What are the keys to a successful Initial Community Offering?

Some crucial design elements that can kickstart a network-based business are:

The community must be able to handle fluctuations or price variability early on. For businesses where this is not possible, e.g. for a loyalty platform where merchants and customers are to receive crypto loyalty coins, merchants are unlikely to want to take the price variation risk, nor go to the effort of conversion. There is a very low chance of adoption. It is better to use an existing national currency or cryptocurrency in these cases.

merchants and clients

The community must have few incentives to exit early, and in general should be happy to have their ‘savings’ sitting in the ecosystem for a while before exiting. Small business communities generally prefer money in the bank rather than in an ecosystem so they can manage cash flow.

The currency must represent value creation. It is rare that a project can describe the new value created in their economy and how their currency represents it. You may have created a payments coin that takes cost per transaction from 3% to 2%, or a medical coin for a hospital that takes the cost of accessing medical data from $1,000 to $100 per year. On the other hand, you might be creating non-monetary value through your business. Assuming a currency is a way of making visible and valuing flows, then it is important to know precisely which flow(s) you are valuing.

The business, or reserves of the business, have to be able to handle the redemption costs and volume. What happens if the token goes 100x or 0.01x? Can you honour sales made at these new rates? Can you satisfy angry customers who no longer have any purchasing power? Do you have enough cash in the bank? Most projects with whom I speak have this model wrong in their heads. For example, a blockchain investment platform is likely to design a token with a desired upside of 50x, but if that 50x upside is realised, their reserves are not enough to cover the redemption of investments made at 50x purchasing power from the initial raise.

In most cases, demand, not price, should be satisfied by supply. In the early successes, price was used to satisfy demand, which assumes that supply is also fixed.

Most of the time, however, we want supply to increase to satisfy demand with price remaining reasonably steady. This is like Uber or Airbnb; as demand grows, there may be price spikes or drops.

As new houses rush to come online or new taxis hit the road, prices may temporarily change, but eventually a new equilibrium will be set. In productive economies, we want change in demand to signal new requirements for supply, and have supply come online to meet this demand without having to significantly adjust price. If the motivation of most of the participants in your economy shifts from creating value to speculating on price increases, you’re disincentivizing actual value creation and making your economy weaker.

Overall you should want to reward effective work. Competitive work like mining brings an inefficiency into a productive economy that is likely to be exploited by a better designed solution. Value-added work — like providing housing, transport, or office space — creates a far stronger economy and financial model to compete with even the best centralised businesses.

This is a world where few will succeed, and therefore, understanding context is everything. Your tokenomics can be designed around the new value that is being created, value that is specific to your context. You may need to throw out the models everybody else has, and design the solution you see based on your understanding of how your industry works.

Is an Initial Community Offering for you?

When designed well, Initial Community Offerings are worth far more than the funds raised. They jumpstart communities, attract customers/users, and accelerate your business — but they are not for everybody.

Are you struggling with your tokenomics like the business I spoke to last week? Is it all too hard? Do you think your fixed supply model will fail? Are you able to articulate the value your business creates? Can this value be expressed through a currency or is it better realised through equity? Does your design incentivise use and reward real work?

Some businesses are perfectly set up for a fixed supply economy, others are suited to a variable supply, and most, like the company above, build off existing economies and don’t need a currency at all. Their biggest challenges are which currencies to support and how to bridge money into and out of their business.

All of these problems are solvable with an open mind, a desire to investigate the questions, and the right partnership. The scenario we are looking to create is one where a business finds the ideal fundraising mechanism for them, rather than letting the ease of raising funds blind them to the work necessary for building a successful business.

We can summarise the inquiry of whether an Initial Community Offering is for you in the following table:

Is an Initial Community Offering right for you?

Where is Holo now?

At Holo, we finished our Initial Community Offering in April 2018 and have been working hard to build community and product ever since. As we are getting closer to testnet, we are also upping the frequency and breadth of our communications. Community expectations are high, and we are doing our best to live up to them.

In the coming weeks we will be building on the considerations raised above and discuss ways to design decentralised architectures, crypto economies or tokens, and fundraising models in various articles and papers in order to coincide with the test launch of HoloFuel.

We are in the earliest stages of variable supply currencies with global reach. We invite you to be a part of creating this story by joining our community or giving feedback. We look forward to continuing the conversation together.

David Atkinson, Commercial Director