All token creators and project owners planning to make the initial coin offering (ICO) ultimately face a set of dilemmas related to structuring their token sale.
- How much should we raise?
- What should be the token allocations?
- Should we do an ICO or IDO? Or IEO?
- Should we make private sales or not? How many rounds?
- How do we prevent sell-offs after the token is live?
This article answers all these and many more questions faced by token creators. In addition, it aims to describe the process of a typical token sale and different fundraising mechanisms used by project organizers. You can equally use this post as a blueprint for a token sale design.
Warning: Just let me warn you, this article is not a quick fix. It is rather a guideline that you need to read, analyze, process, and then act upon. If you want a faster solution to your tokenomics, shoot me an email, and we’ll find you an expert.
Let’s jump in!
Many experts say there is no 100% right or wrong or ideal way to conduct an ICO. This is partially true. Each project is unique, and the circumstances often are too different to fit the one-size-fits-all token launch formula.
However, suppose you know the practical ICO rules of thumb and the various options available for your disposal. In that case, you can avoid many mistakes and drastically increase your chances of having a successful ICO.
There are a few things to consider before you start:
Fact: a well-structured token sale is NOT a guarantee for a successful token launch.
Apart from the sale itself, there are other critical components of the ICO. In total, there are three most important ones:
a) Token economy & utility design
b) Project fundamentals: such as a whitepaper, product, and marketing plan.
c) Token sale design
This article focuses only on C. If you don’t have A and B covered, then:
Outline tokenomics and token utility
Before designing your fundraising campaign, you already should understand your token economy and utility.
Here is a comprehensive guide for you to do just that:
How To Design Tokenomics For Your Cryptocurrency: The Basics Of Creating Your TokenICO guide on token economics and token utility with examples maxyampolsky.medium.com
Please don’t make the mistake of doing a token sale without a solid tokenomics model. Poor token design can lead to losing a lot of money both for you and your investors.
Take care of the fundamentals
Do the basic things before starting a token sale: write the whitepaper, prepare the marketing plan, assemble a team, set up socials.
Read the full step-by-step plan here:
The recipe of a perfect token sale
Alright, moving forward on how we can design a winning ICO.
First of all, it is important to know the primary objectives of the token sale.
- Raise a certain amount of funds — the primary objective of any token sale is to get financing to develop a product/network.
- Sell a percentage of the total token supply — the fundraising happens through selling a “piece of a pie” to private or public investors at a certain price.
- Distribute tokens widely — maximize the number of buyers. As one of the side objectives, you want your tokens to be distributed between a large number of investors. Therefore, you should avoid a high concentration of tokens in the hands of a few individuals that could, as a consequence, manipulate the market.
- Ensure stable growth of the token price for short- mid- and long-term post-launch. After the token becomes tradeable, you want to see it steadily going up in value. Although many different factors can influence the price, you want to organize your token sale to minimize the risks of the market plunge.
When objectives 1 and 2 are achieved by default for any token sale that gets funded, not many ICOs manage to reach objectives 3 and 4 successfully. To achieve these goals, you’ll have to make certain design choices while structuring the token sale.
Keeping the objectives in mind, let’s go through the different structures of a token sale.
Token sales structures
- Capped First-Come First-Served
- Capped with re-distribution / oversubscription
- Capped with parcel limit (cap for each buyer)
- Capped Auction
- Uncapped Auction
1. First-Come-First-Served (FCFS) Capped
One of the most common sale structures nowadays is a first-come-first-served capped model.
Capped sale means that organizers want to raise a specific amount during the sale (e.g., $250,000), which is announced in advance.
A fixed number of tokens is sold at a fixed price on a first-come, first-served basis until all tokens are sold.
It can be structured as a single-round sale or multi-rounded with earlier investors buying with a discount.
One of the main disadvantages of this model is that often many investors stay empty-handed. If an ICO has high demand, buyers need to compete in gas fees (network transaction costs) to purchase tokens, especially if the sale is very time-limited. Whoever pays the highest fees first (usually, only a handful of the quickest ones) gets all the tokens. This, in turn, conflicts with Objective 3.
Example: BAT (Basic Attention Token)
BAT token sale was capped at $35 million and was fulfilled within 30 seconds. Due to large interest in the project, thousands of investors queued up to participate in the sale. Only the ones who were prepared to pay high transaction costs managed to get the tokens. The total transaction fees paid were >$15,000, with the highest single fee being ~$6,600. In the end, 185 purchases were successful, and over 10,000 failed.
Only ~1.8% of investors out of more than 10,000 participated in the sale. This demonstrates the inefficiency of the FCFS model when there are no restrictive mechanisms applied for token buyers.
In cases where demand for your project is extremely high, you may want to split the sale into multiple rounds and stretch it to a longer period to allow more investors to participate.
