When raising your first investment for a project, people often end up liking the idea while being scared to be the first to invest. This happens all over the world for projects large and small, for experienced teams and for startups alike. Which is why it is important for a project to offer better investment terms for early investors. After all, being the first is always associated with more risk, and taking risk should be rewarded.
ICOs, typically due to shortsighted nature (i.e. Let's raise money now at all cost and worry about our promises later), or due to massive shortage of competent technical talent, end up implementing simple cookie-cutter solutions for early investors. I'm talking about bonuses.
There is nothing inherently wrong with offering a bonus during the crowdsale. But it is the project founder's responsibility to take care of all investors, not just the early few. Offering a bonus turns an otherwise legitimate investment in a promising project into a pyramid scheme. Most of the early investors simply wait until the token gets listed on an exchange (typically it trades at usual ICO price) and sell the tokens immediately to those who came later. These investors have no interest in the project and they don't care about the project's long-term success - they are just there to cash in their bonus. Quick schemes.
For all the criticism that Wall St. receives, there are absolutely some things that they are doing right. One of those things is how they conduct IPOs. When an IPO has been announced, the bank that leads the IPO will typically collect investments at a discounted rate (in order to raise the cash needed for market making this stock). In return, investors have to agree to a certain lock-up period, during which they will not be able to sell their stock. If a lock-up worries you and you would like to flip the stock faster than that, you are free to not participate in the discounted action and purchase the stock at usual IPO price.
In the context of ICOs there is obviously no bank (and there shouldn't be) that would facilitate the lockup period. Luckily, Ethereum technology allows founders to cryptographically lock-up the tokens inside a smart contract until a certain date.
Today, we are open-sourcing the smart contract that we use for our strategic investor presale. This contract has been thoroughly tested to make sure the funds locked-up in the smart contract are secure. This technology powers MultiChain Saturn HODL token sales, and we plan to reuse it for decentralized money management - locking up the funds in a smart contract to help you avoid panic-selling in a bear market.
We hope that more ICO founders will adopt the cryptographic lock-up technology to make the overall investment experience friendlier, and we are doing our part by open-sourcing the smart contracts that Saturn Network uses.
You can find more information about our project and our current HODL token sale here. Photo by Benjamin Bortels on Unsplash