Since the Civic Token Sale in June, I’ve been inundated with questions from friends, VC’s, fellow entrepreneurs and just about anyone else out there who wants to do a Token Sale. My previous blog post on “Tokens are eating...
Since the Civic Token Sale in June, I’ve been inundated with questions from friends, VC’s, fellow entrepreneurs and just about anyone else out there who wants to do a Token Sale. My previous blog post on “Tokens are eating the World” surpassed all the views, likes and shares of every previous post I have written! It’s seems “so easy” to slap together a Token Sale with a white paper, pivot your business model ever so slightly and then raise tens or even hundreds of millions of dollars within seconds. Everyone else is doing it, so why shouldn’t I?!
In reality, it’s not that simple. This process takes months (not weeks), and we’re talking about working 24/7 around the clock to get it done once you decide to go this route. I decided to write this practical guide, which is by no means exhaustive, but should answer all the basic questions and hopefully a lot more, so let’s get right into it. For a more detailed primer on Blockchains, Protocols and Token Sales, I suggest this post .
Firstly, you have to ask yourself, what is your token good for and why will people buy it? Since 2015, we were developing technology to fill what we saw as a major gap in online technologies: Identity Verification Services.
Online interactions happen countless times a day amongst people who could claim to be someone, while being someone else, or a consumer who has to fill out paperwork and then a company has to figure out how to confirm its accuracy, whilst protecting the privacy of the consumer the how their data is handled. With the purposes of preventing fraud, stopping identity theft, easing administrative hassles for both consumers and service providers, and making online interactions frictionless, we believe we have created something special with our token and the underlying technology. We plan to continue to evolve it along with the development of new use cases for blockchain technology, and we seek to let our token users meet the future on their terms.
Secondly, you have to design your token in such a way that it makes sense to prospective users, and be as clear as you can when you describe the terms and functionality in connection with the sale of the tokens. A token sale is essentially the same as a crypto currency?—?e.g., Bitcoin or Ether?—?but the distinct difference is that you’re not offering a crypto coin that is mined with consensus rules, instead you’re offering a token, for example Civic (CVC), which might have a special purpose (smart contracting, etc). Tokens are typically not mined?—?they merely sit on top of the crypto platform they are issued upon.
What are the requirements for a token sale?
In theory, the requirements are very low for a token sale in that anyone can “technically” create and sell a token. The reality though is that there are hundreds of token sales now happening every month?—?competition is stiff. Unless you put a lot of work and effort into preparing for your token sale and producing an excellent white paper, you’re probably not going to be able to sell as many tokens as you may want or need to. You need to put together the white paper, and other information in order to properly describe the technology protocols and ecosystem in which the token can be used.
What is a “White Paper”?
Here is an example of the white paper that Civic produced. This details how our technology and ecosystem are intended to work, how we designed the tokens within it, and how users could acquire and use the tokens. You will need to find a technical firm to work with to assist in writing and designing the use case for your token.
A white paper is critical to show that you have thought through your project and you have clearly defined use cases around your tokens. Tokens are effectively becoming a means to produce and disseminate technology and so you need to plot a course for buyers to show them how these utilities will help them solve a problem or offer access to valuable tools.
Who can help me conduct a token sale?
Civic worked with 3 entities to conduct the token sale:
Token Market: Providing community support, token sale infrastructure and helping potential buyers understand the nature of the token and its underlying technology. Providing technical support around all aspects of the sale and issuance of the actual tokens.
Argon Group: We worked with Argon Group to provide advisory services.
Perkins Coie : Critical part of conducting the sale was having excellent legal advice and Perkins is one of the most reputable firms in this space. We worked with Lior Zorea & Jacob Farber, both of them are excellent and understand this space intimately.
Marketing:
Tokens are best sold to technology enthusiasts who wish to support and use the latest technological developments. Since word of mouth is so strong in the crypto community, advertising is an area that we steered clear of. We wanted the vision and value of the product to stand on it’s own two feet and we didn’t believe that we needed to advertise.
Outside of thought leadership articles posted on my blog and tweets I posted, intended to attract just the hardcore crypto community, we largely did not market our token sale. Granted, I have a large following so a limited marketing campaign may not apply to you, but there is need to balance the fact that if people don’t know that you are running a token sale, you’re not going to get any buyers, with targeting those in the community who really understand the purpose of the token.
Another tactic that gets used to is offer bonuses to early participants in order to build momentum and attract buyers. This has the same impact as discounts, which I discuss below.