2. Oversubscription model (Capped with re-distribution)
In the oversubscription model, a fixed number of tokens are sold at a fixed price in proportion to each buyer’s total spend. Here are some particular qualities of this type of sale:
- The sale runs for a stated period of time and doesn’t end if the cap is reached. It continues to run until everyone who wants to participate buys tokens.
- If the sale receives more investment than expected, excess payments are refunded.
- There is a sale of $100,000-worth of tokens that lasts 24 hours.
- During the sale, buyers sent $200,000-worth of funds, making the sale 200% oversubscribed.
- At the end of the 24 hours, all buyers get 50% (1–100,000/200,000) of their funds back and receive the number of tokens proportionate to the remaining funds in the pool.
The benefit of this sale structure is that every investor is guaranteed to get some tokens. Of course, they might get fewer tokens than they expected to buy, but they still receive them.
Example: OBT (One Button Trader)
One Button Trader’s token sale was structured as a single-round ICO to raise $200,000 that lasted 4 hours and ended up being 170.3% oversubscribed, attracting more than $340,000 in funding.
In the end, $140k was returned to the investors, and $200,000-worth of OBTokens were distributed proportionally between all sale participants.
It is worth mentioning that the OBT sale was subscribed by 100% in the first 13 minutes, meaning that many investors would miss out on the opportunity if there were no oversubscription mechanism in place.
3. Capped with parcel limit (individual buyer cap)
Another mechanic you can introduce to your token sale is a cap for an individual buyer.
Buyer cap means that a single buyer is not allowed to buy tokens for more than X amount.
Individual cap helps to ensure broad distribution of tokens between smaller holders and prevent high concentrations of tokens in the hands of a few. Basically, this is a mechanism to maximize achieving Objective 3.
The OBT token sale from the previous example also had a cap for the individual buyer. Each sale participant could only invest up to $200–2500.
This turned out to work rather well and resulted in more than 1000 holders by the end of the sale. Arguably, this wide token distribution among investors was one of the factors that led to +400% price growth in just 4 days after the sale.
4. Auctions (capped)
In the auction structure, the token price is not fixed in advance. Instead, the buyers can themselves determine the price they want to buy the token.
Auctions can turn both good and bad for the sale. On the one hand, investors are free to bid whatever they feel is a fair price for a particular token. On the other, they don’t have certainty about what they are getting themselves into — the number of tokens to be received and the respective allocation % are not clear until the end of the auction.
There are different types of auction structures available:
4.1 Blind auctions
A first-price sealed-bid auction (FPSBA), also known as a blind auction, is the type of auction where all bidders simultaneously submit sealed bids so that no bidder knows the bid of any other participant.
Basically, it means that buyers can name any price they’re willing to buy tokens for.
After all the bids are made, all the tokens are usually sold to the buyers at the lowest successful bid price, in proportion to each buyer’s total spend.
That means that all buyers enter at the same price determined by the lowest successful bid.
The project wants to raise $100k and has a total supply of 10M tokens.
- Buyer 1 bids: $10k for 150,000 tokens at the price of ~$0.067
- Buyer 2 bids: $25k for 200,000 tokens at the price of $0.1
- Buyer 3 bids: $35k for 100,000 tokens at the price of $0.35
- Buyer 4 bids: $30k for 500,000 tokens at the price of $0.06
- Buyer 5 bids: $10k for 1,000,000 tokens at the price of $0.01
The project accepts bids from Buyers 1–4 as the total amount of their investment equals $100k (10+25+35+30) and ignores Buyer 5 because his proposal was too low.
The final token price is set to the lowest successful bid price in that group, in this case, $0.06 (Buyer 4). All buyers receive tokens based on their contributed amount and the token price.
- Buyer 1 receives $10k / $0.06 = 166,666.67 tokens
- Buyer 2 receives $25k / $0.06 = 416,666.67 tokens
- Buyer 3 receives $35k / $0.06 = 583,666.67 tokens
- Buyer 4 receives $30k / $0.06 = 500,000 tokens
- Buyer 5 doesn’t receive any tokens because his bid was too low.
As a result, a total of 1,667,000 tokens sold, which equals 16.67% of the total supply, which valuates the project at a total market cap of $600,000.
Blind auctions are usually capped with the amount of funding to be raised known in advance. From the example, we can see that the raised amount is fixed. However, the amount of tokens sold is variable and determined by the bids received from investors.
4.2 Dutch auctions
A Dutch auction is the type of sale structure where price changes over time. Starting at the highest possible, the price per token decreases as time goes on until all the tokens are sold.
In theory, this allows investors to determine the optimal buy-in price and enter the sale at the moment when they feel the valuation is justified.
However, the current conditions of the crypto and ICO market create interesting dynamics of such a sale structure.
