Traditionally, a start-up would approach investors to raise funds for their idea. In DeFi, token sale is a crowd-funding approach which pools capital from investors. There are many formats of raising funds - ICO, IEO, IDO, etc, and the specifics may change from sale to sale. In this article, let's look at the typical process required to launch a successful token sale.
In this article...
Token Sale Process
Token sales is a critical stage in the life of a crypto project. The sale of tokens not only helps in financing the project, but also introduces the project to investors and get early backers by distributing the tokens. Since the sale happens in very early stage of the crypto project lifecycle, the sale itself has become a way to assess the viability and long term potential for the project.
While the details may vary from project to project , at a high-level the process for token sale and listing is:
Marketing & Building Communities
Community building and marketing are important for any crypto project. A vibrant community which believes in the project and the utility of the tokens is critical. The popular platforms for crypto/NFT communities are:
It is a common practice for crypto projects to raise funds from investors in lieu of tokens. The project owners and investors agree on a price for the tokens (usually discounted compared to the public sale price) typically via a SAFT agreement.
The tokens are not released at this stage, but the modalities are agreed upon – for example initial % of tokens released on token generation event (TGE), vesting schedule, etc.
The private sale may comprise one or more rounds like Pre-Seed and Seed, with varying levels of discounts and investor profiles.
Public Sale / Launchpads
Launchpads are a good option to run the IDO (Initial DEX Offering) campaigns to raise funds from public. There are chain-specific launchpads and multi-chain launchpads. The advantages of taking the launchpad route are:
- Security to both founders and investors, as the launchpads have a vetting process for new projects, while a KYC (Know Your Customer) process is usually performed by a third party as part of new users’ verification.
- Launchpad provides new founders with access to a community of crypto investors and enthusiasts (advertising to an existing crypto user base), ready to explore a new project.
- Every launchpad requires an application form to be filled by the project developers and a vetting/verification is conducted before the project is accepted for listing.
- Launchpads are not free and there are varying degrees of pricing applicable depending on the launchpad.
- The launchpads may also run whitelisting programs to prevent gas wars and fair distribution of tokens.
Token Generation Event (TGE)
TGE is the time at which a token is issued. At the time of TGE, the tokens are released (according to the %, vesting, and schedule in the tokenomics) to the users’ wallets.
DEX (Decentralised Exchange) is where the tokens will be traded. A liquidity pool comprising the project token vs. other token (for e.g., ABC vs USDT) will have to be created.
- Create a pool on Uniswap (Ethereum Mainnet) : https://app.uniswap.org/#/add/ETH?chain=mainnet
Now, you are all set!
Market Making (Optional)
Liquidity is vital for the survival and overall success of a token or coin. Market Making (paid) services ensures liquidity for your token. The benefits are:
Having a market maker helps you to get a token listed. After going through the costly due-diligence and setup process, no exchange wants to be stuck with a dead token with no trading activity going on. Approaching them with a market making partner already in place shows the exchange that you have thought about liquidity and understand its importance.
Having a market maker adds the much-needed liquidity to the token and helps to overcome many hurdles. Liquidity always attracts more liquidity and generates trust in the token.
Few Tips & Tricks
Here are a few tips & tricks based on experience:
Airdropping tokens is a popular form of distributing tokens for free initially. The idea is to get tokens into the hands of people, so it kickstarts the system. But airdropping can be expensive, because for every transaction the project owners will have to pay gas fees. A couple of tricks to save on gas fees given for BSC chain (equivalent will be available for other chains):
> Process During Off-Peak Hours
Check the network activity and gauge the best time to make the transactions. Set the transactions for off-peak period.
> Plan When Gas Price Is The Lowest
Check the gas price and gauge the best time for the lowest fee. Execute the transactions for low gas-fee period.
> Bunch Transactions & Send Using Multi-Send
BSC offers you a multi-send command to transfer multiple tokens to multiple people. 20% discount is available for multi-send transactions. For now, multi-send transaction will send some tokens from one address to multiple output addresses. If the count of output address is bigger than the threshold, currently it's 2, then the total transaction fee is 0.001 BNB per token per address.
