The problem of the "insta-ICO" and "$ limits" in fundraising

In one of my previous posts I mentioned how we should move away from the ICO template and onto the ICD template. The ICD template has the potential to be fairer, raise more money, and produce less legal and political scrutiny. One example of a flaw in the ICO model is the new trend called the "insta-ICO". These are similar to what we used to call instamining where the founders and their friends set up an ICO, and produce a date, and put a total cap on the amount of money raised. This cap on the amount of money which can be raised sets the ICO up to have a status bar which goes from 0% to 100% once the cap is reached.

Recently Boscoin had one of these "insta-ICOs" where according to some posters on Reddit the ICO sold out in seconds. As bots get involved, and inside information is traded, these insta-ICOs will become increasingly less fair, more scam-like, and more instant. This instant ICO doesn't give people enough time to evaluate the proposition or fully review, nor does it allow all interested parties to get a stake in the product. In a sense these insta-ICOs turn the token distribution process into a game for insiders which is similar to the IPO games played on Wall Street where certain people could get in on IPOs while most can't. In my opinion this is an example of what is wrong with the ICO model and why modeling it after the IPO model is a mistake.

The ICD template does not need to have restrictions

• Example 1
  An example of an ICD could be over Steemit itself. A person can simply announce their project, receive up votes, and because Steemit is a DCO (decentralized collaborative organization) there is really no legal risk. This can allow projects to raise unlimited funds from a platform like Steemit and the ICD can simply go to all who up voted the project. In this manner you can distribute the tokens in your project specifically to the accounts which liked your project, while these likes also would fund your project. Of course this would require Steem to have a much higher price than $1, or even $10, but if Steem were $100 then a project might be able to raise millions while at the same time distributing stakes to the associated accounts.

• Example 2
  Another example of an ICD could be to ask the crowd to donate. This too could be organized over Steemit or over any forum. A website would be produced which would allow donors to send crypto assets to a smart contract. This website would work similar to the websites used in the ICOs but would have less restrictions. Any amount of tokens can be raised as there need not be any cap for donations. A non profit organization would have legal custody of the property and this could be a charitable organization or research foundation. The non profit similar to the Electronic Frontier Foundation, would seek for example to protect digital rights in cyberspace, or to achieve some valuable research objectives, and resources given to this organization would be used to hire the contractors necessary to produce the source code. In essence it would be digital cash for code, no restrictions, no promise other than to deliver functioning code. This cash for code model is also mentioned as part of the Tauchain project (Agoras), but in general cash for code can allow for funding the code itself and any program who produces the code can receive a piece of the funds.

These are probably not the only two examples but the point being that when you go with the ICO model, use corporate-speak, and put restrictions on the natural tendencies of the intelligent swarm, there are typically unintended consequences. The insta-ICO in my opinion is a consequential adaptation to the monetary restrictions. If you put a restriction which says the token sale can only raise up to $50 million, well now the sale has to end early even if there is much more interest. This early end to the token sale produces the insta-ICO where some get the very lowest price while others have to wait until it gets to Bittrex or Poloniex. Prices may be a lot higher because in a sense people who get in late might have a psychologically different attitude but this cannot really be proven and is beside the point. The main point is that the "investor mentality" is very different from the "stakeholder mentality". A stakeholder can also be an investor, but a stakeholder is more than an investor and seeks to contribute to the project to increase the value of their stake.

Conclusion

We need to really study these ICOs and the current template. It is possible that new templates can produce better results and the only way to determine this is by creating a market place for fund raising templates. The ICD (initial coin distribution) is an alternative template to the ICO which under certain circumstances can produce better consequences. An ICD cannot be "instantly sold out", and there are no limits in terms of how much donors can give, an ICD also doesn't necessarily even require any donors as it can use swarm dynamics such as what we see in collaborative filtering on Steem to distribute from a wealth pool instead of dealing with the cognitive costs of asking individuals to donate out of their personal stashes. In my opinion, the ICD model is superior to the ICO model for particularly use cases just as Steemit is superior to TheDAO for particular use cases. TheDAO could raise funds, but people had to buy their way into TheDAO via a token sale, and as a result TheDAO put individuals wealth at risk directly. An ICD doesn't even require an initial token sale, it merely requires an initial starting distribution with a mechanism in place either technically or psychologically to reduce the incentive for the initial stakeholders to dump.

Stakeholders are better for a community and project than mere investors. Investors will pump money into a project and then treat the entire project and community as a stock. If the stock goes down the investors might get upset. If the community doesn't produce profit then the investors might even call their lawyers. The investors seek profit primarily, but don't necessarily interact with or intend to use what they invested in. If you intend to use or participate then you are a stakeholder and Steemit participants are stakeholders in a DCO for this reason.

References

1. https://www.reddit.com/r/ethtrader/comments/6a9gtb/boscoin_ico_is_done/
2. http://bytemaster.github.io/article/2014/12/26/Stop-the-Crowd-Sales-Long-Live-Crowd-Funding/