Proportional Token Allocation model.

The Proportional Token Allocation model was proposed in EIP 642.

The total number of tokens being sold is given up front as well as the total amount of money being raised. This sets a “cap” in a sense, but the difference is that the total amount of money that can be pledged to the ICO is allowed to exceed this cap. The token sale goes on taking in as much money as investors are willing to commit, very much like an uncapped sale, until the sale ends. At the end of the sale, the sold tokens are distributed according to the proportion of money invested by each participant and all excess contributions are refunded. So as an example, if 2 investors placed 300 ETH and 100 ETH in the token sale that was capped at 100 ETH, 75% of the tokens for sale would go to the first investor and 25% would go to the second. Then, 225 ETH would be refunded to the first investor and 75 ETH would be refunded to the second investor.

This solves the cap issue. But are there any problems remaining?

Such a contract has a starting and ending time, and all the parameters can always be checked in the smart contract code. The problem it creates is that every rational participant will simply contribute at the last minute of the sale (to potentially get their ETH back right away).

A contract remaining empty until the last minutes can be deemed by potential participants as unappealing, leading to a reverse snowball effect where no one wants to participate. It is a common problem with private rounds too, but that is being gamed by projects saying “oh we are almost closed, jump in quick”— people FOMO in, as verifying their statements is hard. However, with Smart Contracts, everything is on-chain and verifiable.

Therefore, there needs to be a push for participants not to wait until the last minute. This will also incentivize long-term supporters who were going to participate anyway. We are doing this the following way:

There is a bonus which starts at 7%, with every next transaction getting 0.05% less bonus (7%->6.95%->6.9%…), down until it goes to 0% [or 6 hours since the start of the sale — this is subjected to change]. This means there can be a maximum of 140 transactions with a bonus. This incentives potential participants not to wait till the last minute, but the size of the bonus is not big enough to create an unfair advantage. It is also a small FCFS (first come first served) feature which the OGs might like. ;)

down until it goes to 0% [or 6 hours since the start of the sale — this is subjected to change]. This means there can be a maximum of 140 transactions with a bonus. This incentives potential participants not to wait till the last minute, but the size of the bonus is not big enough to create an unfair advantage. It is also a small (first come first served) feature which the OGs might like. ;) Unsold tokens are burned. That’s right, after the contract time runs out, any unsold tokens are automatically burned. This ensures that those potential participants who like the project and will participate are not risking a big free circulating supply, since a lower demand at crowd sale implies an even lower valuation and circulating cap later on.

Summary.