How to have a crowdsale - best practices and lessons from Maidsafe

[fordlincoln]

CrowdsaleBestPractices
Crowdsale Best Practices "Let The Market Decide"

Location of post: https://github.com/DavidJohnstonCEO/CrowdsaleBestPractices#crowdsalebestpractices

TLDR:
Future crowdsales are adopting the state-of-the-art characteristics of rewarding multiple demographics, a 30 day time window, capped numbers of tokens, and single currency pricing, but are also seeking to improve on this model by letting the market decide the price of their application’s digital tokens during a crowdsale using a sales volume based pricing model.

Brief History of Crowdsales
The market serves as the ultimate judge of value and price.

With this in mind, let's consider the lessons we can take when it comes to interacting with the market in the realms of selling software, specifically in using the crowdsale model.

Recently crowdsales of digital tokens that access software applications have become an increasingly popular option for entrepreneurs and developers to gain users and supporters for their projects.

J.R. Willett held one of the first crowdsales in August 2013 when he was developing a protocol for smart property and a decentralized exchange built on top of the Bitcoin Protocol. This project would later be known as the, Metadata Archival by Standard Transaction Embedding Records Protocol or simply the MASTER Protocol AKA Mastercoin.

J.R.’s crowdsale went on for a period of 30 days and raised more than 4,700 bitcoins (which were priced at the time around $100 each at the time). 91% of the new digital tokens (MSC) went to the crowdsale participants and 9% went to a core developer pool.

This first successful use of the crowdsale model on top of the Bitcoin Protocol attracted many others to emulate it including, Counterparty, ProtoShares, and NXT just to name a few.

Each project has tried a different model of selling digital tokens. For example, Countryparty burned the bitcoin contributions made to their generation address, and ProtoShares held an extended daily auction process for a period of 6 months.

The proposed distribution pattern of digital tokens has also moved away from primarily rewarding the crowdsale participants, to that of rewarding multiple demographics such as miners, third party developers, core developers, and others that add value to these applications. This was evident in the MaidSafe crowdsale where the majority (70%) of their tokens will flow to “farmers” that provide storage space to the SAFE Network and then smaller pools of tokens for core developers (10%), and third party developers (10%) and finally the crowdsale participants (10%).

MaidSafe was also innovative in being one of the first crowdsales to take multiple crypto currencies including bitcoin and mastercoin. However, it proved difficult to avoid arbitragers seeking to take advantage of either price or liquidity differences between the two currencies.

The State of the Art
With this history in mind, we come to the present and the state of the art when it comes to structuring a crowdsale of software for digital tokens. This state of the art can be described broadly as including:

Rewarding multiple demographics, such as, core developers, third party developers, resource providers, crowdsale participants, and even users who are adding to the network effect of the application.

Projects are focusing in on the 30-day time window as the best timeframe for holding a crowdsale (as was demonstrated before by Kickstarter).

Many projects have opted for a capped number of total digital tokens available in their crowdsale and that will ever exist in their protocol. This is primarily in order to give the participants in the crowdsale the ability to judge the price of what they are purchasing.

Many projects seem to be opting for accepting a single currency (bitcoin) during the period of their crowdsale in order to avoid issues with arbitrageurs pushing around the prices of the digital tokens involved in the crowdsale. Though it is worth adding that technical solutions for holding multi digital token crowdsales have been proposed for both the Master Protocol and Counterparty, however they have not yet been demonstrated in practice.

Future Models for Crowdsales
Future crowdsales are adopting the state of the art characteristics of rewarding multiple demographics, a 30 day time window, capped numbers of tokens, and single currency pricing, but are also seeking to improve on this model.

Two near future examples of this are SWARM (June 17th) & API Network June 18th).

http://www.swarmcorp.com/

http://www.apinetwork.co/

Both projects are rewarding a variety of demographics, have 30-day time windows, have a capped numbers of tokens, and single currency pricing, but both also include a new innovation in the way the price of their tokens is determined. That is, both projects have opted to let the market decide the proper price of their tokens. They are accomplishing this by setting a wide range of prices for their tokens during the crowdsale determined by the volume of bitcoin that is collected.

