The initial coin offering (ICO), sometimes called the token generation event or token sale, is the subject of much confusion. We will discuss all these things about what types of companies can ICO be used for, and what is the project approach in launching ICO. It is not intended as investment or legal advice, but as a template to show the process behind an ICO, and what the stakeholders (team, board, stakeholders) of a project need to be considered while conducting an ICO.
In today’s time, the blockchain industry is relatively new, there isn’t much information on the subject from a project perspective, and with each new ICO, teams are learning best practices about what is right to do and what not to do. Below is a guide to all the information we collect about the ICO process, including input from people who have had direct experience with the process.
- Pre Planning
The first two big questions you need to consider under pre planning are: 1. What is the purpose of the token? 2. Are you sure you want to do ICO?
What is the purpose of the token? What function or utility does it perform? If your application does not need to be built on top of the blockchain protocol, you should think hard before proceeding. For example, the computational cost of building an application on top of Ethereum is much more expensive than something like AWS. You must have a strong reason to build a decentralized application versus a centralized application.
If you are not absolutely sure whether your application should be built on Blockchain or not, it becomes necessary for you to do more research and spend more time learning about Bitcoin and Ethereum. Building a decentralized application is fundamentally different from an application using a client-server architecture, and will require you to fully understand the components of a blockchain and what can be built on top of this new architecture.
An ICO is fundamentally different from raising funds through a VC or other traditional means. On the one hand, you are selling the future use of your platform and not giving up equity. On the other hand, you are working as a public company on the first day. If you have a large community that you may need to manage post ICO, in such a situation you need to make sure that you can deal with this burden well in advance. Here are a few things to keep in mind when thinking about whether it’s a good idea to ICO your project in the first place:
- Everything you do and all actions you take will be reflected in the price of the token.
- Your team will bombard you non-stop several times a day, with questions about the price of your tokens.
- You will need to become an international company from day one.
- All your internal team discussions are likely to be publicly pursued.
- There will be a lot of stress in trying to make things worth short term versus long term valuable.
- If your product is not already open source, then there will be a huge backlash for becoming fully open source. There is a strong expectation that many blockchain projects are open-source projects.
- In general, cryptocurrency projects are more public/transparent than normal startups, or even traditional public companies.
- In general, good blockchain projects look and function more like open-source software projects versus traditional tech businesses. You and your team both have to decide whether it makes sense for your application to be built on the blockchain and whether you want to operate as a transparent and open company.
Once you are ready and committed to do an ICO, the key components in the plan are proposal, whitepaper, token design, legal, precautions against inevitable hackers and communication (website, slack, social, press, are set to be prepared for interviews, etc.).
The most important question is, how much do you want to raise? And why? The second most important question is, what do you want to achieve with the particular delivery method you are choosing?
- For your ICO, are you trying to raise the most money? Are you trying to build a wider base of supporters? Are you thinking of trying to target a specific profile of potential users? Are you trying to encourage developers to build on top of your platform? etc.
- Other questions to consider
- For allocation, reservation for your team, investors, partners, ecosystem, what percentage are you giving to the company/foundation?
- Where will the money you raise go to? For which you need to have an annual budget for the next 5 years.
- Do you want a hat? If so, which hat would you wear? It depends on the amount you are aiming to increase.
- Would you like to pre-sale?
- Depending on your growth goals, pre-sales can be used as social proof and tokens to the people you want to align with the most in your ecosystem. The downside of a pre-sale is that it favors certain people/groups over the participants in a normal crowdsale.
- If you are pre-sale, you should create a pre-sale booking agreement to reserve a specific amount of allotment for each pre-sale buyer and for those participating in the pre-sale. Be transparent about, at what cost.
- If you decide to pre-sale, you also need to think about what % of the allocation is distributed in the pre-sale in relation to the % you are selling in the crowdsale.
- For ICO Itself
- Which currencies will you accept? Like BTC, ETH, anything else?
- Do you want to do pre-registration? It is becoming increasingly common for crowds to do some form of “Know Your Customer” (KYC) for those who wish to participate.
- Are you willing to do the KYC process yourself or use a service like Civic to complete the process?
- Depending on your goals, do you want to split an even number of tokens to all registrants or first come first served? With a first come first serve, you run the risk of having most of your tokens bought by a small number of people.