Example: GNO (Gnosis)
Gnosis project launched an ICO with a Dutch auction structure. It was a capped sale with a cap of 12.5 million USD. However, the portion of tokens given to buyers depended on how long the sale took to complete. If it finished on the first day, then only ~5% of tokens would be distributed among investors, and the rest held by the Gnosis team; if it finished on the second day, it would be ~10%, and so forth.
GNO token sale Dutch auction chart
So, in theory, buyers could develop an optimal strategy to purchase tokens when the project valuation would be “fair enough”.
However, due to the “fear of missing out” (FOMO), many people bought into the ICO on the first day, without even looking at the valuation. As a result, the sale finished in a few hours and reached its cap of $12.5 million by selling only 5% of tokens in existence — an implied valuation of over $300 million.
Therefore, Dutch auction token sales are not too common nowadays due to their unpredictable nature and relative complexity.
However, it is worth noting, what makes Dutch auctions convenient is that the price logic can be coded directly in the smart contract.
5. Uncapped sale
In the uncapped token sale, an unlimited number of tokens is sold at a fixed price over a fixed time period. All buyers can buy as many tokens as they desire, and there is no cap on the amount raised.
There is another type of sale — uncapped auctions — where a fixed number of tokens are sold to the bidders in descending price order until all tokens are sold.
However, uncapped ICOs are not very common in the community because of their downsides described further in the post.
Which structure to choose?
After reviewing so many token sale structures, you’re wondering: which one is the best for your ICO?
A good token sale structure is one that satisfies the following objectives:
- Raise a certain amount of funding
- Sell a certain % of the tokens
- Maximize a widespread token distribution between holders
- Ensure post-launch market growth
With 1 and 2 being achieved almost automatically, you should use rules and principles to maximize Objectives 3 and 4 for the successful ICO. Here is how to do it:
Principles of a successful token sale
To achieve Objective 3, you should aim to attract the maximum number of potential buyers. The ICO model attractive to investors provides:
a) Certainty of valuation — if you participate in a sale, you should have certainty over at least a ceiling on the valuation (or, in other words, a floor on the percentage of all tokens you are getting).
b) Certainty of participation — if you try to participate in a sale, you should be able to generally count on succeeding.
For Objective 4, we generally want to prevent economic deficiencies in our model that can lead to market unsustainability. Therefore the token sale should have the following properties:
a) No central banking — the token sale issuer should not be able to end up with an unexpectedly very large percentage of the tokens that would give them control over the market (also contributes to 3rd Objective)
b) Efficiency — the sale should not lead to substantial economic inefficiencies or deadweight losses.
Therefore, here are the mechanics to maximize our objectives:
- Cap the amount raised
- Set a reasonable valuation and token allocations
- Choose a proper type of launch
- Structure the funding rounds efficiently
- Implement capping and lockups mechanisms
1. Cap the amount raised: Capped vs. Uncapped sale
So why would you choose a capped sale instead of the uncapped one?
The main reason is that uncapped sales give participants high uncertainty about the valuation they are buying at.
To illustrate it on an example, let’s say there is a major ABC project doing the uncapped sale ICO. There are likely many people who would be willing to pay $10,000 for a pile of ABC tokens if they knew for a fact that this pile represented 1% of all ABC tokens in existence. But many of them would become quite apprehensive if they were buying a pile of, say, 5000 ABC tokens, and they had no idea whether the total supply would be 50,000, 500,000, or 500 million.
The second reason not to choose this type of sale structure is that nearly every uncapped sale is criticized for being “greedy” by the community. Because the organizers don’t set the limit on the amount they’re collecting, the public may perceive it as an act of greediness or even unprofessionalism — “they don’t know what they need to run their project.”
Set a reasonable hard cap
Hard cap is the absolute upper limit of the number of tokens that can be sold.
Publicize your hard cap as a fixed USD target amount. This is a requirement for most investors to consider your project seriously.
Setting a reasonable USD cap will also send the message to your community that you have a realistic project scope and a team with realistic expectations to go along with it.
How much to raise?
So how much money do we want to collect during the ICO? All founders ask this question before the launch.
Although many projects think about this question quite irrationally, the most logical answer is:ICO organizers should collect enough funding to achieve meaningful results in product development — either get to profitability, network sustainability, or reach an important milestone.
To determine the amount to raise, here is a simple formula you can use:
- Create a realistic timeline required to put your product/network on track. Count how many months/years to get from start to end.
- Make the financial projection for the upcoming X months/years of all the expenses required.
- Count all the product development, marketing, and operational costs
- Multiply them by 2.5x. The result is the approximate amount you’re looking to raise.
Of course, you can be conservative and raise exactly 1:1 based on your estimates. However, things rarely go according to plan, and 2.5x is a multiplier to count for the potential risks. Additionally, it is a good test for your business model: the startup should be able to price the product at more than double the cost to make it, or else the venture will fail.