Firstly, for example the API Network is offering API Coins (XAP) at a rate of 1.6 mBTC per XAP for the first 500 bitcoins worth of sales. The price increases to 2.13 mBTC per XAP during the sale of the next 1,000 bitcoins worth of XAP. The price then increases to 2.66 mBTC per XAP during the sale of the next 2,000 bitcoins worth of XAP. Lastly, the price increases to 3.12 mBTC per XAP during the sale of the last 4,692 bitcoins worth of XAP.

Secondly, for example with SWARM if you participated in their early part of their crowdsale you would gain 5,250 SWARM coins per bitcoin you send in. This rate of SWARM declines the more bitcoin collected until four thousand BTC are collected and the price increases to 4,250 SWARM per bitcoin. This generation process could continue all the way until twenty one thousand bitcoin are collected and the generation rate falls to 3,750 SWARM per bitcoin.

It is worth noting that neither the SWARM team or the API Network team expect to collect the maximum number of bitcoins by selling out all of their tokens (though it is possible if demand has been radically underestimated). Instead, both project have set a range of price points and are leaving it up to the market to decide the proper price of SWARM and API Coins (XAP). If the market decides these projects are highly valued, than the price of the coins will reach a higher level during the crowdsale. Conversely, if the market decides that these projects are not as highly valued, than the price of the coins will not rise as high during the crowdsale. Either way the pricing of these tokens is for the market to determine.

[Pentamon]

Interesting read.

I would like to see a concept or model developed where there is not just a 30 day cap, but an ongoing distribution model or process that will transcend multiple generations.

I would like to see the same amount of the tokens generated as each new stakeholder is verified and established. This would be a process that will happen on a continuous basis. The genesis account would fill the newly populated stakeholder accounts with tokens bearing the unique identity of that stakeholder. This process of filling the stakeholder account, occurs on a continuous basis, as long as that stakeholder is alive.

If we agree that there is a benefit to keeping the ratio of tokens to stakeholders in this economy reasonably constant, there should also be a mechanism for the 'destruction' of the tokens after a stakeholder stops participating. This process might follow a certain

You could see a parallel to life itself. The tokens could be called something like: negative entropy coin.

Catchy three letter acronyms can be made up for this model:
Proof of Person: PoP
Proof of Life - PoL

Of course the tokens will be able to be traded and the value determined on the free market.
Legal entities, corporations and transferable accounts can be created and can also hold these tokens, but they do not generate the formation of new tokens, and when a stakeholder is identified.
If the emphasis is on proof of Life, rather than Person, maybe the

For the purpose of fine-tuning the model with feedback controls, and for determining the ideal parameterhoulds (number of tokens per individual stakeholder needed to in an economy, decay rate or half-life of tokens after the death of a stakeholder)  I think the input of experts from various disciplines would be helpful:

System experts in microbiology, epidemiology, mathematics, computer networks, economy and last but not least ecologists, could help with the following questions:
 Which reward mechanisms should be involved to optimally distribute and maintain the tokens? Think of infections spreading through a population. The tokens being the infection. What is the ideal duration for an infected host becomes infectious, i.e. mature and able to participate in the verification of new stakeholders? How many mature stakeholders are needed to verify a new entry into the system? (this is the act of infecting). Even though the new stakeholder should get most of the newly issued tokens, should that process be rewarding to the verifiers? If so, to what degree? What should be the bounty for correctly identifying a deceased stakeholder, or should there not be a bounty on that?

Go ahead and improve, or trash the ideas above.
Something will emerge.

Pentamon

[master-P]

The biggest issue with the maidsafe IPO was that they enabled mastercoin investors to get into msafe at a much lower entry point than the BTC investors. They accepted MSC at an inflated rate of 0.2 BTC instead of taking it at the market value. Future IPO offerings may want to consider accepting investments in only one cryptocurrency so that all investors are treated equally.

[NapoleonBonaparte]

The biggest issue with the maidsafe IPO was that they enabled mastercoin investors to get into msafe at a much lower entry point than the BTC investors. They accepted MSC at an inflated rate of 0.2 BTC instead of taking it at the market value. Future IPO offerings may want to consider accepting investments in only one cryptocurrency so that all investors are treated equally.

Yes. And some market participants use bitcoin to buy mastercoin at huge discount rate to get in.