- Will you be rewarded for coming early? tiered pricing?
- When will you meet? such as 1 day, 3 days, a week, etc.
- Will you be doing geo-fencing? Barring specific countries from participating, such as approved countries – both US and Chinese investors are excluded from seeing more projects.
- Will tokens be issued immediately after the completion of the token sale? If not, when?
- Will you allow funds/institutional investors or only individuals to invest?
In general, you want a well thought out and prepared offer in which all the information is presented to anyone interested in participating in your ICO. The worst offenders are projects that obscure important information, for example hidden hard caps, or not being transparent about token allocation. And projects that change terms mid-fundraising. By doing any of these things you can get more money in the short term but in the long term your reputation of capital will be seriously damaged.
- White Paper
- The whitepaper is where everything above comes together and is synthesized into one major document. The whitepaper should cover all the internal workings of your application, how the entire system works, and how the token will be used within the system.
- Normally, your whitepaper will include all technical information about your project, all information related to tokens, and all relevant information about your team.
- This single document should give a potential contributor a complete picture of your application and give them enough information to make an informed decision.
- Technical whitepapers are tough and can easily take 200+ hours of work from a whole team in a very short amount of time. It is also a document where your team takes ownership of creating this document, and much of it cannot be outsourced. Editors can help clear this up, but your team will have to write the bulk of the document.
Once you’ve completed your whitepaper, I encourage you to get detailed feedback from respected figures in the crypto space and the field you’re operating in, as well as the core demographic you’re looking for for your ICO. are targeting. And include the relevant changes before proceeding.
- You will need a reputable law firm that has experience in incorporating blockchain companies/foundations and running the ICO process to advise you on your process.
- The biggest legal question you will have to answer is: Is the token you are offering during an ICO a security or not?
- What do you need to do to reduce concerns that the token could be a security?
Some other legal considerations are as follows:
- Will you be using SAFT?
- Are you fencing the offering?
- Do you want to set up a foundation to be a token steward?
This guide is not intended to be legal advice, so be sure to speak with an attorney who has gone through this process before.
In general, the communication strategy for your team will include all the channels you will use to communicate about your project such as website, whitepaper, Slack, social, etc. All your channels need to be in sync, your entire team needs to be on deck, and you have to respond to people on time. It’s a huge job, of which here are some key components:
- Website, which includes:
- Landing pages for crowd sales (separate from your main product page if you already have one)
- Well designed pages in general perform better in ICOs
- Team– Every team member needs a clear and updated LinkedIn profile because potential contributors will do due diligence on each team member.
- Mentor– Every mentor needs a clear and updated LinkedIn profile because potential contributors will do due diligence on each member of the team.
- A potential red flag for contributors is when there are more mentors than team members.
- Budget– can be included in the whitepaper or as a separate section on the website. There is a need for clarity on where the funding is going, and how long it will be projected to last.
- Depending on the feedback– the budget may be included in a “business whitepaper” (some teams have two white papers one technical and one business-oriented) or on the website. In general, the budget should be kept somewhere clearly and transparently with a record of any changes made to it.
- Roadmap– can be included in the whitepaper or as a separate section on the website.
- Depending on the feedback– the roadmap can be incorporated into a “business whitepaper”, some teams two whitepapers one technical and one business-oriented or website. In general, the roadmap should be clearly and transparently laid out somewhere along with a record of any changes made to it.
- Token allocation– which can be included in the whitepaper or as a separate section on the website. You need to be transparent about what you are selling, the terms of the ICO, and the terms of the pre-sale (if applicable). At a minimum, potential contributors should be able to calculate their effective market cap and understand what will be circulating and total supply. Token allocation and sale information can be included in a “business whitepaper” (some teams include two whitepapers one technical and one business-oriented) or in a website – based on feedback. In general, token allocation and sale information should be clearly and transparently placed somewhere (ideally both the pre-sale terms and the crowdsale terms) along with a record of any changes made to it. Teams should be transparent about this kind of information with no hidden surprises. For example, early pre-sale investors get ridiculous bonuses etc.
- Contribution Details– To be issued when ICO/Pre-ICO is ready. Be careful as this section can be hacked and the contribution address can be changed to the hacker’s address. See the “Security” section below.
