Initial coin offerings (ICO) are an efficient and cost effective means of accessing mass capital for start-up enterprises or technology entrepreneurs, which might not otherwise have access to capital markets due to strong regulations and/or lack of initial funds. However, ICOs can be also used for fraud and the US Securities and Exchange Commission (SEC) has warned investors to beware of scammers using ICOs to execute "ponzi", "pyramid", or "pump and dump" schemes, where in the last one the scammer use fake news to lure more investors in to an ICO in order to generate interest and increase the value of the coins, to only quickly "dump" the currencies on to naive buyers.
The mechanisms generally used for initial public distribution of tokens are broken and the trust of early investors lost. For instance, ICOs companies commonly use their own website to offer a limited number of coins in a constantly increasing price. Then interested investors send their money (cryptocurrencies) in to the enterprise wallet, which promises to exchange them for an specific number of tokens. This practice although common is a terrible mistake done within ICOs. Investors send their money privately in to an unknown address without any warranty to receive coins in exchange. Furthermore, in this digital age everyone should be aware that by entering a private website and accepting the cookies you are immediatelly acknowledging to share your browser information with the site owner, information such as IP address (city/country), language, operative system, dispositive used, screen resolution, among others. Users are not just sending their money but all their information, a perfect situtation for scammers. On the other hand, ICO's websites show how many coins have been sold so far, but there is no actual traceable record that would support that statement, and buyers are not able to withdraw their just buyed tokens until the sale had finished, what could means days, weeks, months or never as happen with many scamcoins. Transparency and accountability is strongly needed for improving the confidence of new and old investors within the cryptocurrency market.
Here is proposed a new approach that could help to strongly put back in track the initial cryptocurrency offering process. An example of this is how private companies or corporations raise investment capital by offering its stock to the public for the first time. These enter on the market by listing their stock (or shares) on a public stock exchange, such as the New York Stock exchange (NYSE), the National Association of Securities Dealers Automated Quotations exchange (NASDAQ) or the London Stock exchange (LSE), in a process commonly known as initial public offering (IPO). Thus, an IPO is also commonly known as “going public”. Blockchain technology have strong potential for being used in an IPO format, what could not only save the initial cryptocurrency coin offering process, but incentivate well-known companies to enter in to this developing market.
As mentioned above, blockhain technology is a strong weapon to be used in an IPO format. For example, instead of making ICO offerings private, wich grant no security for the buyers, sales can be performed on a completely Public format where everyone could track the procedure of this one. Public decentralised cryptocurrency exchanges (DEX) can be used for offering tokens at different previously stablished prices, during the IPO campaign, enthusiasts and supporters of the enterprise/token/currency initiative will buy some of the distributed cryptocoins with fiat or virtual currency. As tokens are available immediately after purchase and they are property of their respective holders, these can be traded within the same exchange or holded further by the buyers. Due to blockhain transactions can be tracked within decentralized exchanges and a whitelist (list of largest holders) is constantly generated, this makes the process totally public, transparent and traceable.
We also suggest another two ethical terms to be aquired on this IPO sales. Firstly, for avoiding large token accumulation from whitecollars and to keep the bonus system currently used within ICO, bonus must be restricted by an static Maximum Airdrop Per Wallet (M.A.P.W). The use of MAPW will help to benefit as much people as possible with the initial low prices offered, promoting at the same time the coin holding and buys until the next stage due to the bonus stacking process.
As a MAPW example:
1st stage: 100M Token at 2 satoshis ; owners will receive + 50% bonus (m.a.p.w 500K)
2nd stage: 100M Token at 4 satoshis; owners will receive + 25% bonus (m.a.p.w 500K)
3rd stage: 100M Token at 6 satoshis; owners will receive + 10% bonus (m.a.p.w 500K)
4th stage: 100M Token at 8 satoshis; owners will receive + 5% bonus (m.a.p.w 500K)
*m.a.p.w. = maximum airdrop to be received per wallet
In this example an investor will need to buy a maximum of 1M Token on the first stage to receive the maximum reward of 500K. However, if that same person wants to receive more rewards, it must hold the tokens until the next stage, and the wallet would need to possess 2M Token for receiving the maximum reward.
Secondly, in order to prevent pump and dump schemes we strongly recommend to integrate the concept of Company Ethical Support (CES). This will consist on a reinvestement of the 50% of the total rised money during the sale, in order to keep a support buy order for the total coins/tokens sold, at a price a 50% lower than the price of the current stage.
If a coin initial sale was at 2 satoshis and 30K coins have been sold, a buy order for 30K coins should be kept at a price 50% lower than the current price (for this example 1 sat), protecting the enterprise and investors from big coin dumps.
This proposed IPO system will be used for first time on the Kolin sale IPO, reinforcing the need of a public sale standard within the cryptocurrency market. This document is also an open call to all ICOs to incorporate the public IPO format and the two ethical principles explained, in order to empower the cryptocurrency community, take back the transparency and accountability that blockchain technology implies and to fight back against cryptocurrency scammers.