Originally conceived as a way to bootstrap new tokens by covering their legal and marketing expenses, some ICO issues are now offering crypto-insiders steep discounts on tokens and better distribution terms in presale rounds, where the public at large isn’t invited to invest.
Yet, others say an overzealous market has made presales more of a main event.
For some of the less buzzy ICOs, most of the money appears to be coming through private rounds. Ripio raised $31 million of its $37 million token offering in its presale and Swarm raised nearly all of its $5.5 million funding from its presale.
Brayton Williams, a co-founder of blockchain incubator Boost VC, is no stranger to the market. Having been involved with bitcoin since 2013 (at one time pledging to back 100 bitcoin startups), he’s yet to greet the ICO market with the same enthusiasm owing to these problems and others.
He told CoinDesk:
“Everyone wants to invest in a presale. No one wants to invest in a public sale.”
And this mentality illustrates the dangers of presales to both projects and investors.
Take an example, let’s call it ThisCoin. ThisCoin releases a white paper in January. In February, it offers a presale on its token with a 50 percent discount. The ICO runs in March and all the tokens sold get distributed on April 1.
It follows that presale investors would be almost guaranteed to roughly double their principle if they sold immediately in April.
To some, it would almost feel foolish not to.
Sid Kalla, a crypto-economics expert and co-founder of the Turing Advisory Group, told CoinDesk that he believes this effectively warps the incentive structure for ICOs.
In an industry that touts incentives as a backbone for product building, he perhaps sees this as more alarming than ironic.
“The presale discount should reflect the risk being taken on by the early project backers,” he said. “Otherwise they have an incentive to invest in projects without proper due diligence because they can take a profit with minimal risk when the token is traded on exchanges.” […]