The Other ICO: Some Thoughts About Interactive Coin Offerings Part II
This is the second part of an essay that presents the model of interactive coin offerings(IntCOs) as an alternative to traditional initial coin offerings(ICOs). In the first part of the article, we discussed some of the benefits of ICOs derived from being a programmable platform that enables the creation of new value-exchange vehicles such as IntCOs. Similarly, we highlighted some of the main challenges and limitations of ICOs such as valuation( inability to accurately estimate the value of a company), participation(not everyone can get into an ICO) and market manipulation( the price of tokens can be inflated using social signals). This part will explain the protocol behind IntCOs and how it addresses some of those challenges.
IntCOs were created with the objective of addressing some of the limitation of traditional ICOs while leveraging the core principles of token offerings. Specifically, IntCOs attempt to reconcile the ideas of valuation and participation which will allow anybody to get in a token sale while keeping the price of the tokens proportional to the amount of tokens sold.
At its core, IntCOs are Ethereum smart contracts that model the interaction between token buyers and holders. The main theoretical contribution of IntCOs is that it allow buyers to enter and exit a token auction based on the behavior of other buyers. That interactive behaviors should help to maintain an equilibrium on the valuation of the crowdsale while preventing buyers with large pools of capital or sophisticated mining capabilities to gain an unfair advantage over other buyers.
In order to participate in an IntCO, buyers should send the crowdsale smart contract messages specifying the amount of tokens that should be bought together with the valuation of the sale. After allocating the tokens to the buyers, the smart contract will adjust its status and balance which will be used for the remaining to the token sale.
From the beginning of an IntCO until a maximum specified time, buyers can voluntarily cancel their bids. At that point, the smart contract will refund the tokens and readjust the balances. Withdrawals are forbidden after the specified maximum time elapses in order to allow buyers to deflate the price by retiring their bids last minute.
IntCOs don’t only support manual withdrawals but it enables a mechanism for automatic token refunds. In my opinion, this is the biggest innovation of the IntCO protocol. That feature is applicable when the valuation of a crowdsale exceeds the personal cap of certain buyers. In order to maintain the equilibrium in the price of the tokens, the smart contract will refund all buyers with minimum cap an equal portions of tokens proportional to their bids. So even if the buyers has not voluntarily withdraw his bid, the smart contract will automatically kick out some of his bids from the crowdsale.
Benefits of IntCOs
There are many interesting ideas and side benefits of the IntCO model. for starters, the protocol enforces that all bids match the buyer’s minimum cap. That feature directly addresses the participation challenge of traditional ICOs. Complementarily, the crowdsale smart contract guarantees that the price of tokens and the corresponding valuation will increase monotonically regardless of the type of bids buyers submit. That capability addresses the valuation issue of the current generation of ICOs. More importantly, IntCOs are a fair protocol that makes no distinction between small or large purchases.
Whether IntCOs will become widely adopted as part of token offerings remains to be seen. Regardless, I believe some of the ideas of the protocol are worth exploring further and gradually testing with the next wave of token offerings.