> Use Airdrop/Multi-Send Wallets
Couple of examples:
Crypto projects issues tokens on a decentralized exchange (DEX) to sell to new buyers. To sell the tokens, the token issuer creates a liquidity pool (LP) in the DEX. Token launches on DEX are infested with bots. The bots produce unwanted results for both project teams and investors alike. Many major price crashes and unstable price action during token sales are directly because of the bots.
Sniping is the strategy of finding and buying tokens when a DEX adds a new liquidity pool. The key is to be the first to buy these tokens with amazing speed on listing, to make profits from the trade.
Front-running is the strategy of jumping the execution queue (typically by paying higher gas fees) before a known future transaction occurs.
Sniping and front-running are detrimental to crypto project because:
- Deters mass adoption of cryptocurrencies and promotes accumulation of tokens in the hands of a few individuals or corporations (whales)
- Does not offer a fair and transparent trading ecosystem
- Risks manipulating the token price
- Means of stealing profits from other traders and project teams
The bots get smarter as the defences against them strengthen. There isn’t a magic wand to wave to get rid of the bot problem in one sweep. A combination of smart anti-bot strategies will help ensure a reasonable protection from sniping and front-running on token launch. In this section, we list out some of the anti-bot mitigation strategies.
> Fair Launch Protection System
For a specified period after token listing, say 15-30 minutes, all sell orders of tokens will be restricted. During the restricted period, the bot addresses will be identified and blacklisted. Once finished, the sell order restriction will be lifted for everyone except bots.
> Bot Protection Tool
A bot detection tool that gives valuable insights about the launch using realtime data analysis. Set limits around buy/sell limits and cooldown to prevent bots from hijacking the listing.
> Encrypted Mempool
An encrypted mempool prevents malicious actors from gaining unfair advantages over honest users by watching the mempool.
Further reading: Secret Network
> Tighter Parameters
Lower parameters like default max slippage so the bots don’t benefit.
> Honey Pots
The researchers set out to attract a generalized front-running bot. To achieve this, they had to put enough funds into their honeypot transaction to make it attractive to such a bot. The research shed light on the methods of some sophisticated bots combing the blockchain for profitable transactions, though other bots may have varying behavior parameters. “Factors such as potential upside, communication patterns, and minimum complexity (e.g., gas limit), among others, likely impact the way they operate,” they wrote.
Further reading: Here
> Freeze Fraudulent Transactions
Lossless Protocol freezes fraudulent transactions based on a set of fraud identification parameters and returns stolen funds back to the owner’s account.
Further reading: Lossless
> Commit-Reveal Smart Contracts
Since all transactions are public, we must use extra tricks to keep some things temporarily hidden. Let’s say we need input, like an answer to a quiz or a move in a game from a group of players. We don’t want these players to just watch the blockchain for their competitors’ answers. What we’ll do is have everyone hash their answer and submit that first (the commit). Next, everyone will submit their actual answer (the reveal) and we can prove on-chain that it hashes to the committed value. Source.
> Faking Trades
There are ways to be more resistant to front-running, like commit/reveal setups, faking trades to mislead front-runners, and so on.
Further reading: Here
Adding Token to Trust Wallet
Trust Wallet is a popular wallet. Listing your token/coin in trust wallet is another proof of validation of the project. But listing requires certain criteria to be met.
- Token should be listed on price tracking sites like CoinmarketCap (listing form)
- Project has a website or white paper.
- Project has social media presence.
- A maintainer will merge the pull request after further verification. This will be done as soon as possible. There will be notification emails sent to the one who submitted the pull request if there is anything needed, or errors need to be corrected.
This is a research on the common and best practices for token sales and listing. The research doesn’t account for changed market conditions, platform, or network specific requirements. This is only intended to serve as a guide and readers are expected to do their own due diligence. This paper is for educational purposes only and not an investment or financial advice.