By Ross Cormack (https://medium.com/@rosshuntercormack)

In order to attract investors, blockchain ventures devise new and interesting ways to garner interest in their concept. The majority of blockchain projects choose a bonus structure or a combination of bonus schemes, depending on the sales phase i.e. private sale, pre-sale, and main sale, to encourage investment in the project, with the funds generated usually directed towards various business expenses for the development of their platform.

Following on from Token Sales — Where the Funds are Going Medium post, where 18 established and some up and coming tokn sales were assessed to determine % token allocation and % use of funds, this post looks more closely at the methods that blockchain ventures use to encourage participation in their token sale.

Bonus Structure

In general, there are 6 types of bonus structure utilized by blockchain ventures.

1. Fixed bonus

A fixed bonus refers to a non-variable percentage that is set for any number of tokens bought, and is most commonly used in the pre-sale phase.

2. Tiers Bonus

Teams split their tokens into a bonus scheme based on the percentage of tokens sold in a tier bonus. As the tokens sell, the bonus percentage decreases.

3. Quantity Bonus

A quantity bonus refers to discounts in relation to the quantity an investor purchases. The bonus increases in line with the number of tokens purchased.

4. Time Bonus:

A time bonus refers to bonuses allocated based on the timing of the purchase. The sooner the investment is made, the higher the bonus percentage.

5. Engagement Bonus:

An engagement bonus is allocated for investors that prove their engagement towards the project’s cause. The engagement can be writing an article about the token sale or just sharing the information with potential investors.

Another method of gaining attention and new followers is the use of an Airdrop.

6. Airdrop

Cryptocurrency enthusiasts can gain free cryptocurrency by supporting projects who release coins through an Airdrop. Often, Airdrops will have requirements such as joining a telegram channel, retweeting a tweet, or inviting new users to the project.

Analysis

Of the 18 blockchain projects analysed, Golem, Bancor and Status chose not to use a bonus scheme to attract investors. Note that these 3 projects were successful and went on to raise very large sums of money.

Of the 18 blockchain projects analysed, 15 employed some form of bonus scheme during their token sale in order to attract investors. Information regarding bonus structures was commonly found in the blockchain project whitepaper, token sale terms and conditions documentation, or project website.

11 of the 15 blockchain projects had successful token sales, raising significant sums. The remaining 4, namely Ryfts, Klabrate, Bountie and Alive Casino at the time of writing, were either in the pre-sale stage or still to launch their token sales.

Klabrate is the only blockchain venture to allocate a % of their tokens to an airdrop.

Edgeless used a time bonus structure to attract early investors. They introduced power hour rewards; in the first hour of the crowdsale, 1ETH could buy a specific quantity of edge tokens and this would reduce with each passing hour.

Supporters who bought Edgeless digital tokens were granted access to the monthly lottery to win 40% of the company’s revenue during the review period.

Playkey i.o. utilized a tier bonus system and an engagement bonus structure to encourage investment. Proceeds raised during their pre-sale and main token sale were put toward developing their cloud powered P2P gaming.

WAGERR implemented a time bonus and an engagement bonus structure in their token sale. They designed their bonus structure to incentivize participants that buy-in to continue to promote the offering after they buy, with bonuses dependent on later round successes. With up to 20 rounds of sales, a progressive bonus system rewarded early adopters while encouraging word of mouth marketing and the complete sale of each round.

FunFair introduced a fixed and a tier bonus structure in their token sale. They had five bonus tranches that were calculated by summing only the Ethereum contributions made to the crowdsale contract. All contributions made between the first Ethereum contribution and a certain Ethereum value were considered “Tranche 1” contributions and credited a certain value of FUN / USD, and so on for 5 stages.

DaoCasino used a fixed and a time bonus structure to encourage token saleparticipation. Day 1 was referred to as a power day when the price for Dao.Casino tokens was worth a prescribed number of ETH, with the number of tokens available for purchase per ETH reducing according to the schedule provided in their token sale terms and conditions.

