On October 27, 2017, disruptors in the cryptocurrency field gathered at the San Francisco Ethereal Summit. Sponsored by ConsenSys, the summit provided a diverse mix of panels and workshops that demystified the “initial coin offering” (ICO) or “token generation event.”
Side note: Vernacular is key. Referring to a token launch as an ICO is so “September.” The process is now referred to as a “token generation event.”
At the “How to Launch a Token” panel, token generation event veterans Galia Benartzi (co-founder of Bancor Protocol), Matt Liston (CSO at Gnosis) and Piotr Janiuk (co-founder and CTO of the Golem Project) guided Ethereal participants through a hypothetical: founding a hat company and funding the development through a token. Here are some of the key points that they discussed.
Step 1: Determine if the token model fits for the new company
Imagine the whole process backward: What layer does the company involve — application, platform or protocol? Design the decentralized concept first and then discern if a token is necessary.
- Is the project based on a decentralized model? If not, equity funding is a viable option –– no need for a token.
- What is the token’s utility within the network? How are customers involved in the network? For example, is the token facilitating and incentivizing collaboration between the community in the network? If so, tokens (similar to shares and equity in a normal company) are a great way to distribute participation among stakeholders.
- Tokens work best when fueling network effects around ideas –– when there are benefits to being an early adapter/stakeholder.
Step 2: Find a strong legal team and a favorable regulatory environment
Regulation in the cryptocurrency space is in its infancy and varies greatly around the world.
- Find a competent lawyer with an understanding of the space that can give risk parameters. It is important to minimize risk for the project.
- Select a government that defines clear boundaries and has a forward-thinking mentality.Although blockchains and cryptocurrency promise decentralized disruption to all industries, anarchy would be unfavorable to all. All companies must comply with the law.
Step 3: Work on the prototype phase
Establish a white paper, set up the concept on the testnet and prove the concept.
- White paper: describe your network, protocol and model. White papers should strike the proper balance between being math-heavy and marketing-heavy. The goal is for users and stakeholders to understand exactly what the network is doing.
- Prove that your concept works and expose its source code. Everything should be 100 percent transparent to the public.
- Trustless (trust forced through code) and transparent networks are critical to long-term success. Secure and validate data by rewarding “oracles,” people who provide trustworthy answers and validate that events did in fact occur. On the flip side, penalize those who lie to the network.
- Trust and transparency are paramount for any company that is considering funding its development with a token.
Step 4: Connect with the community
Generating interest for the token and setting the foundation for strong community support before finally launching a token generation event to the public is crucial.
- Develop a public-relation strategy. Share as much as possible. Post videos, host AMAs, etc. This process can be grueling, but it is necessary to establish a global presence and field questions.
- Prepare for a fast-paced environment. Communication builds authenticity and credibility with supporters around the world.
- Listen to outside perspectives and criticisms.
Because token generation events allow for decentralized methods of funding, the company’s diligence process should be decentralized to match.
Tokens generation events are complicated and don’t work for every business type. However, they unlock a new economic driver: permissionless venture capital.
Erik Kuebler enjoyed an upbringing in Europe. He attributes his love-hate relationship with Abercrombie & Fitch and inspiration for his writing to a unique blend of experiences in Russia, Hungary, Spain and the United States. Erik is interested in middlemen-less economics, and is a managing partner at Tapas Capital.