Raising Tokens to Build a Company or an Ecosystem?
We need to keep thinking of new roles for the token. I’ve already outlined about 20 such roles in this previous post, Tokenomics: A Business Guide to Token Usage, Utility and Value.
In light of the increasingly larger amounts of tokens being raised recently, I’m beginning to wonder that the intent of these big raises may not just to be to build a company, but also to bootstrap an ecosystem and invest in incentives for user engagements.
Specifically, Civic will allocate 33% of their tokens for distribution to incentivize participation in the ecosystem. Bancor will use 20% (or more) of their token proceeds for their “reserve”, a segment that is apparently needed to run their token liquidity scheme. The IPFS / Filecoin relationship is another interesting case, where Filecoin (upcoming token sale) will be the way to incentivize users to store IPFS content (from IPFS applications for example). I wouldn’t be surprised if other upcoming token sales might do similar things, where the user incentive is built-into the token’s utility.
When I did the OpenBazaar first round of financing in 2015, along with USV and Andreessen-Horowitz, we specifically included in those terms, that a % of that money raised had to be used with their ecosystem of developers who were building applications on top of their protocol. That was another way to incentivize the ecosystem.
The key thing that needs to happen is the explicit linkage of the token with the usage, whether that usage is directly linked to the end-user or the developer.
With Steemit as an example, the tokens are inside a logged user’s wallet, and you use them to actually spend on voting, commenting, publishing, etc, and when you earn something, it goes straight into your wallet. So, the token wallet operation is intrinsically linked to the actual usage of the product.
I’d like to see more cases like Steemit who figured this out, more than a year ago, as soon as they launched.
Building a new company is already hard. Bootstraping an ecosystem and a community of users at the same time as building a product is even harder.
With the influx of available cryptocapital that has become widely accessible, it’s going to be interesting to watch what happens next, because companies now have the luxury of raising enough money to build simultaneously a product, a company, and an ecosystem.
In theory, the idea of linking incentives for usage/development and investment in a cryptoasset network is appealing. It creates new types of network effects. There could be separate network effects for developers and users of the network. This is a new and intriguing way to think about company and ecosystem development.
But I have to ask how realistic this is. Let’s speculate on the math. If a network were to become successful, what’s the eventual number of developers and users you might expect? The answer might not be clear, but it’s better than not asking the question at all. And over time the community should get better at guesstimating here.
My intuition is that the number investors as a percentage of the total eventual number of developers or users will be pretty small.
So what sounds good in theory might not turn out to be such a big deal after all.
As an extreme example, the BAT ICO raised $36 M in 30 seconds. There were 184 investors. http://www.the-blockchain.com/2017/06/01/brave-token-sale-blasts-records-35-million-30-seconds/
Hard to make a case that these 184 investors could be a significant part of an eventual ecosystem of developers/users.
I’ll suggest it’s worth developing a metric to evaluate whether ICOs are fueled by pure investors/speculators vs. investor developers and/or investor users.
I heard that Brave will incentivize users by granting tokens, so that in essence will bootsrap users as token holders.
and Civic will link user ID into their public offering.
true that the models aren’t perfect yet; but hopefully the end-game is to have lots of token holders as real users. I’m not sure what metric to use in the meantime that would make sense.
I think you’re making my point that the hype and reality won’t necessarily match up.
You’ve (correctly) pointed out that the true value of an ICO will be as a new network/ecosystem development tool, not as a new method of fundraising.
So why wasn’t the ICO structured INITIALLY to attract a broader base of developers & users? Why a need to fallback on your generous “I’ve heard” that they have a scheme to bring in new token holders somewhere down the line? Maybe you’re right but I think my attitude of “show me” is in order.
Why NOT begin to develop a metric to evaluate what % of an INITIAL ICO gets tokens into the hands of users/developers? Even a SWAG would be better than nothing.
> So why wasn’t the ICO structured INITIALLY to attract a broader base of developers & users?
– I think it’s because the evolution to actual usage and derived value is gradual, and doesn’t happen when the token is available. There is a lag period between token availability and product availability (in most cases). So, even users were given tokens early in the lifecycle, they wouldn’t be able to do much with them. That might change though, as we see companies with existing users (like Kik for example) enter this domain or some other companies that sell the token when they are much closer to an actual product launch.
“the evolution to actual usage and derived value is gradual, and doesn’t happen when the token is available.”
Again, you’re making my overall point. The theoretical value of linking investment to developers/users is appealing but how will that match with actual value. “Show me”. I understand you can’t do that today but it’s a fair question for the future.
In the theory it sounds perfect. Lets be real there will be the human factor. You work and you earn right. What guarantees me that the system wont be tampered. In other words hacked. Work less and earn more by deception. I like the article but it bring more questions than answers. I guess time will tell.