transparency is establishing the details of the token utility and Crypto economics. The next step towards upkeeping this transparency is fixing everything that needs to be regarding the announcement before they go public. It should be remembered that any change that happened after going public might result in credibility being lost.
ICO-launches are happening left, right and center. they might have varying intensity of complications that might arise out of distribution and jurisdiction. At this juncture, it is important for you to define your token sale model.
What is a token sale model?
The token sale model defines the ways in which your token will translate into other utility or security by fixing the math and logic that will rule the transactions. There are various models of token sale.
Uncapped Fixed Rate:
In this model, the ratio of exchange is fixed. The initial contributors could receive a better rate for the tokens and the number of tokens that an investor can buy for the same amount can be decreased over time. This model, however, has a specific period of contribution.
Soft caps:
A cap might be set for the initial sale of token but once a certain number is achieved, the time window foreclosing is extended until the full closure happens. Soft caps are mostly combined with hard caps to facilitate a premature closure of token sale based on another condition that could possibly be achieved even before the second-soft-cap closure happens.
Hard caps:
The hard cap has just one fixed cap and the sale stops when this number is reached. There are no conditions that can extend the duration of the same. As it is implied, the participation in sales bound by hard caps is limited by time.
Hidden caps:
As the name implies, the hidden cap model does not reveal the allocation until the ICO launching event.
Dutch auction:
As strange as it might sound, the practice of dutching has not spared even the world of cryptocurrency. The price of the offering decided after taking into consideration all the bids and then using that data to determine the highest price in which the offering can be sold in total. The bids are sorted in the descending order of prices, and the highest bids are accepted at first until the sum of the desired quantity is enough to sell all the offered tokens. After the last bit is accepted, all the remaining bidders with an accepted bid get to buy the token for the price of the last bid.
Reverse Dutch auction:
After defining a cap on the sale, the portion of tokens given to the purchases depends on the time it takes for the sale to finish. The greater the delay in the completion of the sale, the higher the portion of tokens that get distributed among the purchases. The cap ensures that not more than the intended portion of the tokens go for purchase.
Collect and return:
A flexible smart contract facilitates the contributions that can exceed the fixed amount while the total contribution amount is fixed. Once the finalization happens, the contributions are adjusted by the ratio and the difference in the contribution is returned to the respective owner.
Dynamic ceiling:
The dynamic ceiling is a cocktail of all the above methods where there are hidden hard cap set at specific intervals. This method is useful in limiting the maximum amount that can be deposited for a given ceiling. This ensures that the largest contributor split the transactions into smaller ones so that the cost per transaction also proportionately increases. The feeling serves as a hard cap beyond which any transaction is rejected.
These different methods exist in the textbook but for the sake of practical profitability, it is better to keep your sale structure as simple as possible. It will help in avoiding unwanted and unwarranted conflicts.
Irrespective of the model that you choose to sell your token, there are certain bits of information that need to be disclosed well in advance to your prospective investors. Some of them, considering security, can be disclosed at a later date but should at least be available internally.
The bits of information include the date or the block number on which the sale would start, the duration of the sale, the nature of the caps, the number of tokens that are available for distribution, the mining nature and more importantly, the exchange rates.
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