For extra insurance, you can also set up a soft cap in addition to the hard cap.
Soft cap vs. hard cap
The hard cap refers to the maximum amount of money that can be raised. After reaching the hard cap, the ICO stops running.
Soft cap, unlike the hard cap, is the minimum amount of fund an ICO needs to raise to be a successful one. If an ICO fails to reach a soft cap, the contributors need to request their investment back.
If you’re not confident that you can reach your hard cap, you can determine the soft cap amount for the minimum funding required, for example, to develop an MVP. This will further allow you and investors to have higher certainty and more realistic expectations from the sale.
2. Pie charts and token distributions: Set reasonable valuation and token allocation
Token distribution is an essential part of every ICO. You probably see these pie charts a lot when looking through different projects.
Every ICO organizer must create such a chart to illustrate how token supply is split/distributed between various parties: investors, community, ecosystem, team, and other participants.
Pie chart of token allocation
For every ICO, there are the most common allocation types to consider.
One of the most critical questions for project organizers is: how much are we giving away to the public? What % of the total supply do we allocate for the sale?
It depends on 4 important factors:
- How much do you want to raise?
- How much money did you raise so far, and who were the investors?
- Current status:What’s the progress so far? Is there a working product?How much traction do you already have? How big is the community?What’s the team? Do they have a proven track record?What’s the technology behind the product? How unique/proprietary is it?Are there network effects?
- The current state of the market
ICO allocation ultimately ties to the overall project valuation. Given your current progress and the amount of investment you have received so far, you should have a more or less accurate representation of the current valuation. Knowing that number, the sale allocation will equal The amount to be raised / Project valuation.
If you didn’t raise any investment so far, you should use your judgment and questions above to give your project a fair valuation. You can also consult an expert on the matter to help you evaluate your project.
For example, Solana (SOL) gave as much as 37% of its total supply to investors for the development of its network. They held 4 rounds of token sales that ranged in token price from $0.04 to $0.25 and from 1.8% to 15.9% in the allocated amount.
However, the Coin 98 (C98) project team offered only 5% of their total supply to the investors for their ICO.
The current market sentiment also impacts your ability to fundraise and thus the valuation you can expect to get. This can get highly speculative, with many founders setting up unrealistically high valuations for projects with zero product and zero traction. They exploit such opportunities during highly-optimistic bull market periods when the community sentiment is at its peak. Despite the projects being backed by very little, investors still come on board, and sales end up oversubscribed.
The demand for ICOs is still high enough in the current market stage, so it is relatively easy to attract investors’ interest with even moderate ideas. However, this might change in the near-term future as the industry evolves.
Projects commonly allocate a certain amount of token supply to reward the project team — founders, employees, advisors, and sometimes have it reserved for future team members.
How much to allocate to the team?
The typical number varies between 5% and 20% depending on the project valuation, team strength, number of active team members (most importantly founders), and progress so far.
For example, the Solana project allocated 12.8% to the team pool. There were four people in the Solana core team — all high-degree experts, including former Apple engineers and Qualcomm veterans. It is worth noting that when the Solana team started fundraising, they already had outstanding technology, including a working prototype on the test net.
The 12.8% team allocation might seem small for such a solid project. However, Solana raised more than $20 million in total funding, which was quite significant at that time compared to other projects in the industry. Therefore, a 12.8% stake in more than $60M-worth ICO is reasonable for the team.
Solana (SOL) token distribution
In another instance, the team at OB Trader allocated 20% to the team wallet, but they raised as little as $200,000. At the moment of the ICO, the project already had 4 active founders and 12 full-time employees.
OB Trader (OBT) token distribution
At the same time, projects with smaller teams can choose more modest allocations. For example, Polkalokr startup and Lithium Ventures allocated 6% and 5% to their teams, respectively. At the moment of fundraising, there were no more than 3 members in each project.
Lithium Ventures (EBSC) token allocation
As one more example, Filecoin ICO had only 4.5% team allocation with a pretty strong team, solid whitepaper, and technology. They ended up getting $257 million in funding, an enormous sum even for the crypto world. So even 4.5% allocation in such cases can represent big amounts of money.
Filecoin (FIL) token allocation
To summarize the topic of team allocation, there is one basic rule: keep it under 20%. Everything above 20% can be perceived as greedy and turn away potential investors. Furthermore, keeping large quantities of tokens in the hands of insiders can damage long-term market growth.
You are on the radar 🔎
Keep in mind that all the token allocations will be publicly visible on the blockchain explorers like etherscan or bscscan, so any person can see how many tokens any wallets receive.
Although people cannot verify the owner behind a particular wallet, they can point out mismatches between your tokenomics and the actual distribution. So if you try to cheat and split tokens differently than promised, the community can notice it and your reputation will be damaged.
