At Solana's Breakpoint 2024 conference, industry experts Tushar Jain and Qiao Wang engaged in a thought-provoking debate on the potential return of Initial Coin Offerings (ICOs). The discussion delved into the pros and cons of ICOs versus traditional venture capital funding, exploring the implications for market structure, community building, and project success in the evolving cryptocurrency landscape.

Summary

The debate centered around the merits of bringing back ICOs as a token launch method, with Tushar Jain arguing in favor and Qiao Wang presenting counterarguments. Jain contended that the current token launch structure is deeply flawed, leading to low float, high fully diluted value (FDV) tokens that are unfair to some market participants. He advocated for reforming token launches to create a more equitable playing field and foster community building.

Wang, while acknowledging the potential benefits of ICOs, pointed to the success of venture capital-backed projects like Solana as evidence that the VC model can produce superior outcomes. He highlighted the value-add that experienced VCs bring to projects, such as strategic connections and guidance.

The debate also touched on the importance of transparency in token launches, the need for proper disclosures, and the potential for exploring new ICO designs that could address past shortcomings. Both speakers agreed on the importance of having sufficient float for true price discovery and the dangers of raising too much money too quickly.

Key Points:

Arguments for ICOs

Tushar Jain argued strongly in favor of bringing back ICOs, citing several key reasons:

1. Equal access: ICOs provide permissionless access, allowing regular people to participate on the same terms as sophisticated investors. This democratization of access aligns with the core principles of the cryptocurrency industry.

2. True price discovery: By offering a larger float of tokens to the public, ICOs can lead to more accurate price discovery. This contrasts with the current trend of low-float, high-FDV tokens that can create market distortions.

3. Community building: Jain believes that the best way to build a community in crypto is to "make a lot of people some money" rather than concentrating gains among a few investors. ICOs can facilitate this broader distribution of potential gains.

4. Capital efficiency: While acknowledging past issues with ICOs, Jain argued that they are more capital efficient than airdrops, which he criticized as incentivizing Sybil attacks and potentially misleading teams about their true traction.

Arguments against ICOs

Qiao Wang presented several counterarguments to the return of ICOs:

1. Success of VC-backed projects: Wang pointed to Solana as an example of a highly successful VC-backed project, arguing that it has outperformed Ethereum, the most iconic ICO project.

2. Value-add from VCs: Experienced venture capital firms can provide valuable connections, strategic guidance, and support beyond just funding. Wang cited Multicoin Capital's role in connecting Solana with key players like FTX in its early days.

3. Historical performance: Wang noted that very few ICO projects from the 2017 boom actually built good products that people love, with only a handful of exceptions like Chainlink and BNB.

4. Regulatory concerns: While not focusing on regulatory aspects, the debate acknowledged the current regulatory challenges facing ICOs, particularly in the United States.

Exploring new ICO designs

Both speakers agreed that there is room to explore innovative ICO designs that could address past issues:

1. Transparency: Emphasizing the importance of clear disclosures about the team, project goals, and token economics.

2. Vesting schedules: Implementing longer lock-up periods for team tokens to align incentives for long-term success.

3. Flexible pricing: Offering different price tiers based on lock-up periods or other criteria to incentivize long-term holders.

4. Anti-bot mechanisms: Implementing measures to prevent manipulation and ensure fair distribution.

Facts + Figures

• Ethereum's 2014 ICO raised $18 million and subsequently achieved a 10,000x return over the following decade.
• Solana, a VC-backed project, has outperformed Ethereum in recent years despite not conducting an ICO.
• The debate took place at Breakpoint 2024, a Solana ecosystem conference.
• Coinlist token sales were mentioned as an example of regulated ICO-like offerings currently taking place.
• Very few ICO projects from 2017 built products that gained widespread adoption, with Chainlink, BNB, and Tron cited as rare exceptions.
• Solana conducted a significant token unlock in January 2021, which was initially met with concern but ultimately led to improved price discovery.
• The speakers agreed that raising too much money can be counterproductive for startups, potentially leading to bureaucracy and reduced agility.

Top quotes

1. "Fundamentally, I believe that the best way to build a community in crypto is to make a lot of people some money." - Tushar Jain

2. "Market distortions, like low floats, destroy value." - Tushar Jain

3. "What VCs bring to the table is some of the best ones, including multi-coin, can actually add a lot of value to the product itself." - Qiao Wang

4. "More money will actually kill you. More money means more distraction." - Qiao Wang

5. "The best teams stay hungry." - Tushar Jain

6. "I think we have to fix this mismatch. And doing a big single token unlock is one way to do that." - Tushar Jain

7. "The fact of the matter is the most successful project or asset in the last, I don't know how many decades in terms of return is in fact Ethereum." - Qiao Wang

Questions Answered

What are the main arguments for bringing back ICOs?

The main arguments for bringing back ICOs include providing equal access to investment opportunities, enabling true price discovery through larger token floats, and fostering community building by allowing more people to participate in potential gains. ICOs are seen as more capital efficient than airdrops and align with the cryptocurrency industry's ethos of democratizing finance.

How do ICOs compare to VC funding in terms of project success?

While ICOs like Ethereum have seen tremendous success, VC-backed projects like Solana have also shown strong performance. The debate highlighted that VC funding can bring additional value beyond capital, such as strategic connections and guidance. However, ICO proponents argue that broader token distribution can lead to stronger communities and potentially better long-term outcomes.

What are some potential improvements for future ICO designs?

Future ICO designs could incorporate greater transparency, including clear disclosures about the team and project goals. Implementing longer vesting schedules for team tokens, offering flexible pricing based on lock-up periods, and incorporating anti-bot mechanisms were suggested as potential improvements. These changes aim to address past issues and create more sustainable token launch models.

Why might raising too much money be problematic for crypto startups?

Both debaters agreed that raising excessive funds can be counterproductive for startups. Too much money can lead to distractions, unnecessary hiring, increased bureaucracy, and reduced agility. It may also make it more difficult to pivot or align the team around new directions. The speakers advocated for raising just enough capital to execute on the project's vision while staying lean and focused.

What role does transparency play in token launches?

Transparency was emphasized as a critical factor for successful token launches, whether through ICOs or other means. Clear disclosures about the team, project goals, token economics, and vesting schedules are essential for building trust with investors and the community. The market is expected to reward projects that provide comprehensive information and penalize those that lack transparency.

How can token launches balance long-term alignment with sufficient float?

Balancing long-term alignment and sufficient float is a key challenge in token launches. While long lock-up periods can demonstrate commitment from the team and early investors, they can also lead to low float and market distortions. The debate suggested exploring creative solutions, such as tiered pricing based on lock-up periods or gradual unlocking mechanisms, to strike a balance between these competing interests.