This is my own personal opinion, it does/may not reflect the view of NEM Ventures or the Catapult Migration Committee
I have had this idea for several months and can’t shake that it is a good one, I want to throw it out to the community to see if you agree, if not why not, if so - how would you like to see it work?
It has not been presented to Core and is not part of the current migration, it is entirely seperate and if it receives positive feedback I will work it up into a proposal for core.
The current ecosystem has several challenges, not least:
- Low organic liquidity
- Relatively small number of total holders (approx 50k accounts)
- Catapult will create interest in the tech, we need that in the token as well ideally
- NEM Entities which are funded in XEM and have to liquidate XEM adding to market problems, not doing so means discontinuing operations though so it is a catch 22,
An appropriately strucured sale of reserved tokens, in such a way to not cause dumping (see below) and getting max number of holders involved while lifting sell pressure from NEM Entities for 12-18 months just as Catapult launches. To be run with no control from any one of the existing entities and ensuring funds are managed by represenatives from the community (various types of stakeholder) in conjunction with the core team and entitites
How Would it Work
This is a conceptual proposal for a NEM Token Sale, it does not have all the details, but has an explanation of how one could be performed, full details would be worked out if it is approved. It should be noted that this is not a Token Sale primarily for fundraising - it is a useful side effect but is primarily to distribute ownership, get more people involved in the project post Catapult launch and help protect market liquidity.
Problem Detail: Lack of Inclusion & Impact on Markets
The current migration approach(es), all of them, don’t offer much opportunity for any new holders to enter the ecosystem
- This has the potential to restrict wider involvement because the holders of XEM and Catapult tokens are largely the same; they don’t really change if the same holders opt-in and ownership continues as it always has
- The liquidity challenges we have seen with XEM are that the tokens are basically not in enough hands (circa 16k accounts with >10k xem) and there is insufficient buy/sell demand due to awareness + adoption.
- Core tokens have now grown to be larger in value than originally and an opportunity exists with that to decentralise even further
The current reserved funds are held in XEM, these are used for various things, primarily funding NEM Entities.
- Even with a mature approach to liquidation and trading (i.e. not dumping) millions of dollars of XEM are released onto the markets in some way.
- Challenge with relatively low liquidity is that this impacts price, it is self fulfilling as the sell pressure does to some extent make liquidity worse
- OTC vendors similarly are not unduly interested in XEM due to illiquidity and they apply a premium in the slippage charged as a result.
These problems are intertwined and there is a relatively simple way to help alleviate them, it may not solve them completely but it helps.
Solution: Token Sale from Reserved Pools
Basically take a portion of reserved funds, work with known, existing partners who have experience with Token Sales (we have these relationships already and have validated interest) to release those tokens for non XEM based investment. This would be done in a way unlikely to negatively impact price and can be combined with both go to market strategy and any of the migration or deployment options for launch.
If these options are to be implemented, a mandate must be given and partners engaged by late Oct 2019 at the latest in order to make a go live in Q1/2 2020 from partner feedback, later is fine but if we wanted to coincide with the Catapult hype that is what we are working with.
Proposal: Partial Release of Reserved Funds
A sale of reserved funds to the general public based on the guiding principles below:
- Attract as many new holders/investors into the ecosystem by keeping max investment amounts low
- Reduce level of reserved pools
- In a way that does not disadvantage existing holders
- In a way that makes dumping as least likely as possible via lock up periods
- Attempts to alleviate Sell pressure from the current market liquidity
- Provides a treasury which can be managed for the good of the ecosystem
- Where possible showcases the use of Catapult’s new features (cross chain swaps, whitelists, token locks etc)
The high level idea is to take a portion of reserved funds and perform a Token Sale like release involving:
- A discount (10-20%) of the spot price of a known point, which is an obvious question
- Restrict the purchase to a maximum of $X worth of tokens, probably around $5,000 to ensure wider distribution.
- Open to existing and new holders, but all must pass KYC/AML checks (legal requirement)
- Investment can only be made in non XEM/Catapult crypto tokens
- Locked release of Token Sale tokens so they are not distributed immediately, some ideas might be:
- All locked for 12 months (one off release)
- The $0-500 locked for 6 months, $500-2000 locked to 12 months, $2000-$5000 locked for 18 months (rolling release)
- Alternative to this would be to repeat the process with a smaller quantity of tokens each year for 3 years, like Algorand is doing
Investors who are prepared to go long on the token in a revitalised project, get the tokens at a discount but can’t dump immediately to avoid usual Day 1 issues. We expect due to Catapult and the wider bull run, that the token will grow by more than the discount anyway in 12 months post launch, so it’s likely the investor will have gained more than the discount by redemption point and be less likely to sell on release, cant be guaranteed obviously.
We as a community put a proactive messaging campaign in place to ensure these investors (and others) know what is happening with the ecosystem every few weeks, similar to what some ICO companies have done well (Crypterium for example) to ensure value of the ecosystem is distributed and understood.
Funds taken for investment would be in ETH, BTC, Fiat etc , which means reserved tokens are basically liquidated at 10% with the expectation that they cause a positive price effect over time. Funds received COULD, with appropriate governance and no control by the existing entities, be used to fund NEM Entity activities and in the future they don’t need to sell XEM to do it on the current market. Generally OTC slippage is 8-10% including fees for XEM already so it works out broadly similar.
It could be viewed as an OTC like sale which guarantees tokens won’t hit the market for a known period of time, keeps tokens locked up and involves individuals rather than just OTC desks.
The funds taken can be sold on more liquid (ETH, BTC etc) markets and not impact XEM/Catapult price; removes sell pressure from the liquidity and divests ecosystem holdings over other assets. This should be managed in a structured and transparent treasury function with regulated individuals, we have these partnerships and people in place already if needed.
By partnering with an exchanges investors have to AML/KYC so there is also a level of psychological buy in and an ability to work with the partners for marketing, uptake etc. It is important to note though this is not an IEO, it cant because it is no an issuance.
This would have the effect of:
- Increase distribution, decentralisation and interaction with new holders of XEM
- A nice marketing story which plays well into Catapult hype and interest
- Remove a large amount of the current XEM sell pressure in markets
- Generate funding for long term operational budgets of the NEM entities without selling XEM on exchanges
Current reserved pools represent approx 35% of total supply, post Catapult launch this may to rise slightly with unclaimed tokens being removed from supply.
Based on some initial analysis, it is expected that by utilising approx one third of reserved funds, it would be possible to reduce the above figure to 20-25% of circulating supply. This requires further analysis but is a headline range to work from, it varies significantly with the Market Cap clearly. The further the Market Cap falls, the more attractive a rolling sale of 3-5% of reserved pools each year for 3-4 years is because it spreads the impact, although it does increase operating cost of the sale. It is recommended to retain the optionality around the size of the 1st sale with a minimum size of runway required
Anyway, that is what has been in my head for a while and it feels good to get it out and see what people think, whats the general cosensus?
Nothing will be done without community and core general approval obviously and once we get enough feedback to validate the approach I will work up a proposal and put it to a PoI vote if that is desired given the size of what is being suggested