Eat your own dogfood:
The core of Civic’s technology is the ability to create unique digital ID’s using mobile devices. We employed this technology in our token sale and required every person in the crowdsale to download and register using the Civic app. This ensured that we did not have the same person making multiple purchases. This model worked for us and others, like ZRX and now Doc.ai will be using Civic to ensure broader distribution of tokens.
Token pricing & structure of the sale:
We decided to create a supply of 1bn tokens. The simple reason is that, in order to be used for their stated purpose over time and across the industries that may find the tokens useful, 100m did not seem like enough and 10bn seemed like too much. You can use any number you wish. We priced the tokens at 10c, with the goal of selling 330m tokens, for an amount of virtual currency that approximated $33m.
Discounts:
Civic was in the enviable position that we didn’t need to offer any discounts to any buyers at all. Demand greatly exceeded supply and so we placed everyone on a level playing field. I highly recommend that if you do need to offer discounts to buyers, that it comes with a lock-in period where they cannot sell the tokens (e.g. 20% discount, but can’t sell for 12 months). Offering early buyers bonuses or discounts without a lock-in can cause a disconnect between the ongoing pricing of the tokens from what users would otherwise pay.
Distribution:
In order to ensure that the full $33m was sold, Civic decided to pre-sell all the tokens to large buyers ($50k minimum, up to a maximum of $500k), with the stipulated provision that we make 1/3 of the tokens available for sale to the crowd. We wanted to ensure that we had a big network of major users and technology supporters behind Civic, but also ensure that we sold out. We sold up to $33m to just under 500 buyers.
Once this portion of the sale was completed, we opened up the token sale to the public, with a maximum price allocation of $25,000 and minimum of $50 and we made 1/3 of the offering available in the crowdsale. We used Civic’s technology to ensure that buyers were not purchasing multiple times. We also used a queuing system on the day to ensure that our servers didn’t break. It’s a good thing that we did, as we had over 50,000 people waiting in line on the day we launched the token sale!
It was very difficult to predict who was first in line at precisely 6am PST?—?with 10,000+ people refreshing their browser at exactly 6am PST, we were forced to give a random number allocation, since demand greatly exceeded supply and there is no way to determine who was “first”. We managed to sell all the tokens out within 24 hours, and refunded 1/3 to the larger buyers. In retrospect, we would have done what 0X did, using Civic technology, to distribute their tokens to even more people had we known how big the demand was.
One of the problems we experienced was the Ethereum network was clogged and many payments expired past the 6 hour window. This created a lot of frustration for everyone involved. Bitcoin was seamless. Ethereum has some interesting and powerful applications but payment is certainly Bitcoin’s strength.
I spent some time on this blog post, discussing how we were optimizing the token sale for network success. I think that in the end, everything went pretty much according to plan.
Token Allocation:
We allocated 33% of the tokens to the company, 33% for the token sale and 33% to give away to partners to activate the network. I detailed most of this in my prior blog post. When building a network effect, you need to incentivize the network, hence the need for a large allocation to our partners. We have been very successful in signing up partners to the network with this model, as detailed here.
All the tokens that were allocated to the company are vesting over 3 years, 1/3 per year. No tokens were given to employees or founders.
Existing investors, shareholders and employees of the company still own stock in Civic which owns 33% of the tokens.
We did this to align interests?—?everyone is focusing on ensuring that Civic executes and build an amazing ecosystem and we will ensure that the benefits accrue to all CVC token holders, of which Civic is the largest.
Exchanges and listing tokens:
We didn’t pay or get any exchanges to list the token. Also, the distribution curve makes it difficult for any one entity to control the token pricing because no individual or entity was able to purchase more than 0.33% of the total tokens issued. CVCs are now being traded on a number exchanges, including Bittrex.
Corporate Governance:
Civic, Inc. is a VC backed, Delaware “C” Corporation. We recognized the token sale as a sale of software tokens/licenses which we are treating as revenue and paying taxes accordingly. This is in stark contrast to what many companies are doing in setting up offshore entities & trusts to avoid taxes and bypass the regulatory environments they are in. We don’t believe you can build credibility as a company by adopting that view and exposing stakeholders to potential regulatory risks and liabilities.
In closing, this was by no means meant to be the ultimate guidebook, but hopefully it’s a good start. This is not legal advice or meant to be used as a template for your own process. Each company and product offering is unique and has a different set of circumstances. I highly encourage you to seek the correct legal, business and technical advice before embarking on a token sale.
If you’re considering doing a token sale, contact us at partners@civic.com and see how you can use our technology to ensure that you have a fair and transparent sale process.
A Brief Introduction to Token Sales was originally published in A blog by Vinny Lingham on Medium, where people are continuing the conversation by highlighting and responding to this story.
