It’s become common for a lot of crypto projects to implement long token release vesting schedules for their token sale investors. I believe ICOs should not lockup investors and they should get all of the investor tokens out there right out of the gates. I am specifically against blockchain projects implementing long token release vesting schedules as a strategy to support their token price on secondary markets.
If an ICO is worried investors may dump their entire project when they receive the tokens, then perhaps they made one of the following mistakes:
- The project did not choose the right long-term investors.
- The team failed to convince investors to join them in their long-term journey on the growth of their team and product.
- They simply raised too much money and the fundraising market cap valuation for their ICO was set way too high for this current market.
Here are some solutions to avoid a massive dumping of their token on secondary markets:
- Raise from investors have been proven in the industry to hold investments long-term.
- Create a strong enough product and team that investors actually don’t want sell. They might be missing out on holding onto Ethereum at $0.30.
- Reduce fundraising hard cap drastically. I believe $1M-10M is the right number in the current market for younger projects. More established teams and projects are the only exception to higher raises, such as RSK in my opinion. Furthermore, I think projects should be raising much less money so they don’t have to postpone token release in a bull market. We’ve seen plenty of older ICOs, such as Ethereum, launch successfully in a bear market. I believe good projects with a strong community should be able to launch in any market condition.
The winning strategy for cryptocurrency ICOs is smaller raises. If the project can survive through the bear market, the market cap should grow organically as the greater crypto market cap cycles through big bull runs and pull backs long-term. I believe if ICOs keep delivering on tech and adoption, they’ll be rewarded long-term with a greater market cap by just surviving and delivering on their product, and in the long-run their foundation tokens will be enough to continue to incentivize developers and fund their long-term roadmap. A few early ICOs that were particularly successful were Augur and Ethereum. I definitely believe there will be more successful cryptocurrencies that will yield similar ROI as long as they have a very low fundraising hard cap and can simply survive and build through the bull runs and pull backs.
The community sentiment around private sale vesting schedules is starting to turn negative as well. The community is always expecting a private sale dump at each token release, and we often see some coins dip in price a couple days prior to the next vesting release date.
It’s a shame to see some crypto projects drain so much of their attention into trading and secondary markets. That’s why I believe ICOs should raise less money — the smaller hard cap and market cap valuation makes it harder for the token fall below ICO price which can cause unnecessary stress and burden due to investors’ expectations. Releasing all of the tokens upfront lets the team focus and build the product and also alleviates some obligation and burden on the founding team. Also, if an ICO raises too much money and underperforms early on, it’s much harder to rally the community’s sentiment around the project again after it’s crashed, much like an overpriced IPO.
If ICO projects continue to implement long vesting schedules for contributors, I believe the crypto space may lose some investing appeal. Two of the most interesting qualities of crypto investing are the short-wait time until the tokens are freely traded on secondary markets and the liquidity found on exchanges. If projects are forcing investors to hold for 1–2 years in some cases, I believe the investments begin to lose appeal and crypto starting to look more like traditional equity.
I can definitely say that the hardest part of the crypto market, since I started observing the BTC and some of the alts in the early years, is simply surviving. You are 99% closer to really making it in this space as an investor or builder as long as you can simply survive and not go out of business when the prices “go to the moon and and crash back to earth,” as they say.