Democratic fundraising is great, but what did we learn from 2017?
Most of us will remember the 2017/2018 crypto boom, when almost all of the thousands of tokens created in that time experienced huge price rallies, with ICOs in 2018 exploding onto the scene every few minutes.
Yet a year or two later, we also saw the fallout. Hugely overvalued tokens lost much of their value, and the majority of projects raising funds were unable to keep to the development commitments promised during their fundraise.
Projects did not see users. Tokens did not see utility. Investors saw all their tokens drop in value. The failure rate of token sales, in this sense, was horrific. And the ICO model, extremely prone to dumping schemes, showed that there was almost no safety net for investors because:
- Token sales faced liquidity problems due to markets being too thin. You couldn’t easily find other investors willing to buy your token stake. And even when you could see order books, how would you know if these weren’t just the projects injecting liquidity (which they are often forced to do)? Or how would you know these aren’t just bots placed on exchanges creating and deleting orders based on activity? And how would you know not to sell to create a price dump? Or buy not to create a flash rise?
- Token hodling didn’t work either, since hodlers and actual investors were too vulnerable in the majority of participants: speculators who only cared about price appreciation/depreciation.
Of course, all these lessons forced us to think about the solutions to the problems and decentralized exchanges (DEXs) like Uniswap came up to try to have a model for price discovery based on bonding curves — attempting to remove some of the harmful relationships and power structures surrounding centralized entities.
They were not perfect, and showed that the idea of pre-minting tokens before the sale was also flawed, so current implementations now favor a supply that is minted and burned on a bonding curve using the Bancor Formula. If participants in the funding activity buy, tokens will be minted and price will rise accordingly. In the same reverse method, if participants sell, tokens are returned to the bonding curve and burned, pushing the price back down accordingly.
And so, at OVR, we have concluded that the IBCO model means a fair and transparent pricing model and token sale mechanics that is visible to all participants with a predictable outlook on supply and price.
Using this model, it is the market that will continuously decide how many OVR tokens should be out there, and how much they should cost. Not us, the project owners, and not arbitrary whales. The way a true market should be!