Also, through blockchain explorers, you can see if there are big amounts of tokens in the hands of individual holders. In case there are many addresses with a supply of more than 2%, 5%, or even 10%, it can be a warning sign for your smaller token holders as they will be afraid of whales dumping large quantities of tokens dropping the market price.
As a rule of thumb, don’t allocate more than 4% of the total supply per person in the team.
Product development & marketing allocation
Many projects, especially those that do their token launch on DEX (decentralized exchanges), make separate token allocations for future marketing and development efforts. They assume they will sell these tokens in the future to cover development and marketing costs.
Such allocations make sense because a significant part of funds raised through IDOs (Initial DEX Offering) is usually locked in liquidity pools for some time. However, project teams still need money to finance operations and support their burn rate, hence development & marketing allocations.
If you are token sale will have an IDO format, then use the following steps to calculate your dev&marketing allocation:
- Count available cash you’ll have after providing liquidity.
- Determine how much more cash you need to support the project development.
- Finally, calculate how much is that in proportion to the token supply.
- Split it into separate wallets, e.g., development/marketing (optional)
In general, something around 5-10% is common in the industry.
Liquidity allocation (for IDO launches)
To provide market liquidity during a listing on a decentralized exchange (e.g., Uniswap, PancakeSwap), the project team must allocate % of the total token supply to liquidity pools. If you’re not sure what liquidity is, read this article.
The amount of tokens required for the liquidity is:
- Proportionate to the amount of funds raised.
- Determined by the listing price of your token on the exchange.
As a rule of thumb, the token allocation for liquidity should be at least half of the sale allocation. For example, if you allocate 20% of the supply to the sale, your liquidity allocation should be at least 10%. Low liquidity supply can lead to your liquidity getting washed out, which will cause your token price to crash.
I recommend speaking to your tokenomics consultant about the exact liquidity numbers as it is quite technical and depends on your overall sale structure.
Other commonly known supply allocations count for advisors, community incentives, future investors, DAO, and staking rewards. Depending on your overall strategy and product vision, you can other allocations to your model.
Final word about allocations
Experience shows that token allocations are mostly a matter of managing the community’s expectations. As long as you use a structure that is not too divergent from other ICOs, the community will not receive this positively or negatively.
Therefore, the most optimal token allocation structure is the one that looks logical for your project and prompts the least number of questions or concerns from the community.
3. Choose your type of launch: ICO vs. IDO vs. IEO
There are different ways you can launch your token. The three most popular types are Initial Coin Offering (ICO), Initial Exchange Offering (IEO), and Initial DEX Offering (IDO).
Depending on the launch type, token sale strategy can differ.
ICO is the most old-school way of doing a token sale, with the first one being held by Mastercoin back in 2013.
The most notable characteristic of a classical ICO is that organizers are responsible for almost everything related. There are many activities to take care of during the token sale: KYC, gathering funds from investors, issuing tokens, creating a contract, marketing, exchange listings. And during the standalone ICO launch, organizers take everything on their own shoulders.
After the sale is over, project organizers have to make arrangements with exchanges to list their tokens.
In contrast to an ICO, in IEO, most of the process is handled by a centralized party — an exchange platform.
One of the first exchanges to offer token launches was Binance, conducting a sale of the BitTorrent token in January 2019.
The main advantage of doing an IEO is that the token is listed on the exchange right after it’s launched, providing access to the market and instant liquidity to thousands of investors. Additionally, an exchange platform takes care of most marketing to ensure the launch attracts the necessary number of investors.
However, IEOs can get quite expensive for token creators, with some exchanges charging up to $250,000 for a listing.
IDO is also a relatively new way of fundraising, which became popular with the emergence of decentralized exchanges. The first official IDO was conducted by the Raven Protocol on Binance DEX in June 2019.
Unlike ICOs and IEOs where the tokens are sold before the listing, with IDOs, they are listed immediately on a decentralized exchange (DEX) — hence, the name.
The listing process on DEX is quite easy, so many projects choose to launch this way.
IDO process often comes with the support of so-called launchpads — platforms that raise funds for projects by allowing public investors to buy tokens before they’re released on the exchange.
Token sales through launchpads are getting quite popular, especially for new projects. This is because launchpads take care of the major part of marketing and expose projects to a large community of investors. Thus, IDO supported by a launchpad is the most common way of doing a token sale as of the time of writing.
Below is the summary of key differences between ICO, IEO, and IDO.
ICO vs. IEO vs. IDO comparison from CryptoPotato
Some projects choose a combination of ICO, IDO, and IEO to strategically maximize their reach. In addition to doing their direct token sale to the investors, organizers arrange allocations on popular launchpads as well as simultaneous listings on exchanges.
