Establishing key principles for ICO self-governance

On May 17, 2018, a Wall Street Journal analysis of nearly 1,500 initial token sale offerings declared 271 projects to have major red flags, including “plagiarized investor documents, promises of guaranteed returns and missing or fake executive teams.”

Between fraudulent projects and legal standards only slowly emerging from the SEC, crypto and blockchain projects seeking to do an initial token sale must set themselves apart as trustworthy. Both investors and consumers are seeking to participate in high-quality blockchain projects — ones that have set themselves apart by demonstrating both true technological innovation and credible business leadership.

However, the task of emanating a sense of trustworthiness should not fall to the marketing department alone.

Making a logo blue, or enlarging the photos of the founders will not be enough to make an ICO’s good intentions known.

It is now necessary from the inception of the white paper, to include your plans for self-governance of your token sale in order to be a credible project.

But what does ICO self-governance look like? The best way to imagine it is as an arch of many stones, but with five main sections. The five principles of ICO self-governance are: transparency, dedication, vision, pragmatism, and the keystone of the arch is accountability. These principles can be broken down into major tasks.

The five key principles of ICO self-governance

The first principle, that of transparency, is one of the most straightforward goals of any token sale. Every crypto project should be eager to share information relevant to their stakeholders. That means achieving four major tasks: establishing the identity of the team, providing social proof such as references and advisors, listing historical achievements of the team together or individually, and putting active channels of communication into place.

Crypto projects should, at a minimum, have a support team answering email and a rotation of founding members available on channels such as Slack or Telegram. Other proof of transparency methods could include doing live AMAs over video, recording a team discussion of difficult to understand portions of the white paper, or chats with the advising team to fully prove they’re onboard. For an example of a team doing this well, check out VideoCoin.

Dedication is an equally important principle to establish, though it can be more challenging to display. First, the founding team should show that they have quit or wrapped up work on previous jobs. The core members of the team should all have joined the project full time, and it also needs to be shown that there are full-time technical founders working on the project. That might mean showing team photos at the office, displaying certificates and other technical achievements of the founders, or making sure that the Github activity chart is overwhelmingly green. Finally, while many teams might balk at showing the numbers of just how much they’ve spent while raising the funds of an ICO, it can display that the core team has invested their own money into the project, the ultimate show of dedication. Although PIVX did not ICO, their team strongly projects dedication.

Vision comes next. To achieve a sound vision, a project should show that they can clearly see both the forest and the trees of their unique situation. That means not only providing a full threat assessment (such as one done during a SWOT analysis), but also establishing a timeline, key milestones, and most importantly, quantifiable goals. The more work done establishing the vision of a project’s future, the clearer of a roadmap they provide. Airswap is a great example of a project with vision.

This roadmap leads us to pragmatism, which is the principle of defensive planning. During token sales, it is not uncommon for problems to arise, many of them major. To not plan ahead for these eventualities leaves teams unprepared and relegated to quick and sloppy reactions. So while it might sound as if a project is being negative, it is completely necessary to define and make public the solutions for several major potential disasters.

At minimum a project should define how they intend to comply with legal and tax regulations, how they will mediate founders’ quarrels, an exit plan should any founder choose to leave the project, and an exit plan for the team after the project’s delivery. To show progress on establishing a sense of pragmatism, a team should link to their tax and legal attorneys, include mediation plans in their white papers, and define their exit strategy clearly in the project timeline. A company I briefly worked beside in the past, Refereum, is the best example I can give of pragmatism.

The keystone, the most important piece of the arch which sits at the top, putting pressure on all the other stones, is accountability. Without accountability, the other stones of self-governance mean very little. In a token sale, defining accountability means establishing a set of rules to reinforce the project’s goals.

So for example, if a founder should leave the project before delivery of the product, there should be financial repercussions for that founder. Other examples of accountability could include establishing an escrow or a vesting schedule for delivery of tokens to the founders, to promote the achievement of milestone goals, or plans on how to make restitution should the project fail.

Having a plan for the failure of an ICO is counter to the prevailing startup narrative, which seems to be ‘never acknowledge your potential for failure, lest it become reality.’ While that might satisfy high-rolling VCs who negate their risk by investing in tens to hundreds of projects, the reality of token sales is that your investors are often just your product’s end user.

To let down a token sales’ investors is less like failing a VC and much more like disappointing an eager Kickstarter patron. So decide in advance: will you return remaining funds? Will you deliver whatever portion of the product that you can? And finally, how much notice will you promise to give before shutting a project down?

Most of this information should be conveyed through the project’s white paper, though some of it can also be displayed on websites or in forums, so the earlier a team begins to lay their plans for self-governance, the better. Self-governance principles will greatly affect the path to ICO a team chooses to take, and therefore, also their success.

If your team is considering performing an initial token sale, as you sit down to discuss methodology, also begin to discuss self-governance. It is never too soon to start talking about how you will achieve transparency, or prove your dedication. In this current market, it is high quality projects with experienced teams that will stand out and win the support of investors and consumers.