Open Call for Input: Token Sale Idea

[DaveH]

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.

Problem
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,

Solution:
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

[monoquad]

can you told us briefly:

• What is reserved funds?
• What will be sold in this sale?
• And why somebody needs to buy it?

[cryptonit]

limit max 5000$ if u want to raise 5 million $

that means u need to sell 1000 times such a package
i dont think its the proper time to think u get 1000 people invest 5000$ easy

not without spend 1 million of the 5 for promotion

to be honest i think the people who managed sell OTC until yet better know how to fuel foundation

broad mass sale with low max buy amount is not the path in a still bearish alt market

under this marketconditions u can only approach very well selected big players and that is what OTC is for

[corporal_clegg]

Actually, projects are still raising tens of millions from token sales. They are just not marketing to moonboys anymore.

It is a potentially good idea to get the tokens more decentralized. It could also tie in well with marketing for catapult release as well as exchange listings.

[leoinker]

I’ve had similar thoughts, and overall like the idea - especially if we can get a reputable exchange to offer this. What would it be called, REO? Recurrent Exchange Offering?
Last thing we need is for an idea like this to become “committeefied”, with a ballooned management overhead. An exchange offering could eliminate that issue.

It seems that if this were to be adopted, there may be little appeal, unless it is the predominant way of funding.
If majority of funds are still being dumped on market, and only a small percent sold in this manner, it’s only logical that we’ll see that 10% “gain” sooner as XEM price continues to fall.

Why buy now, on a hodl condition, to receive 10% gain in 1 year, if I can just wait 2 weeks and buy it 10% cheaper?

Alongside this, NEM entities should demonstrate great fiscal prudence. I have no idea of the internal financials, but hope overhead costs are kept minimal, as we don’t have the product on market yet. Maybe those on payroll could have a portion of their paycheck locked for an X amount of time, with a Y% bonus for doing so?

XEM, along with majority of altcoins have very illiquid markets as sentiment is still extremely low. Yet they/we have high inflation rates as more and more coin is spent to cover costs.
“Printing” our way out of a market downturn hurts hodlers & stakers, while further deteriorating the sentiment.

We use Proof Of Stake (POS). POS also means Proof Of Savings. - Yet we are diluting the value of said savings, through inflation. It’s an oxymoron.

NEM is not the only crypto in this situation.

And to contradict everything I said above:
Maybe it’s fine to just dump away. Let price slide, let sentiment fall, and to hell with it. Doing so will get the issue over with sooner. - We have dynamic fees in Catapult, so at least in theory, and with correct node structure - network costs should adjust accordingly.

One thing that damages every currency that’s ever existed, is long term continued inflation. So maybe just get the inflation over with asap, and move toward true sustainability.

Thank you, Dave. Glad to see these issues addressed.

[jrmr92]

If executed well this initiative could help increase # token holders and long-term holders. Personally, I have been thinking a lot about creating staking mechanisms and the lock-up period in this case is easy to communicate. While I wouldn’t like to be locked in at this point in time it’s a solid strategy.

5000 max and KYC may limit the success of this program. Working together with 1+ exchanges (similar to normal competitions on exchanges) and their existing investors will help to onboard exchanges to catapult coin, reach new investors and take some of the heavy lifting from your shoulders.

The other proposal of having an incubation program is long overdue. I would build it on top of a grant program and connect incubator participants with VCs. (I will add more to it below the other post.)

[corporal_clegg]

I can’t imagine many people would lock up for 12 months without a quite large discount, unless you could stake it maybe. 10% discount is only triple what you’d get for a CD, but the risk is much much larger.

[Xpedite]

Tis idea isn’t new to me, though it is a more detailed approach of what I had in mind. I have discussed this with some people in the ecosystem back in late 2018. I’m not sure but it may have been something we even discussed back then

I have compared it to investment rounds in startups. In stead of putting constant selling pressure on the markets because of requirement to fund stakeholder entities and development why not take an approach in rounds as is used by VC’s.

My thinking was that initial distribution can be compared to seed funding. Now with Catapult NEM has outgrown the MVP and should be ready for Round A funding. Round B, C ,… could follow with upcoming major releases or milestone events.

If executed properly each of these milestone events would create an increased interest in the project ( and as a result increased demand in the token ) that should counter the increase in supply at the distribution.
If this is properly communicated at the A round announcement that this approach will be taken I would assume that people would be on the lookout for future announcements and it provides opportunity to be a bit more stealthy to build some suspense and as a result enough exposure.

