The lifecycle of an ICO

by Lumai Mubanga

Like any undertaking, ICOs undergo several stages leading to the launch of a token or project. However, it must be acknowledged that there’s a lot of learning still going on in the “tokenomics” world. What is presented here is generally available knowledge and not necessarily financial advice. Here we present a summarized version of the ICO life cycle.

Stage 1 White paper

Let us assume you want to create a token through a blockchain project.  You need to write what is known as a white paper. This will outline and clarify your project.  Next, you’ll need to decide on an ICO model.

ICOs have sparked interest in “tokenomics,” a term referring to the economics of these digital tokens. Because this space is just still in its infancy, developers are still exploring and understanding models available. One consideration is whether to have a dynamic or fixed token supply model. A fixed supply may limit the number of people while a dynamic supply will leave investors uncertain.

Stage 2 Model Type

Next, there’s a need to determine the number and types of stages to the ICO. You may have to choose from the following models:  fixed or dynamic supply, sale stages and types of sale; fixed-price or reverse Dutch.  Some projects conduct private fundraising rounds and pre-sales usually before the public sale.

However, some ICOs aim to have dynamic pricing depending on the time and amount of tokens sold thus far. For example, Gnosis, a smart contract prediction market project, used what’s known as a Reverse Dutch auction. In this fixed supply and dynamic price model, the price starts off incredibly high then slowly decreasing. It somehow encouraged investors to buy at the highest price deemed reasonable to them. This led to Gnosis owning approximately 95% of the total token supply.

Stage 3 Regulations and compliance

After adopting the model, it’s essential to determine the regulatory and compliance laws by which your model must abide and which are currently unsatisfied. There is a need to determine in which country such sales are acceptable. All necessary legal concerns are handled at this stage to ensure compliance.

Stage 4 Smart contracts

The smart contracts are now written! This smart contract will among other types of information show ownership of every token, along with detailed functionality of the tokens. Then the functionality specified is implemented as specified by the chosen ICO model. This is followed by a detailed inspection of the smart contract for vulnerabilities. This is necessary to ensure that smart contracts that hold money are not hacked as it happened in the past to some ICO.

Stage 5 Publicity and funding

Then, you publicize your upcoming project and ICO to potential investors to give everyone the opportunity to invest in your marvelous project. If that all works out, then you’ll get funding for your revolutionary blockchain project!

Bear in mind that there are many legal precedents still being formulated across the world. While the industry is still in its infancy, there is a lot being done to make smooth the development stages of ICOs.