There’s a huge issue that’s plaguing the Ethereum community: getting scammed by ICOs. The list of crypto-related scams is exhaustive.

This issue is also taking its toll on investor confidence. Not only are tensions high among online communities like Reddit, but the data clearly demonstrates that ICO funding has dropped to astoundingly low levels. People just aren’t taking part in ICOs as much as they used to. While some of this could be due to the crypto bear market we’re in right now, it seems that investors are also becoming more savvy about who they give their money to.

While solutions like Reversible ICOs certainly have merit and would help investors recover funds they lost, it also leads to an issue for the developers since they no longer have a stable budget to work with.

IMO Model in Action

An overlooked solution that would protect investors while supporting developers with income is the Initial Mining Offering (IMO) model. Instead of a lump sum given to developers through a massive crowd sale, developers would be compensated with a small percentage of all new mined rewards. This avoids the crowd-funding round while gradually and steadily rewarding the development team proportionally based on the value of the token.

Some projects have already adopted this model, such as Nexus. And indeed this model is convenient when working off of your own chain, but until recently it hasn’t been useful for developers working within Ethereum since ERC20 tokens are limited in their distribution.

With the development of mineable tokens through the EIP918 standard, IMOs are now possible within Ethereum for ERC20 tokens. There are two ways developers can use EIP918 for distribution of their token and team funding: Having their token be mined exclusively, or utilizing merge mining.

Mining exclusively: Developers are free to adjust the mining parameters for their ERC20 token by adjusting supply cap, automatic adjustment rates, reward size, and their own personal draw. The downside to this is that creation of their token requires miners to exclusively point hash power towards the token’s contract. Although it may sound strange to have a utility token (think BAT or ZRX) be mined, some developers might opt for this model to demonstrate that they’re only interested in being paid as long as the token continues to be worth something and continues to be mined in months/years to come.

Merge mining: For developers that don’t think it’s appropriate for their token to be mined exclusively, they can use merge mining technology and “piggy back” off of existing mineable tokens such as 0xBitcoin. Miners of 0xBitcoin would get these extra tokens “for free” without diverting hash power away from 0xBitcoin; they would then sell the tokens at market value. Developers still have the option of receiving a percentage of new tokens mined, without having to concern themselves with creating a whole new set of mining parameters.

When it comes to distribution through mining, developers can expect to have more fair distribution for their token than they would have through an ICO. Investors wouldn’t give money to a developer in a presale, and would instead buy tokens on the open market like usual. Most importantly, developers only continue to be funded as long as their token performs well.