ICO “Bubble” Q&A

I found a doc by Kenny Rowe entitled ICO Bubble Questions. Here are my answers:





Is what we are seeing with ICO’s like what we saw in the late 90’s with “buy anything .com”?

My answer is no. Not even close.

The fundamental question: do you think blockchains and web3 are possibly a revolutionary technology like the web?

If no, then we’ve been in a bubble for a long time.



If yes, then it makes sense for blockchains to have a similar trajectory that will eventually include bubbles.



However we’re nowhere near a bubble yet. With the exception of Gnosis near $1 billion in market cap, we’re far away from the some of the absurd valuations of the 90s. Back then, there were companies with huge market caps whose unit economics were upside down with no roadmap to right side up.



Adjusted for inflation, Netscape had a 4.5 billion market cap on day 1 when it went public. Token sales are from perfect analogies to an IPO, but even Gnosis pales in comparison to any sort of similar valuation.



Is this a feedback loop? The more ICO’s there are, the more ETH goes up, rinse, repeat

On balance, my guess is no in the short-term. Ether raised in token sales tends to put downward pressure on the price of Eth, because projects then sell that Ether. This counteracts the positive upward pressure on ETH before a token sale from new fiat coming into the ecosystem, as well as the publicity that can bring new people into Ethereum.



For example, consider TokenCard. It just raised 12.5m in Ether. Whether it sells now or sells as it goes to pay expenses, that’s negative pressure on the price. Then combine that with over 2.5m downward price pressure from mining rewards every day.



If you take the entire total downward pressure on the price between mining rewards and token sale proceeds being liquidated, we’re likely looking at approximately $5m USD in daily downward price pressure.

But in the long run, it may end up being a positive feedback loop if attractive valuations attract entrepreneurs to build more dapps on Ethereum.







Are the numbers we are seeing really that big?



No. Cos m os raised under 20 million for a project that could conceivably be the interblockchain communication layer for the new version of the internet. Under 20 million sounds downright paltry when you put it that way.







Most ICO’s go fast and favor a few “whales”. Given that a lot of things are like this (pareto distributions) should we expect anything different?



Basic capped token sales are a sign of immaturity in this space. Who wants to wake up at 2am to gamble on whether you guessed at a high enough gas price to get into the token sale? That sucks.





I advocate that token sales should consider either reverse Dutch auctions a la Gnosis or proportional refund caps. For an example of a proportional refund cap, see Branche’s code adapted from Dennis Petersen.



Proportional refund caps do need mild early bonuses to negate the informational advantage of waiting until the last minute.







What does “the bubble popping” look like?



It looks like Ethereum and/or blockchains failing to make any meaningful difference in society.







Is it ethical for founders/insiders to trade their tokens?

It’s disappointing that we don’t insist on longer vesting and lockup for founders. Moreover, usage tokens shouldn’t be tradeable by anyone until it is possible for them to be used.

I’m hopeful that Cofound.it will go a long way toward setting better norms in token sales.