Soldex is a good example of a mixed launch project. The team conducted 3 rounds of private sales in an ICO format, collaborated with 4 launchpads (Lightning, Trustpad, Synapse Network, NFTPAD), as well as arranged listings with centralized exchanges, raising more than $9,000,000 in the process.
A mixed launch strategy is more advanced and will work for large projects with a strong team, significant backing from the community/investors, and solid technology.
Doing this kind of launch is quite challenging as it involves negotiating and managing the expectations of multiple parties simultaneously; therefore, it is not recommended for beginners.
4. Make a structure for funding rounds: Seed vs. Private sale vs. Pre-sale vs. Public sale
When structuring your ICO, you can add more dynamics into the process by implementing multi-round token sales.
With token sales organized in multiple stages, project teams receive money from investors throughout the whole sale duration. Having consistent financing allows organizers to allocate more resources on marketing their ICO to further benefit all sale participants.
With multiple funding rounds, token price starts low and gets more expensive at each stage, favoring investors who bought in early.
The most widely known sale stages are seed investment, private sale, pre-sale, and public sale.
Seed round is when a project attracts its first official money from outside investors. It usually happens at the pre-ICO stage.
The seed investment amount is often small — varies from $10,000 to $40,000 — and its main purpose is to get funding for the further ICO process: create a token contract, build the marketing team, create a website, and finance the first promotional campaigns.
With that said, the seed round is optional and is only needed if the project team doesn’t have enough money to kickstart the ICO by themselves.
Private sales are usually reserved for close project backers, employees, and institutional investors. It’s usually the earliest and cheapest point at which investors may purchase tokens. These rounds are often capped and will finish once the limit is hit.
Projects frequently use private sales to attract venture capital funds. Selling full private round to a single or a limited pool of investors has many benefits, including access to expertise, support, network, and other marketing activities.
Some organizers also make private sales open to individuals from a general public who often are required to do a KYC and have a minimum limit for investment.
Pre-sale is an additional sales round before a public sale. It is also optional.
Participants in pre-sales are often family, friends, and other individuals within founders’ network. To enter a pre-sale, you usually have to be whitelisted. So projects tend to use this opportunity to organize different marketing challenges and contests with tools like Gleam.io to build a waiting list and grow more awareness around the project on socials.
During the pre-sale stage, teams may also offer other bonuses alongside investments such as beta testing perks, additional tokens, or priority access.
The final and often the largest part of the IDO is a public sale. This round is often very time-limited and conducted in partnership with a launchpad on a First-Come-First-Served or Oversubscription basis. If any, the tokens remaining from previous rounds are sold during this stage.
Notes about the round structure
There are a few important considerations when doing a multi-round structure:
- Don’t create too big a price discrepancy between investors who entered early and those who were late. The typical price difference between funding rounds is 10–15%. If the difference is greater, there is a high risk of selloffs at the listing stage. Therefore, you want to add certain restrictions (e.g., vesting) to earlier investors to prevent selloffs from happening.
- Under any circumstances, don’t create an impression that some buyers got in on conditions much favorable than the rest, especially if these are big-bag investors. Handle this point sensitively when communicating with investors/community because people don’t like being late to the party. So at any given point of a sale, the public sentiment should be that it’s still early enough to invest profitably.
- Usually, it’s best to keep private sales small compared to a public sale, as heavily marketed private rounds often put investors off when it comes to public sales down the line.
- It is not mandatory to follow the structure of seed → private sale → public sale. Some projects skip private sales altogether and do just one public sale round. All structures can work well as long as they fit your long-term picture.
- You should be clear and transparent about every aspect of your token sale, including how and why you decided on the chosen structure.
5. Implement vesting & lockup period
Vesting is crucial when structuring a successful sale.
Vesting is the process of locking and distributing purchased tokens within a given timeframe. A particular timeframe that determines vesting is known as the “Vesting Period”. Vesting basically delays the access to assets offered.
For example, there are 12,000,000 tokens with a vesting period of 1 year. It means that these tokens are not available for trading initially and are locked in the owner’s wallet. And for 1 year, 1,000,000 tokens vest every month (become tradeable by the token holder).
Often token creators introduce a cliff — a time period when tokens are frozen and completely unavailable.
Project organizers must ALWAYS impose vesting for tokens held by the team, advisors, and other internally involved parties. This is a mandatory industry practice to ensure key stakeholders are engaged in a project long-term and don’t sell their tokens right away. Projects without any vesting schedules are instantly under suspicion of a potential rug pull. The vesting period for the team and other internal wallets is usually 2–3 years and sometimes reaches 4–5 years.
When it comes to liquidity, projects should lock their tokens allocated for liquidity in a pool for a long period. The lockup ensures there is always enough liquidity for traders for the first few months of a project launch. The typical liquidity lock timeframe from 6 to 24 months.