A clean, updated Github repository is required. visit to- https://github.com/0xProject. Everything that is created should be in a public repository so that potential contributors can review everything in advance. Internal communication channels (Slack, Rocket Chat, Riot, etc.) need to be the main communication channel and the team needs to be active there. Consider hiring a full-time community manager to moderate your chosen communication channel. This community manager can also act as a bridge between the larger community and your internal team.
The channels need to be set up properly and moderated heavily. Example channels such as Announcements, Developers, General, Random, Support, and Scam Alerts (to be able to notify all users of potential scams) The main channel used by teams right now is Slack but for crypto projects about Slack There are some major cons.
1) Slack is not meant for large group communication.
2) Slackbots and scam users are easy to hack.
3) It’s easy to direct messaging users and send false announcements and contribution messages. Read more about the disadvantages of sluggishness for cryptocurrency projects here.
Create a bitcoin talk announcement of the token. Example: https://bitcointalk.org/index.php?topic=2009966.0
Own your own subreddit, brand it, and put up some posts. Example: https://www.reddit.com/r/district0x/
Set up a newsletter on your website. Email is the best way to directly share important information with potential contributors on the day of the ICO.
What is needed is a clean, updated blog, ideally with a history of posts already in place. Example: https://blog.district0x.io/ & https://blog.0xproject.com
Must have a clean and updated Twitter account. Example: https://twitter.com/0xproject
Will you do paid advertising? This is an individual decision that your team needs to make. In general, advertising teams look weak.
- Public Relation
- Press– Entering both crypto publications and general news.
- Interview– Q&A, speaking engagements, technical talks, etc.
- Events– conferences, meetings, technical talks, dinners, online Q&A sessions, etc.
- Podcasts– Epicenter, Unchained, Ether Review, etc.
Translation in a foreign language requires a genuine commitment. You not only need to translate your whitepaper and website, but you also have to translate all subsequent changes and announcements. You may need to hire someone to manage translations for Q&A and inquiries on various social channels. If you decide to translate, you need to target languages. By the way, Chinese/English seems to be the most common.
- Community Management
Additional people on staff need to be prepared at all times, across all channels, to answer questions. The more success your ICO achieves, the more community support you may need. In general, you want to have a constant presence on the web before your ICO, during your ICO, and even after your ICO. Potential contributors need to know that your team is serious and in it for the long haul.
- Smart Contract / Blockchain / Wallet
Which blockchain will you use? Are you looking for ERC20 tokens? The smart contract needs to be prepared in advance. If you do pre-sale and ICO, you may need two smart contracts and additional considerations and if you are planning to do reservation contract.
Security audit on a smart contract requires you to do it ahead of time and publish the results. Your entire fundraiser is based on this smart contract, so it has to be 100% accurate. If it’s only 99% correct, you leave yourself open to potential hackers. To be extra safe, some projects now have multiple parties conduct their own independent audits and all publish individual results. Set up a bug bounty. You need to set up a wallet that receives ICO payments. The safest options are hardware wallets or multi-sig hardware options. Depending on which currency you accept, you may need more than one setup.
- General Safety Tips
- This is by no means an exhaustive list. If you are concerned you should consult a security engineer who has gone through the ICO process before.
- Buy all website domains that look like yours and all the different TLD forms of your name.
- Hackers will try to recreate your landing page with the same domain name as yours, using your own address instead. You also need to be on the lookout for any potential scams after ICO and ICO.
- Register all social media accounts with names that look like you.
- Like a website, hackers will also try to copy and spoof your social media accounts and point them to a different landing page than yours. You’ll still need to be on the lookout for it after your crowdsale is over. One trick scammers try to do is “expand their crowd” and deceive potential supporters.
- Set up Cloudflare on your landing page.
- Your website has a major vulnerability. Be sure to set up two-factor authentication internally to make changes to your website and monitor your site comprehensively.
- Restrict the ability to change/commit your page/github/social media/everything. Keep two factor authentication setup on everything – even your own internal team.
- Turn off Slack API. Slack isn’t set up for public groups raising funds. There are many scam attempts directly involving Slackbot messages, which despite all the warnings admins can’t stop and many people fall for. Even though Slack is the default communication channel, I would consider using another method of public communication or at least controlling the inflow to the token sale.
- Ask people to bookmark your site, don’t click on links.
