Token Sales Are Back in 2020
As the price of bitcoin rises, token sales have become trendy once more. Here's how Avalanche, Polkadot and NEAR have fared in 2020.
As the price of bitcoin rises, token sales have become trendy once more.
“Ava, Dot,” tweeted ZenGo wallet CEO Ouriel Ohayon, “2017 is back. For better or worse.”
Polkadot, the project spearheaded by Ethereum co-founder Gavin Wood, raised another $43 million in a private sale days later.
And in the weeks since, the momentum has only seemed to grow, as congestion on Ethereum has mounted.
By Tuesday, Aug. 11, the token sale for another base-layer competitor, NEAR, overwhelmed its host platform, CoinList, forcing a delay till Wednesday.
“We have seen an unprecedented amount of traffic hit CoinList servers, resulting in a site-wide outage,” according to a CoinList email obtained by CoinDesk. “We apologize for the inconvenience. The NEAR token sale has been postponed 24 hours from its original start time.”
Yet, the NEAR sale – which wrapped Wednesday afternoon after $30 million was committed from 1,500 participants – still highlights the general pattern for token sales in 2020. First, the company raises venture capital and conducts a private sale, then the token-funded startup sells to the public through a platform that manages know-your-customer information and compliance.
Before the swamped CoinList offering, the NEAR protocol launched in April following a $21.6 million private token sale led by venture capital firm Andreessen Horowitz (a16z). This week’s sale was just one of many trendy-yet-compliant token sales the CoinList platform has conducted in 2020, after cLabs raised $10 million in 12 hours back in May.
"The numbers here are remarkable and are a testament to both the product and the community that the NEAR project has created," CoinList president Andy Bromberg told CoinDesk in an email.
By July 2020, token projects were once again raising money across the board. Generally speaking, contemporary token startups like Ava Labs, and even competing Layer 1 projects like Chia, aim to conquer Ethereum’s market share by scaling faster and with a more decentralized network. One of the primary ways they seek to outperform the second-most-popular blockchain network is by encouraging more users to run independent nodes.
For comparison, only a small fraction of the roughly 6,000 ethereum nodes (removing the syncing nodes that are actually Ethereum Classic) are run on the user’s own hardware. According to a node operator from the German Ethereum startup Bitfly, roughly 68% of Ethereum nodes run on either Amazon Web Services or Google Cloud.
This focus on nodes represents an area where Ava Labs’ Sirer intends to outperform Ethereum. Although the Avalanche mainnet isn’t scheduled to launch until later this year, Sirer said so far “thousands” of users around the world are already running Ava Labs testnet nodes.
“These are all organic, actual users … [like] students that have heard about this revolutionary protocol,” Sirer said. “We’re running five nodes ourselves.”
Similarly, Chia is working to build a community and currently appears to have more than 433 active nodes, down from a peak of roughly 1,430 earlier this year. Out of the above-mentioned startups, so far, Chia is the only example that isn’t running a token sale in 2020.
Token Boom, Part Deux
Unlike 2017, today the norm is for token sales to be conducted through an exchange, whether it's CoinList, Gate.io or Binance.
Not every token sale raises as much as Polkadot or Ava Labs, which attracted fanfare thanks, in part, to their celebrity founders. Smaller sales also abound despite, or perhaps due to, the COVID-19 economic crisis.
Along those lines, the Binance Labs-backed project Sandbox is running a token sale in August with the aim of raising $3 million. Several other crypto exchanges, including Gate.io, are also following in Binance’s footsteps to launch their own Initial Exchange Offering (IEO) platforms for new token sales. According to a Gate.io press statement, these sales raised more than $46 million so far in 2020.
As for Ava Labs, Sirer said there will be more sales to come, including a new token “targeting people that own Ethereum,” called Athereum.
“We spoon Ethereum as it exists,” Sirer said, describing how his startup will make an Ethereum-compatible bridge to encourage ETH holders to switch blockchains.
In a tale as old as pre-mines, startups still aim to become proverbial “Ethereum killers.”
With regards to the aspirational business model, Ethereum co-founder Joe Lubin provided an example with ConsenSys that many upcoming founders want to emulate.
ConsenSys started as a hybrid incubator. Then, after building up the Ethereum community, ConsenSys split into a dual infrastructure provider and separate investment arm. It owns a significant stake across every sector of the Ethereum ecosystem – something Sirer may someday achieve with Avalanche, fueled by avax tokens, through Ava Labs.
“It’s a mothership that will do a bunch of spinouts,” Sirer said. “We expect to spin [projects] out to become independent efforts and have independent income models associated with them.”
Unlike the original ETH sale in 2015, and the 2017 copycats that followed, many token founders now prefer ongoing sales with controlled distribution – both for regulatory reasons and to inspire a sense of exclusivity.
Such was the case with Ava Labs, which raised venture capital (before multiple sales) from investors like Andreessen Horowitz (a16z), Initialized Capital, Polychain Capital, Balaji Srinivasan and Naval Ravikant. Token sales now happen in waves, just like a Series B.
Looking toward the second half of the year, Sirer said he plans to support efforts to make non-fungible tokens (NFTs) for the Ava community as well. Polyient Games CEO Brad Robertson, head of a gaming startup that plans to use Ava Labs’ technology, said his team chose Avalanche over Ethereum because the former can handle more volume. The Ethereum network was infamously crippled by collectibles trading with NFTs in 2017.
Capacity hasn’t improved entirely since then. In fact, the congestion is so high these days that it’s not uncommon to pay dozens of dollars worth of crypto in transaction fees.
“We explored all of the networks on the market and feel Avalanche is best positioned to solve the scaling and transaction finality issues that have caused significant challenges to the whole DeFi ecosystem – especially with NFTs,” Robertson said.
Sirer said his startup will allow people to “issue new digital assets,” including but not limited to NFTs, and use avax tokens to “participate in the new services we’re offering.”
This is the common strategy among 2020 token projects, including most of the above-mentioned newcomers. In short, startups such as Ava Labs and cLabs (the team building the Celo network) are betting other people will build the products or services to make their blockchain platforms useful. They’re selling picks, shovels and dynamite during an emerging gold rush.
This strategy is reminiscent of ConsenSys’ earlier token-issuance services and platforms, which dwindled when the company pivoted to infrastructure plays and equity investments.
“There are tons of different use cases for Ethereum and we support nearly all of them,” said Infura’s Michael Godsey, the ConsenSys manager spearheading infrastructure services.
Yet, the fact that there are already blockchain-agnostic services doesn’t dampen the allure of building the next ConsenSys. It looks like many entrepreneurs are hoping to mimic the wealth creation, or redistribution, witnessed during the token boom in 2017.
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