Consider vesting as your #1 tool to prevent selloffs at the token listing event. It is common to lock up the tokens of early investors who got in cheap. Vesting will stop them from selling for profit directly at launch. A 2-week to 3-month vesting period for early investors is generally acceptable.
Basic rules when designing vesting schedules:
- Always implement vesting mechanics for a team, advisors, and big investors to incentivize their long-term attachment to the project.
- Unlock all the tokens smoothly. There should be no day when more than 10% of tokens are released simultaneously in your vesting schedule. This can lead to a significant market drop.
6. Make an ICO simulation and financial modeling
Structuring multi-stage token sales with different vesting schedules can get quite complex. Therefore, visualizing a financial model of your ICO can help significantly.
Don’t be greedy and hire a tokenomics specialist to review your ICO structure and make a visualized chart of your financial model. This will give you much more clarity on how your circulating supply will change over time and what could be the potential bottlenecks when it comes to your vesting. Besides, having a chart like this in your whitepaper looks very professional.
In the end, your model should look something like this:
Example of a token circulating supply visualization
For the token sale itself (especially for the IDO launch), you want a few more questions answered:
- How your circulating supply will look like at launch?
- How much money do you need to deploy to liquidity?
- What are the final numbers of the ICO, including the total amount raised and listing price?
It is recommended that you do a separate calculation for this. Here is how an example spreadsheet looks like:
Here is the template you can re-use (to edit, press File → Make a Copy).
Here are the most frequently asked questions by development teams about doing their first token sale.
How many tokens to issue?
A very common question asked by token creators: Does it matter how many tokens we have for the total supply?
In short, it does not. The total number of tokens issued matters little. Instead, other parameters are important, such as the velocity of a token, market capitalization, and trading volume after launch.
Therefore you can set a total token supply to any number you want as long as it is not too high or extremely low.
Should I do a private sale?
It depends on multiple aspects. First, is how much overall you are looking to raise. Second, how confident are you that you can raise that amount during the public sale. If you are not confident, you should go with a private sale.
It also depends on your marketing power and how many private investors and VCs are enthusiastic about your project.
How many funding rounds should I do?
It depends on how much you are looking to fundraise and how many interested parties you have. Generally, large projects raise in multiple rounds. It is often easier to attract the public’s attention step by step than conducting one big token sale.
What price should I set for each funding round?
Each subsequent round should be more expensive than a previous one.
However, the price difference should not be too drastic to provoke big inequality. The price difference of 10–15% between rounds is acceptable.
How long should I fundraise?
It depends on the size of your project and your level of confidence. Usually, projects that require a lot of funding conduct longer sales. However, there are many cases where ICOs received tens of millions of USD in a matter of minutes due to high project demand. Look at the market sentiment, similar projects in your field, and review the current public interest in your project. Then set realistic expectations of how much you can fundraise and how much time you need.
Which currency should I accept from investors?
It depends on the chain you are launching your token. For example, if you have an ERC-20 token, it makes sense to accept payments in ETH. On the other hand, if your token is based on Solana, you should accept SOL or USDC. With Binance Smart Chain, go with BNB or BUSD.
If you are doing an IDO, you should accept payments in a currency that you will be paired with your token in a liquidity pool.
When you accept payments not only in stablecoins, you want to update your token exchange rate every few hours during the sale due to market volatility. If you do a single round, set your exchange rate to be fixed and announce it a few hours before the launch.
Do not accept investments in too many currencies.
The perfect token sale formula — does it exist?
The following research, where analysts reviewed more than 100 conducted ICOs, outlined a clear archetype of a successful token sale. 42 ICOs deemed successful shared a lot of common properties, which you can judge by yourself:
- The product implementation level is on-chain (83%)
- The development team received a minority of the tokens (93%)
- There was single or multiple lockup periods (76%)
- The supply was capped (86%)
- Token supply growth was fixed (83%)
- Registration is needed (76%)
- The time horizon for the sale was set to a fixed date (81%)
- There was a private or public pre-sale (83%)
Launching your token is a very intricate and, at the same time, exciting endeavor. It is both science and art. The structure and strategy you choose for your ICO will have a long-lasting impact on your project for years to come. Therefore you want to make sure to tackle it responsively and attentively.
Your approach to ICO structure will be different depending on the current market circumstances and your project’s situation. However, if it’s your first time launching a token, stick to the most straightforward route. The more complicated you make it, the higher the chances of messing it up.
Here is a basic framework to follow for a successful ICO:
- Set a fixed USD hard cap on the amount you want to raise.
