Solving the Chicken & Egg Problem

Primarily, the problem we are trying to solve in doing a token sale for Civic is the proverbial chicken and egg problem. When trying to build a network effect business, you have the cold start problem: How do you get users if you don’t have companies on board, and if you don’t have companies on board, why would users use your service. By creating a token where the utility increases the larger the network becomes, the early participants in the network begin to benefit from enhanced network effects.

The opportunity to use a crypto token to build a network service is quickly being recognized. Civic is building an identity network which will connect companies and users and we’re creating 1bn tokens in order to achieve this goal. We’re selling 1/3 of the tokens via a token sale for $33m, 1/3 will be given away to companies and users to accelerate network growth, and 1/3 will remain in the company’s inventory. We believe this model will bridge the gap between having to buy users which are expensive in the beginning of creating a network and onboarding companies, eventually getting to the point where the incremental cost per user drops below the value that the network receives from each user.

This model only works if there is participation by thousands of users and hundreds of companies. In fact, this is counter to the way that many token sales are run today — where a few buyers dominate the landscape and buy the majority of the tokens from a crowd sale, preventing it from being truly community driven & supported network.

A better model for Token Sales

I don’t want to compare us to other token sales as everyone has different reason and logic, but I’m going to outline our terms of sale, to give some insight into our thinking:

We’re creating a fixed supply of 1 billion tokens. We are pricing them at $0.10 each. We felt that we needed enough tokens to power the smart contracting system for years to come and we could go to 2 decimal places for fractional smart contract execution. 1bn felt like the right number — no crazy scientific reason here.

We decided not to offer any discounts on tokens sold to anyone, pre-sale or during the crowdsale. Like any premium product, we felt that discounts cheapen the product and also gives certain buyers an advantage over others which we didn’t feel was fair. No discounts to anyone, not even friends and family.

The 1/3 of the tokens that Civic as a company will retain, will be available for sale only after 3 years, with 1/3 being released per year.

After we announced that we were doing a token sale and published the summary whitepaper, we received a ton of interest. It was very clear that we had hit a nerve and there was strong demand for our tokens. The goal for us to do a pre-sale was to ensure that we could place all 330m tokens — and we’re on track for that. Theoretically, all tokens could be sold in the pre-sale and we wouldn’t need to do a crowd sale — so what’s the point of doing one? We asked the same question but we had a different goal.

From a company perspective, if you can sell all your inventory to one or two buyers, it makes life a lot simpler — why hassle with hundreds or thousands of buyers if you don’t need to. Many companies have adopted this approach to “crowd sales” and sell their tokens out before it even goes to the “crowd”, resulting in highly concentrated holdings of tokens by a few hundred people/entities. To be fair, it’s never been easy to control who can buy your tokens. In the crypto world, it’s very easy to setup a bot or script and auto purchase multiple times, so how do you set a limit on purchases? This is also how we get wind up with these spectacular headlines showing how token sales are over in minutes or seconds.

Enter Civic. Our product is a digital identity service. We uniquely have the ability to ensure that each buyer is somewhat unique — so we decided to flip the model around and prevent big buyers from squeezing out smaller buyers. The pre-sale will allow us to ensure that all 330m tokens are spoken for, but we’re still going to allow smaller buyers to buy up to 110m of the 330m allocation because the bigger buyers are only guaranteed up to 66% of the purchase order they have requested. When the smaller buyers show up on the day the crowd sale goes live (21 June), using a Civic account will be required to allow them to purchase up to $25,000. This will ensure that we do not sell out in 30 seconds because of a few big buyers, and even smaller buyers can get access to the tokens during the crowd sale — and without discounts to either small or bigger buyers, which is an even playing field. Bigger buyers have been very supportive of this model, because they understand the value of distributed ownership of tokens in order to create and build network effects.

So, by design, we’re not going to sell out in 30 seconds and the smaller buyers, who have been emailing us, will all get a fair chance to own some of the tokens we are selling even if they just want to buy a few hundred dollars. If we sell all 110m tokens, then it’s a win-win, in that we will have a much broader base of supporters to help kickstart the network and we would have still sold all 330m tokens. If for some reason we don’t sell the full 110m allocation sold during the crowd sale, then the bigger buyers would have effectively agreed to buy the difference, so our goal of ensuring that all 330m tokens are sold will have been achieved.