In a maturing ICO market, it is no longer enough to simply deliver an offering; technical integrity is now the ultimate status symbol.
As the past two months in the history of the burgeoning token industry demonstrates, real faith in the longevity of the companies behind the coins is difficult to secure.
Frenzied buying, shorting and dumping by casual traders is no measure of a token or provider’s worth, something which is only now being addressed by a handful of cryptocurrency businesses.
Civic’s balance of success and reputation
Chief among the recent ICOs gaining wide recognition for technical innovation was that of Civic, Vinny Lingham’s Blockchain-based answer to the problem of identity theft and the vulnerability and unwieldiness of identity checks.
Lingham, whose token offering had been hotly awaited for several months, had cautioned against inflating prices based on short-term enthusiasm. Bitcoin, he said in January, would suffer if an influx of trading pushed its value too far over $3,000 too quickly.
Launching a token which would clearly exhibit exactly those qualities due to Lingham’s own reputation thus appeared somewhat ironic, and the pressure on Civic to deliver a reputable asset was palpable.
As the ICO launched in June, it was instantly oversubscribed. Lingham, however, had an ace up his sleeve in the form of multiple technical advances to ensure his CVC token distribution was fair for investors and easy on the increasingly shaky Ethereum Blockchain.
Unlike ICOs up to that point, Civic utilized what was tantamount to crowd control. Users waiting to buy tokens received a random number in a virtual queue, with places not even distributed linearly. Thus, a user chronologically first to receive a number would not necessarily receive first place.
Tokens were further distributed in batches and were subject to maximum order amounts, ostensibly to avoid ‘whale’ investors snapping up and controlling vast swathes of liquidity.
LakeBanker: Civic’s ICO was ‘North Korean style’
Yet as reliable as it may sound, Lingham did not convince everyone.
LakeBanker, an offshoot of veteran Chinese cryptocurrency exchange LakeBTC, intends to squarely compete with Civic’s ICO model for its own sale, which should see its first phase this month.
“We can’t disagree more about Civic’s token distribution methods,” LakeBanker CSO Dr. Andrew Joseph McCarthy explained to Cointelegraph. “LakeBanker and Civic have nothing in common in this regard.”
The startup intends to ensure distribution of its BAC token is as broad as possible. Lingham had said exactly the same, but McCarthy considers the methods he used to ensure a level distribution were ironically constrictive for investors.
“To us, their approach is North Korean style. This is due to several factors,” he explained.
“An arbitrary fixed price is set, which is not the market price. A bunch of rules are set to stop people from purchasing their tokens. Many limits are just random numbers without much logic or data to support them. This is not a free market.”
Two phases and a five-year vesting schedule
Instead, like Gnosis, LakeBanker will employ a two-phase ‘Dutch auction’ style sale event, which will see a small fixed-price offering followed by the majority of tokens sold on a sliding scale in October.
“We had chosen this two phased sale model before we heard about Civic,” McCarthy continues. “We will use phase one to test the market, and order to receive valuable feedback from the community before the main sale.”
For any criticism of Civic, including that from frustrated users during the ICO, its asset has been remarkably stable for an ERC20 token since it launched in July. Futures prices beforehand had lurched between the asking price of $0.10 and a giant $1.40, while post-release, CVC remained range-bound between $0.15 and $0.22.
Longer term, however, McCarthy has further concerns she aims to address with LakeBanker’s event.
“I don’t see Civic include a vesting schedule in their token distribution. This is a red flag to us,” he warned. “If the team does not have faith in their project or believe in its long term prospects, why should their investors?”
LakeBanker is thus including a five-year vesting schedule for tokens held by internal parties, with 20 percent of tokens available for trading each year.
Aside from giving the team stability to realize its vision, such a parameter prevents token distribution becoming one-sided after release. Whale traders will be unable to control a substantial proportion of the market, even once BAC is freely tradeable.
Will it run without a hitch? LakeBanker’s Shanghai headquarters make for a challenging operating environment. In China, fears are mounting about the consequences of investing in token sales, with regulatory uncertainty and potentially dire punishments hitting the headlines in recent months.
While McCarthy is keen to differentiate BAC from an actual ICO (BAC is not a security), delivering the ‘ultimate’ product in this miracle market is now far from straightforward.