- Define token supply allocationsSale allocation: 5–20%Team allocation: 5–20%For IDOs, include liquidity allocationRest: advisors, marketing, community, ecosystem, rewards
- Choose launch type: ICO/IDO/IEO
- Structure your funding roundsDo a seed round if you don’t have $10–40k to start an ICODon’t make too big a price difference between rounds. 10–15% is acceptable.Choose the structure that fits your launchKeep private sales smaller than the public sale
- Implement vestingTeam: 2–4 years + 6–12 months cliffInvestors: 2 weeks to 3 monthsLiquidity: locked for 12–24 monthsOther wallets: 6–18 months
- Model and simulate your launch
- Be clear and transparent with the community about every aspect of your token sale.
Examples of recent launches
Below you can see a few examples of projects that recently launched their tokens, tokenomics included. There you can also see what happened to their token price after the launch and judge by yourself.
Not very successful. Price pumped from $0.05 to $1.4, then dumped to $0.07 and is traded here
Token sale details:
- Whitelist Closing Date: Friday 2nd April 2021
- IDO Date: Wednesday 7th April 2021
- Public Sale Token Allocation: 3,000,000 LKR
- Public Sale Token Price: $0.05
- Max Cap Per Person: $200
- Total Raise: $150,000
- Initial Marketcap: $550,000
- Non-POLS Pool: There are 1,500,000 LKR tokens allocated to the Non-POLS pool. Those participating in the normal pool can purchase LKR with Ether (ETH) only. For more information about the normal Pool read here.
- POLS Pool: There are 1,500,000 LKR tokens allocated to the POLS pool. Those participating in the POLS pool must hold 3000 POLS for a minimum of 7 days prior to the sale or provide POLS/ETH liquidity on Uniswap. For more information about the POLS pool please read here.
- The increased revenue from the Public Token Sale will go towards liquidity on Uniswap, which will be provided immediately before listing.
Successful. nice steady growth from $0.01 to $0.03–0.04. From 0.006 on IDO
IDO Date: 05/08/2021
Token Ticker: $LITH
Maximum Total Supply: 10,000,000,000
Total IDO Allocation: 200,000 USD
Initial Market Price: 0.006 USD
Max Cap / Person: 250 USD
Successful — from $0.5 IDO to $3.50 slow growth
- Date: July 8, 17:00 UTC
- Price: $0.50 per token
- Min/max: $100 min, $500 max
- Cliff: 2 months
- Release: 0 months
- Supply: 30M tokens
- Date: July 8 2021, 23:00 UTC
- Price: $0.225 per token
- Min/max: $100 min, $1,000 max
- Cliff: 6 months
- Release: 12 months at weekly intervals
- Supply: 10M tokens
4. Coin 98
Successful — from ±$0.09 on pre-sale to $6 ATH
Coin 98 Tokenomics
Sale Price: 1 C98 = 0.0002 BNB
Tokens Offered: 50,000,000.0000 C98
Hard cap per user: 266,666 C98 = 66.7758 BNB (≈ 24,769 USD)
Not very successful — from $0.20 to $3 and then dump to $0.4–0.5
Public Sale A Public Sale took place in June 2021 through CoinList.
Terms 5% of total supply (100M EFI)Maximum USD $500 limit per personPrice per token: USD $0.20Valued at USD $400M fully diluted market cap
Public Raise Amount: USD $20M
Private Sale The Private Sale consisted of 300,000,000 EFI, divided into three rounds:
Seed Round 3% of total supply60M EFI at USD $0.05Valued at USD $100M fully diluted market capUSD $3M raise
Early Round 7% of total supply140M EFI at USD $0.06Valued at USD $120M fully diluted market capUSD $8.4M raise
Strategic Round 5% of total supply100M EFI at USD $0.075Valued at USD $150M fully diluted market capUSD $7.5M raise
Private Sale Raise: USD $18.9M
Private Sale The private sale release schedule is as follows: Month 3 (Aug 4, 2021): 10%Month 6 (Oct 28, 2021): 15%Month 9 (Jan 26, 2022): 15% Month 12 (Apr 26, 2022): 15% Month 15 (Jul 25, 2022): 15% Month 18 (Oct 23, 2022): 15% Month 21 (Jan 21, 2023): 15%
Public Sale Linear vesting until 100% unlocked at the end of vesting period. Total vesting period: 9 months Vesting begins: August 4, 2021 (40 days after Public Sale closing date)
Company Monthly vesting over 5 years with milestone accelerations.
Team 3 years vesting after 1 year cliff.
Ecosystem 3% to the decentralized Treasury Pool on genesis. The remainder is unlocked monthly to the Ecosystem fund over 3 years.
Successful — from $0.014 IDO to $0.16 ATH
7. DAO Maker
Successful — from $0.1 to ±$8 ATH, now traded at $3
DAO Maker Tokenomics
Not successful — Trading at $0.03-$0.04 — below IDO ($0.05) and listing price ($0.075)
30% upfront, 15 days cool down, and then 12.5% released weekly over 8 weeks
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