The IPO for Digital Times

By Jed Grant, Founder and CEO, Peer Mountain

An explosion

In the past year, the initial coin offering (ICO) craze has exploded. In many ways, it is the IPO for digital times. In May, the ICO for the Brave web browser generated $35 million in under 30 seconds. A few months later, the ICO for messaging app Kik’s raised almost three times that. In total, by the end of 2017 ICOs had raised almost 40 times as much capital as they had in 2016, at a rate of around 50 offerings a month.

So how do savvy start-ups in the digital age make their ICO resonate with the public and garner investment?

The need for peace of mind

One of the main goals of the cryptocurrency movement is convenient digital transactions with peace of mind. However, thus far many ICOs have not delivered on this. Worse still, in many instances token buyers have been exploited in ways that are highly illegal in a more regulated market. Some of the most egregious forms of exploitation include:

· Pump and Dump — when tokens are sold off-contract via a private pre-sale at discounted rates. These purchasers then dump their investment at a significant profit as soon as the ICO completes.

· Insider Front Running — early token buyers and holders award themselves tokens, then sell them to excited buyers as soon as the hype train leaves the station. The buyers suffer subsequent losses when the hype stops.

· Insider Dealing — insiders give themselves tokens before the ICO that they fail to disclose. They then sell these during or after the ICO or use them to manipulate the price of the token once it is tradable.

· Outright Fraud — the token and its ecosystem don’t exist and are never delivered. The whole facade is a scam to sell worthless tokens for cash.

Because of this growing unease surrounding ICO, I propose a new way that is fair and transparent.

The need for intelligence

Peer Mountain is the first ICO to use a Smartap algorithm, which uses a good dose of artificial intelligence to optimize the ICO process and match the number of tokens sold with demonstrated demand.

Designed alongside my colleague and advisor Professor Jos Van Bommel, the Smartcap sale proceeds in sequential time-boxed rounds, each at a fixed price. In lieu of a closed and secret pre-sale, the Smartcap starts the initial rounds at a discount to benefit early buyers. As each subsequent round open, orders are accepted until the quantity exceeds the number of tokens in the round. The closing procedure sorts the orders from largest to smallest and fills them in this order, i.e. larger purchases get priority for the round. Any surplus or partial fills are then allocated with priority to the following round. In each round, the quantity of tokens supplied and the price for the subsequent round increases algorithmically. As each round has a time limit, the sale closes at the first round that times-out before all available tokens are sold. Simple.

The future for ICOs

In my opinion, approaches like Smartcap are the future for ICO and will only increase their popularity with investors. It eliminates the opaque pre-sale and brings transparency to the whole token sale process, it provides a fair price discovery mechanism, it increases the supply and price of tokens fairly, it rewards large investors by placing them at the front of the queue and enables the ICO to be capped at a market-determined amount.

Either way, ICOs are here to stay and 2018’s investment levels are likely to blow 2017’s out of the water. Can you afford to miss out?