By Sahsa Ivanov.
I decided to digress a little from my initial plan to write about how ICO-style approaches can be used in “real” economy and provide a brief how-to, best practices guide about the current state of affairs and how one should go about running an ICO campaign for her project now. We get way too many questions about it, so I’d like to create a post I can direct people to.
In the current rather undefined legal status of ICO’s it’s quite risky to advice on how to do ICO’s. So the focus here will be also on how to make it compliant and not break any laws.
So let’s start with a question who could (should) make an ICO now? The general reply would be — you need to use blockchain tokens in your product, not promise to pay any dividend, and don’t try to sell equity in your company. The ideal setup is you use the token sold at ICO as an integral part of your system or application. The most obvious thing here is you use a new cryptocurrency and sell its native, main token at ICO or you use an existing platform such as Waves or Ethereum and create a token on top of it, integrating it in your product.
What that product could be? Probably I’ve seen start-ups that tried to disrupt using blockchain tech almost every business area imaginable. People see a new way to raise funds and try to apply it to their case at hand. Currently you can’t really raise money for any kind of product using ICO approach. Try to think how you can use blockchain tokens in your product, and if it makes sense to offer them at ICO.
The short check-list would be:
- Why do I need blockchain tokens? Does my product need blockchain? What benefits does blockchain tech bring to my product?
- How can I connect blockchain token to the product functionally? Can I integrate it my app?
- How can my token be interesting to investors? Is there a mechanism that connects its value to the success of my product?
- Would my offer be compliant with current regulation? Don’t forget that you can’t sell equity at ICO, that would make it IPO. You can’t guarantee any profits, it would make it a security and you need to go SEC’s of the world for this.
What kind of projects can follow this path?
- Cryptocurrencies. Part of the the total issue is sold to investors at crowdsale. The token is a part of the system, this is the value token that empowers the consensus algorithm, you can’t have an open blockchain without native network tokens, at least it’s much more easier to have them rather than not.
- Any kind of product that uses internal currencies. It can be social networks ( certain services are being sold using internal currency), games (game currency) and so on
- Kickstarter-like products when you sell a voucher on blockchain for a future product, and you have its prototype and need to start the manufacturing. In this case you have a kickstarter combined with open blockchain market, where your investors can trade your product tokens.
And, once again, don’t try to sell a share in your company or make any projections about profits. Tokens can have some voting rights, though. Read up on Howey test, that could be helpful to stake out the area ICO’s can exist in now.
When you’re decided about the product and your team you have to deal with technicalities.
- Decide on which platform you tokens are going to exist, or maybe you want to create your own blockchain. Waves and Ethereum are good options 🙂
- Decide on the amount you want to raise, the amount of tokens to be sold, the amount of tokens retained by the founders. The general advice would be here not to keep more than 30% of the total issue. When your token, hopefully, trades at an exchange people would fear that you dump your tokens on them (it’s an unregulated market as of now, what can you do)
- Decide on the ICO lengths, discounts for early investors. Don’t make it too long, 1 month is more than enough. If you need to raise a specific amount of money you can do it much faster, ICO ends when you reach your goal. Some projects did it in 15 minutes.
- Announce your project, Bitcointalk announcement is probably a must. You’ll get lots of feedback, not all of it will be positive, but it’ll help you tweak your project.
- If the general feedback is positive set the start date, do some marketing (SMM is the best thing here, Twitter, Reddit, Facebook with cryptocurrency targeting), set up an ICO site. You can create your own one, you can use ICO platforms such as ICOtech.me
- Stay positive, you work with people and for people. Meet the community demands, try to factor in all the suggestions from the community. Never lose your cool, if you don’t like communicating to people ICO’s are not for you. You have to have a marketing team and community managers to work efficiently.
- When your ICO’s over distribute the token. You can’t really do it before it’s over, since open market trading could interfere with your ICO price, especially if you have some early birds discount
- Use the raised BTC to make an amazing product and make the world a better place (yes!)
And I’ll reiterate the most crucial points — you have to make sure that your product really needs blockchain tech, that you are ready to work with community and can offer a valuable product to people, and that you’re not breaking any laws. If the answer is positive let the spirit of Satoshi help you, ICO’s might be a new way for business to operate, and you might be one of the first revolutionaries.