- Do not release your wallet public address until the day of the ICO (simultaneous release on all your communication channels).
- Remind people not to send their contributions from exchanges like Coinbase. They have to be from the wallet they control.
3. Before the ICO
- For registration, if you are doing a registration system-based ICO, issue all the details and get people registered in advance. Example: https://blog.0xproject.com/0x-token-sale-and-registration-details-75d84af11c60
- Create a tutorial for registration. Example: https://blog.0xproject.com/tutorials-for-the-0x-token-sale-registration-766064955d12
- The release of a tutorial video and tutorial blog post on how to participate makes everything readily apparent.
- Create an explanatory video to show you how to buy tokens. You need at least a semi-professional 2-3 minute video with professional voice talent. Set it to private and don’t release it until the day of the ICO. Example: https://blog.0xproject.com/zrx-token-sale-purchase-tutorial-612c2ffe1e0d
- Beware of all potential hackers. Example: https://blog.0xproject.com/a-note-on-scams-and-phishing-attempts-e2d72577a470
- Write a blog post about every step of the process.
- Live Streaming Video Q&A
- Community Management x100, be prepared – you will find a plethora of questions leading up to the ICO.
4. Day of the ICO
- Community Management x1000, be ready. On the day of your ICO and in the days leading up to it, the entire team will need to be on call, basically 24/7.
- Beware of all attack vectors and turn off Slack if necessary.
- Remind people not to send their contribution from an exchange, they need to send it from the wallet in which they control the private key.
- Keep sharing the tutorial videos you made for how to participate. Limit sources of truth to a place where people have the information they need to contribute.
- Livestream on completion of ICO.
5. After the ICO
The top two questions you will get after ICO are:
- Where are my tokens?
- This is easily the number one question. Create a tutorial video (for all combinations of wallets) and post it on all your channels.
- For people who send their contributions from the exchange, you must reply to them. Unfortunately, his contribution is most likely because he needed to send his contribution from a wallet he controlled.
- Which exchange are you going to list? When?
- Most exchanges have an application page so if you want to get listed on them, start building these relationships quickly.
- At the same time, various exchanges will list your tokens for sale, whether you want to or not. For example, EtherDelta is a peer-to-peer exchange where anyone can offer any token or currency for sale without your permission.
- Write blog posts later. Example: https://blog.0xproject.com/analyzing-the-zrx-token-sale-a94b8642c78e
- Give an update as soon as your ICO is completed. Worst case scenario is you don’t communicate at all and look like you took ICO money and ran away, don’t do it.
6. Project Running
Now that you have a community of 1,000 people (if not more) with their own money invested in your project, you’ll be showered with questions daily. The blessing and curse of a community that really cares, you now have very high hopes for living.
- Treasury Policy
The fiscal policy is to buy, spend, freeze, discount and burn tokens. If you keep a lot of tokens in the treasury, people will wonder when they will hit the market. If you pay people in tokens without vesting, they can dump them. If you pay in lock-up tokens, you will need to supplement them with some cash. All this requires clear communication, so that people know what is happening. Also, there is a need to inform soon about how tokens are taxed for the team, advisors, investors etc. You need to think quickly about compensation plans for employees and consultants.
Furthermore, if large institutional buyers participated in your pre-sale, there is a huge risk that they will dump a substantial portion of their holdings, depending on how well their ICO is going. If you allow institutional investors, you have to decide whether you will apply the lockup period for them or not. Above all, the most important thing is that you need to be transparent about what is happening.
- Monetary Policy
Monetary policy is how many tokens there are, how divisible they are, and the inflation/deflation policy you set. You need to be clear and transparent with the policy you set, and if you ever make any changes to it.
- Money Management
- Once you’ve raised your funding through an ICO, you’ll need to decide how much of your contribution is cash in fiat, and how much remains in crypto (if any). This is what you should decide before completing the ICO.
- You should also start negotiating with banks early so that you will have no problem converting funds from token sales into fiat or wiring for company expenses, taxes, etc.
Following all of this will not make the ICO a success, but hopefully it shares a better insight on the whole process from the perspective of the owners of the project team. Fundraising via ICO vs Fundraising via Equity is not any easier, it’s just different. As a team, you really want to make sure that a token sale is the best thing for your company because if you do an ICO for the wrong reasons, you will be stuck with the results for a very long time.