How to bid for Gnosis in tomorrow's crowdsale
Tomorrow, the latest hyped-up ICO will happen: Gnosis. Gnosis is a proposed prediction market application to be built on Ethereum, a la Augur. The Gnosis team claims that their platform will be better than Augur, with more bells and whistles and, well, I don't know, maybe fairy dust.
Gnosis is trying something new for their ICO: a descending-price auction. Tomorrow at the specified time, the auction begins at a price of $30 per GNO. Then, at specified intervals, the price sequentially decreases. At any time, a bidder can send ETH to the crowdsale, committing to buy GNO at the current price or lower.
The auction ends when either of these conditions is met:
- $12.5 million have been raised
- 9 million GNO have been sold.
When the auction ends, everybody who has submitted a bid will get their bid filled at the terminal price. This means that if you bid $20, but the auction ends at $10, your bid will fill at $10 - in a sense, you'll get twice as many GNO as you originally committed to buying.
What's the point?
The point of the auction is that the Gnosis team doesn't want to sell more tokens than they have to. Regardless of how many tokens are sold at auction, a total of 10 million will be created. If the auction ends and the team has only sold 5 million, they get to keep the remaining unsold 5 million.
This has made many potential "investors" very angry, because many people think that developers shouldn't get to keep part of what they made. I'm rather of the opinion that this is exactly the right way to decide how much stake the devs should have, and it's very much in the spirit of the prediction markets that the team hopes to build.
How should I bid?
The optimal bidding strategy is blindingly simple. Think of it in two steps:
- Decide what market cap you think Gnosis deserves
- Divide your market cap by 10 million, and that's your optimal bid price. When the auction reaches that price, bid.
Of course, that's only optimal if you commit to bidding only once - you may be a little better off by spreading your total investment out across a few different bids so as to hedge your bets.
Examples
Suppose you believe that Gnosis deserves a market cap of $300,000,000. Then your break-even bid is $30.
Suppose you believe a market cap of $15,000,000 is likely. Then your optimal bid is $1.50.
See how easy that is?
Additional considerations
The one thing that could change these strategies is if you truly believe that the Gnosis devs shouldn't get a big stake. Maybe you believe the project is worth $300,000,000, but you don't think that is actually possible if the devs own 80% of the coins. In that case, your optimal bid may be lower than $30. You'll have to work that out yourself.
My irresponsible prediction
In my experience, most people think that auctions are about competition. Auction theory generally says this is false: auctions are about price discovery and about ensuring that the person who wants the thing most gets it.
But if my suspicion is true that people see this as competitive rather than functional, we may see many people bidding irrationally-early. People may still be shell-shocked from the FOMO they got from the Cosmos token sale, and be sitting at their computers ready to drop millions on a tiny fraction of the GNO supply.
I'd encourage you not to be those people, but to buy their panic once the GNO hits the exchanges. Choose your price(s) before the sale begins, and stick to your strategy even if everybody else panics. You'll thank yourself later.
FWIW, I'll place most of my bids in the $3-$5 range, with a possible hedge bid in the vicinity of $11.
Nice article. Interesting to see I'm not the only one that is thinking about this. The cryptospace definitely feels a bit inflated. However we also said that about the S&P 500 40 years ago I was wondering if anyone of you uses: https://www.coincheckup.com I'm using this site that gives in depth reports on every tradable cryto in the market. For example: https://www.coincheckup.com/coins/Gnosis#analysis To check Gnosis Indepth analysis
Would love it if you'd included a link to save me the five second bing experience :-)
done. I wrote the original post on mobile, so links were a pain to do.
Does steemit have a mobile app, or you just access it through your mobile browser?
Good article by the way. I think I'm going to pass on this ico.
Steemit doesn't, but @good-karma developed e-steem. It works nicely.
Thank you!
I just use my browser. I'm curious why you're passing on this ICO. Is it the tech? the team?
Like many other projects now - I see the value of the PROJECT but cannot as much see the value in the coin/token. REP for instance - what can the market value be of these tokens once the AUGUR system goes live? They are not currencies as much as shares, and the shares afford an opportunity to earn more... shares... I'm not clear how that ends up with an asset that I want to own.
Yeah, fair enough.
Does it really matter when you invest, since you end up getting the same bank for your buck no matter what? The only advantage to waiting that I see is that you'll have a better idea of how many Gnosis tokens you'll receive.
I like this model. It takes the "hurry up and get in" pressure off a little bit. After missing Cosmos (I was literally pushing send when it ended), the pressure has become a bit more on the ones I'm very interested in.
Timing does matter a little, yes. If you'd be happy with any price under $10, but then you wait till $8, you run the risk that the sale ends suddenly at $9, in which case you walk away with nothing. In game-theory terms you have a (weakly) dominant strategy to enter exactly at your favorite price. Entering before or after can only hurt you.
Yeah, Cosmos really botched it. They gave away way too many tokens way too cheaply. The fact that the sale ended in 30 minutes means that the price was too low.