Token sales are a new model for developing open source blockchain projects. Since the first crowdsale by Ethereum in 2014, different methods have been tried: capped sales, uncapped sales and other more exotic like Dutch auctions.

The general perception is that we still haven’t found a good model.

We, at Kleros, want to help move the industry forward with innovation. This is why we have decided to conduct our public sale as a combination of two features: multiple rounds and Interactive Initial Coin Offering (IICO).

The Single Round Problem

In this post, after reviewing a number of token sales, Vitalik Buterin argues that a fundamental flaw is that tokens are usually distributed at a very early stage of most projects, when teams have little progress to show in their product roadmap.

Giving a team millions of dollars before they have proven their ability to build a product may not be the best idea. This is why Vitalik suggests doing the sale in a number of rounds, as the team achieves milestones and delivers on its promises.

In Kleros, we have decided to follow this route. First, we have delayed our token sale until we had a working prototype. Second, we will conduct the crowdsale in a number of rounds. The first one will start on May 15th, when we will sell 16% of the total tokens. We will conduct other rounds as we achieve critical milestones in our product roadmap.

Participation and Valuation: the Token Sale Dilemma

In this article, Vitalik Buterin, Jason Teutsch and Christopher Brown present a dilemma affecting token sales, affecting certainty of participation (if you want to buy tokens, you can be sure you will) and certainty of valuation (you know how much you will pay for the desired percentage of total tokens). These desired qualities of a token sale are hard to achieve simultaneously.

In capped sales, a team sells a fixed amount of tokens at a fixed price.

The pro is that buyers know the valuation of the project in which they are buying. If Bob makes a bid to buy 10 ETH worth of tokens in a sale capped at 100 ETH, he knows that, if the transaction goes through, he will buy 10% of the tokens.

The cons, however, is that participation isn't guaranteed. Sometimes, capped sales are sold out in a matter of minutes and most tokens end up in the hands of big players who can afford any cost of gas to be the first in line.

Bottom line: In capped sales, participants can be sure of valuation but cannot be sure of participation.

In uncapped sales, on the contrary, valuation is not fixed. It depends on participants bids.

The pro is that everyone can participate. If Alice contributes 10 ETH into the sale, she can be certain she will get 10 ETH worth of tokens.

The cons, however, is that buyers cannot be sure of the valuation at which they will buy those tokens. If the sale is extremely popular, there may be 10,000 ETH worth of bids. This means that Alice will only get 0.1% of the tokens. But she has no way of knowing this in advance.

Interactive Coin Offering

The IICO seeks to solve the dilemma of valuation and participation.

When making their bid, participants choose a personal cap. This puts a ceiling on valuation. They know they won’t have to pay for tokens at a higher valuation than the one they selected. Also, if they are willing to select a valuation that is high enough, they can be sure they will participate.

You definitely want to enter the token sale and don’t care about valuation? Make no cap at all and you’re guaranteed participation.

Only interested in participating at a specific valuation and no higher? When you make your bid, select the personal cap that makes most sense to you. If the cap during the token sale exceeds your personal cap, you will be refunded.

In this way, the IICO gives you two desired properties: certainty of participation (if you select a personal cap that is high enough, you can be 100% sure you will participate in the sale) and certainty of valuation (you can control at which valuation you’ll enter the sale).

The sale is interactive in the sense that potential contributors may enter and exit based on the behavior of other buyers. In doing so, valuation tends towards a market equilibrium. IICO allows for all buyers to participate in equality of conditions. Whales will not have the advantage of paying higher gas prices to be first in line for transactions.

We will soon publish a post explaining in detail how to token sale will work. In the meantime, you can learn more about IICOs in this great article by Truebit’s Robbie Bent.

The Kleros Approach

The model we have chosen for our token sale is a combination of the best of both worlds: multiple rounds and Interactive Initial Coin Offering.

First, it gives buyers a guarantee that the team has the right incentives. In the first round, we will sell only 16% of the tokens. If we fail to deliver in our product roadmap, then you have the choice not to back us in the next rounds.

Second, IICO will make sure that all members of the community can enter the sale in equality of conditions.

In the crazy world of ICOs, we want Kleros’ public sale to be a model of fairness, transparency and accountability.

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