ICOs allow to raise start capital for blockchain-based projects without organizing any IPO and other extra formalities. It’s extremely important to choose the right way how to organize token sale for your project to be successful.
Here we make a research about different types of ICO auctions which one can use to raise funds during ICO campaign.
The most popular token sale method used by ICO teams is capped sale when the maximum amount of tokens is set and the sale finishes when this market cap has been reached. A low hard cap can leave many investors unable to contribute and increase demand for the tokens long after the token sale.
When the cap is rather high it allows more people to invest into the project but after the end of token sale it often provokes decrease of interest.
The ICO team still has the option of selling tokens on a first come, first served basis, or limiting the number of transactions available for every user along with limiting the highest maximum payment per each transaction.
Uncapped sales take place without any limit on the raised funds and its main target is to attract as much investors and capital as it’s possible. An uncapped ICO will still limit the percentage of tokens available, however, the real percentage of the given token supply is not known until the token sale has ended. Making deal with uncapped sales investors have no idea about the value of each token until the sale finishes.
This method is rather helpful for those who want to attract a larger community of investors. The possibility of getting more capital also motivates ICO team greatly and helps the managers to achieve successful results.
The EOS project is a bright example of uncapped sale. It ran its ICO for a year and then distributed EOS tokens with no pre-determined price.
If Dutch Auction is used then at the beginning of the sale the asking price of the token is rather high but then it is lowered until participants are willing to accept either the auctioneer’s price, or a predetermined reserve price.
Dutch Auction is popular for the situations when the certain project needs its token sale to go quick.
If the tokens during Dutch Auction grow less expensive over time as a rule it takes more time for them to be sold. For example the Gnosis project held such a reverse Dutch auction to make potential investors experience the fear of missing out when contributing to ICOs.
The Gnosis team set up the token sale to distribute greater percentages of tokens the longer the sale took but did not place any cap on the amount of tokens that the team would receive and the sale was scheduled to end once 9M GNO tokens were sold or $12.5M was raised. Despite setting up the auction to slow down sales, the entire process was concluding in less than 15 minutes and resulted in the team owning 95% of the total, worth approximately $280M at the time.
Here we discussed three main types of ICO auctions. Some ICOs use also incorporating tiered multiple investment rounds and pre-sales to make the process of capital raising more effective.
Which auction to choose to make your token sale more successful? It depends on your product and on the period of time which you’re going to spend on token sale.