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.

The problem with this (current) approach is that increased available supply ( short term ) is not matched with an increase in demand which causes pressure on the markets at times when investment is being made into progress and when results are available it may not be the right opportunity or time to liquidate funds.
This is why distribution in rounds is a better approach. First create the increased demand but make people queue for a discount. I agree that this should be combined with a lock period to prevent existing token holders to dump their bags and buy the discounted tokens.

A way to overcome this is to give existing bag holders an incentive for locking their funds. It’s kind of ponzi practice so should be carefully considered or delayed airdropping based on tokens that haven’t moved for e.g. a period of six months after the funding round.

The $0-500 locked for 6 months, $500-2000 locked to 12 months, $2000-$5000 locked for 18 months (rolling release)

I like the tiered approach but I think your $ numbers are too low and lock times are too high. No sensible crypto investor is going to accept an 18 month lock of funds for a 10-20% discount with current volatility. With some research I’m sure this can be improved however.

Investment can only be made in non XEM/Catapult crypto tokens

What would keep people from converting XEM to other crypto to then invest in this though ?
I guess this has to be thought through properly. The airdrop could be a solution but obviously this puts even more pressure on the markets long term and dilutes available funding…

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.

I’m not aware of what Crypterium did but I would say community at least needs some help from entities that are funded from XEM that is being liquidated. It feels a bit awkward to mobilise community to ensure funding for entities that are supposed to promote NEM in the first place… It’s not a binary thing though and overall I think community should be engaged much more in various activities. Incentives to do that shouldn’t always be monetary, there are enough creative ways to achieve better engagement.

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.

I’m of the opinion that there should be a separation between treasury and operations for obvious reasons. I’m not sure of the current setup but that is likely something that requires some transparency towards community.

It is important to note though this is not an IEO, it cant because it is no an issuance.

Why not introduce something new. A Supplemental Exchange Offering ( SEO ) , crypto folks like shiny new things and I’m pretty sure there will be an exchange that’s willing to facilitate this ( FYI , I have discussed this with some people at exchanges - in a non NEM related context - and they seemed open to the idea although I’m not sure if the exchanges I have discussed this with would be the most appropriate ones ).

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

Let’s face facts, if market cap is to fall substantially below current rates then it might be time to start thinking about post mortem analysis ( just kidding but had to get that out of my system ).

Given current market conditions I wouldn’t aim for a high initial release. At this point in time the main goal ( market wise ) should be to break the down trend and keep feeding a bullish sentiment by continuous output of results.
I wouldn’t dare putting numbers here but it makes little sense to offer large amounts of tokens at a discount right before it’s expected to see a trend reversal, for multiple reasons.

Also I think post catapult launch would be the right time to reassess progress being made by the stakeholder companies and that received funds and performance of these entities compared to spending rate.
It’s certainly worth exploring this option further but given the current market conditions I’m personally of the opinion that the timing isn’t right for it.

[DaveH]

Just digesting the above after a few days offline, I’ll try and summarise all the feedback into one post.

To @Xpedite’s comment

Tis idea isn’t new to me, though it is a more detailed approach of what I had in mind. I have discussed this with some people in the ecosystem back in late 2018. I’m not sure but it may have been something we even discussed back then

Definitely one I’ve been discussing with various people privately since mid-late 2018, pretty sure we spoke about it in person back then as well. I’ve been trying to crystallise it into something tangible around all the other stuff going on and thought time was right to throw it out there for general comment and see if its way off the mark.

From feedback so far it seems it may be worth exploring further but needs more thought, I’ll come back in the next couple of day. If anyone above wanted to take a more active collaboration on this idea I’d love the input wherever possible so please shout.

[simakki]

Interesting but how much funds are actually needed for the foundation and how much they are burning on monthly basis?

Sounds like NEM is in deep trouble again…

[Alex_Sorokin]

You’re drawing some kind of conclusion that’s not relevant to the subject matter. Now we are talking about how to organize the stabilization of token prices by over-exchange methods.

[corporal_clegg]

When was NEM in deep trouble?

[maureenowaters]

So amazing I love it.

[LauraBKK]

This has absolutely zero to with Foundation and Foundation funding. NEM as a project was never in jeopardy.