HOQU incorporated a fixed bonus and a tier bonus system into their token sale. In the private sale a 100% bonus of the price in the main sale was offered, and in the pre-sale a 40% bonus of the price in the main sale was offered. In the main sale, a tier bonus system was used i.e. as the tokens sell, the bonus percentage decreases.

During the Enjin Coin pre-sale, Enjin Coin was available at a specific USD price per coin i.e. the earlier one invested, the cheaper they could buy the tokens. In addition, contributing over certain amounts added bonus which is an example of a quantity bonus structure.

Sentigraph chose to employ a fixed bonus structure during an initial private round, as well as the pre-sale and main crowdsale phases of their token sale.

Rentberry, during their token sale, chose a tier bonus and quantity bonus system to attract investors, introducing a minimum purchase requirement. During the three phases of their sale, a decreasing % bonus of tokens was available. Purchasers who committed to purchase a large amount of BERRY Tokens during the Sale Period, were eligible for an optional extra bonus. All such bonuses were discussed individually with each potential buyer (“Private Sale”).

Gaming Stars held a token sale with a private pre-sale with fixed bonuses split into two stages; stage 1 (80%) and stage 2 (50%) and a public pre-sale utilizing a time bonus structure.

Ryfts introduced rewards for the top 10 investors, a quantity bonus, with 4 types of premium memberships which offered weekly free rolls and a lifetime platinum membership which offered weekly free rolls and no fees.

Klabrate use a fixed bonus structure during the pre-sale (up to 30%) and main sale (up to 10%) stages of their token sale. Klabrate allocate 5% of their tokens to an airdrop.

Bountie Technologies employ a fixed and a time bonus structure, with the pre-sale split into two phases. Token purchasers who participate early receive additional bonus Bountie tokens.

Alive Casino utilize a fixed bonus structure, with a bonus rate assigned to an exclusive sale, a private sale, the pre-token sale and a time bonus structure in the main public sale.

Genesis (Vision) adopted an engagement bonus structure of up to 30% for those first to get involved.

Blockchain project bonus schemes are summarized in the Table below.

Impacts of a Bonus System

Clearly the use of a bonus system to attract investment is a popular tactic that is implemented by the majority of blockchain project token sales. It’s difficult to measure the specific reasons why a token sale may be successful or not, but is it reasonable to assume that investment in a project is enhanced in some way by the bonus incentives offered, or is creating bonuses for the purpose of bringing in investors and engaging the community naïve thinking?

When a token sale promises large bonuses to investors, one may question the future sustainability of the project. There is also always the chance that there’s a ‘pump-and-dump’ scheme on the side of private investors.

According to the Ethereum co-founder Vitalik Buterin, volume bonuses (which means you receive additional tokens if you invest more), go against the spirit of cryptocurrencies, which, in principle, aim to promote equality and a fairer economy, where wealth is not concentrated in the hands of the few.

While bonuses may trigger an inflow of capital during the highest bonus levels, the lower a bonus becomes, the less incentivised investors may become to contribute. Token sale investors will be less inclined to buy tokens at a high price and become the last investor in the token sale. For token sales that don’t have a product, incentivising early investors can still be a positive thing to do, but when bonuses reach above 10–15%, it may have the opposite effect and repel investors that missed the initial promotion.

A bonus may remove any opportunity for short-term gains, as investors that earned a high bonus would be willing to sell at a lower price than those with lower bonuses, instantly creating a sell pressure below non-bonus prices.

Conclusion

When it comes down to it, tokens with intrinsic utility are worth considering, after appropriate due diligence, and are more likely to increase in value, while those whose purpose is to extract value from a business will lose their value. Introducing a bonus changes the price of a single token and therefore the valuation of the token sale and the total token supply.

With this in mind, EdgeFund will carefully consider the pros and cons of offering discounts during their token sale, but are confident that the concept they are proposing (https://www.edgefund.net/) will speak for itself.

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