We've seen a rise of shady ICOs and with them a rise of ICO rating sites. These rating services use a number of criteria to tell people which ICOs are safe to invest in and which are suspicious and should be avoided. Notable among these services, and my personal favorite, is ICO-Check. They're an open source, crowd-sourced community that checks the legitimacy and safety of ICOs. They do this by making sure that an ICO lives up to a variety of standards like having a working product prototype, having a real team, and being completely transparent during communications with the checkers. (Brag: they added this last category after checking our ICO because we were so transparent with them.)
During the ICO-Check process, another factor they take into consideration is vesting. In an ICO, some amount of tokens are usually created for the team. Vesting refers to limiting how quickly these team tokens can be sold, usually meaning tokens are locked for a couple of years before team members can sell them.
The Holo ICO doesn't have vesting for team tokens. We get a lot of questions—both from folks in the traditional ICO space and from ICO checking services—asking why we aren't employing vesting in our ICO.
So in this article we'll dive into the reasons vesting is seen as a "requirement" for a responsible and safe ICO, and look at how Holo addresses the same concerns that create the need for vesting, but in our own ways.
Vesting’s Purpose in an ICO
In an ICO, having vesting on the team's tokens acts to:
- incentivize the team behind the ICO to work hard and build a product that will increase the value of their tokens, and
- to prevent teams from dumping their tokens shortly after the ICO.
Anyone would agree we're running our ICO rather differently than most. We've recognized these problems that ICOs have, and we're choosing to approach them each from a different angle and solve them in ways that make sense in the context of our ICO.
Let's first tackle the first reason for vesting: incentivization of the ICO team to add meaningful work to the project after funding is gained. There are three reasons people will trust that we'll continue to work on the project after we are funded:
- We've already done a lot of work on it. Holochain, the underlying software that Holo will run on, is in an Alpha release and is available for public testing and use. There are also several prototype and proof-of-concept Holochain apps available for download. The amount of work we've already put into the project, and the fact that we're not just an idea or a white paper, is a good indication that we'll stay devoted to the project after we raise funds.
- Our Indiegogo campaign holds us to deliver. More than 1,000 people have backed our Indiegogo campaign totaling well over half a million dollars of contributions to date. We're bound to deliver on the promises made in the Indiegogo campaign by shipping HoloPorts and delivering working ecosystem. To do this, we'll need to keep working on the project after the ICO.
- For everyone on the team, Holo is a passion project. All of us are devoted not only to the ecosystem we're working to build, but also to the world for which that ecosystem stands. We're passionate about progressing towards the deeper goals of the the project—increasing the collective intelligence of groups of humans for a better, healthier, more vibrant future in every way. There are people on the team who have been working on attaining the world that Holo is a step towards for over fifteen years, and those people aren't prepared to stop because they suddenly have funding for acceleration towards these goals.
In the end, we can only hope you will see the Holo team as what we are: a group of dedicated humans working long-term towards a better future, and not as a team working hard enough to grab funding and then abandon their project. We have lots of feedback from our community that our nature in this regard comes across very accurately.
"No Dumping" Policy
Secondly, let's take a look at what prevents the team from simply dumping our tokens to make a quick buck after the ICO ends.
- We intend for the value of the tokens to rise. (See above "Why we are going keep working on the project.")
- HoloTokens are asset-backed. Unlike many of today's cryptocurrencies which are fiat (literally "spoken into existence") currencies, HoloTokens are essentially asset-backed. HoloTokens are temporary ERC20 tokens that will be one-to-one tradable for Holo fuel, our mutual-credit cryptocurrency, once the Holo ecosystem launches in 2018. Holo fuel is directly backed by a useful and measurable resource—distributed computing power and hosting capacity. Each unit of Holo fuel is backed and exchangeable for, at a minimum, a specific amount of distributed computing power. Since the currency is asset-backed, and Holo's account is debited for all the currency we sell due to the mutual credit system it's built on, we're inherently held accountable to give value to that currency. (Check out our ICO video where Arthur Brock, Eric Harris-Braun, and Jean Russell talk about how our ICO is different.) Our tokens being asset-backed means that even if our team sells some of them off to support themselves, the value of the tokens is directly connected to a commodity that there's demand for, and therefore can't drop to nothing like a fiat token could.
- No one is receiving equity-level stake in the project in HoloTokens. In most ICOs, the team gets massive "equity" portions of the tokens they're creating. These huge amounts can be quite dangerous to let them cash out of too quickly. In Holo's ICO, no equity-level amounts of tokens are being paid to anyone—including the core founders. The HoloTokens paid to the team only represent a portion of their salaries from the past months of work. They've already been deferring their salary for six months and we don't believe they should have to continue to do that. This means that there simply aren't massive token holdings that the team even could dump. Furthermore, the team is getting paid even more of their salaries from the past months in Holo fuel. This is even more systematic incentivization for the team to continue to create a working product and not dump their tokens because Holo fuel's value will be based on the success of the Holo ecosystem, and dumping HoloTokens soon could affect the value of Holo fuel later on.
That having been said, our team is getting a chunk of their pay in tokens. Members of the team have been working since November on a $1,000/mo stipend. Before that they had been on an entirely volunteer basis, working toward the goals and common vision they hold. (Perhaps this can act as even more assurance that the team is dedicated to the project independent of funding.) So it is possible that members of the team will sell some of their tokens to pay their bills, since they've been only been paid a stipend so far, but this is mostly unlikely because it's likely the tokens will grow in value significantly over time.
Another reason vesting doesn't match up with our ICO is the timeline. In most ICOs, tokens are sold to fund a project and then later those same tokens are used within that project. In our ICO, HoloTokens are being sold as stand-ins that get exchanged for our own custom currency when our ecosystem launches a few months after the ICO. It wouldn't make sense to have the team's HoloTokens have a 2-year vesting period when they need to be traded in for Holo fuel after only 6 months.
If you don't feel comfortable investing in Holo because there's no vesting on the team's tokens, I'd understand. In the end, the most important thing is that you're investing your money in ways you're comfortable with.
But vesting isn't a one-size-fits-all solution to magically make an ICO safe. For an ICO like ours which isn't typical in almost any way, we've had to take the default patterns other ICOs follow and turn them on their heads to create an ethical ICO that strongly represents our values and works towards the goals we hold.
We have considered the problems with ICOs that vesting exists to solve, and we've acted to solve those problems with regard to the specific situation of our ICO and our team.