The crypto crowdsale model has emerged due to the recent and ongoing expansion in digital currency and the emergence of numerous online business startups and projects. It is now more frequently used, along with crowdfunding, as a technique to raise money for a variety of commercial projects.
The popularity of crowdfunding has grown in the last decade. As a case in point, crowdfunding platforms like Kickstarter and Indiegogo have gained popularity as ideal channels that businesses can use to raise money through donations. The most recent iteration of crowdfunding in the crypto space is known as a crowdsale.
This article will look at steps to conducting a crypto crowdsale. Before that, let us look into what crowdsales are and explore how they work for crypto projects.
What is a crypto crowdsale?
A cryptocurrency crowdsale is a public offering to buy new cryptocurrencies or other digital assets, including non-fungible tokens (NFT). It can be used to raise money for any cryptocurrency- or blockchain project. Project developers use this money for a variety of purposes including project development or the launch of a new company. Crowdsales are also frequently used to introduce all digital assets to the general public. It’s true that crowdsales have been used in Ponzi schemes and other fraudulent schemes. At the same time, they have been instrumental to crypto projects looking to raise funds. In fact, a well-structured crowdsale can help raise millions of dollars.
Crowdselling vs. crowdfunding
Before we go into further detail, it would be helpful to look at how crypto crowdselling differs from traditional crowdfunding.
How crowdselling works
First of all, while crowdfunding usually provides investors with a product, service, or even some recognition as a benefactor, crowdselling does not. Instead, in a crowdsale, supporters receive a token or cryptocurrency coin. Since coins and tokens are digital objects with market values, those who purchase them during the crowdsale do not receive a physical product. However, investors benefit by receiving a tradable digital currency. The fact that investors get access to benefits from the underlying project is also a benefit.
One of the key characteristics of cryptocurrency crowdselling is its ability to utilize the tried-and-true blockchain technology through the development of smart contracts. Both equity and token (currency) values in the form of rewards are pre-programmed within the contracts. In addition, the system takes advantage of the proof-of-ownership mechanism included in the agreements linked to each investor’s unique degree of investment.
Within the world of cryptocurrencies, crowdfunding can be considered a subset of crowdsales. The ability to retrofit blockchain technology for certain requirements or jobs is one of its more adaptable features. This has also made it a great fit for the crowdselling ecosystem.
Why have a crowdsale?
So, the question is, why should companies have a crowdsale? One of the key advantages for cryptocurrency crowdselling is that the seller can generate money for their project outside the framework of traditional banking and financial institutions. Additionally, it might provide a quick and efficient way to raise significant sums of money.
Software development, marketing, and, in many cases, running hardware account for a sizable portion of startup expenditures. As a result, most new projects need to raise money from external sources before they officially launch.
Once purchased, the digital currencies can be traded on the open market or even sold, which increases their share in the original project’s worth in addition to the purchase of the coins. This attracts potential investors who are aware of the opportunity to get in cheap and sell for profit later if the project is successful.
The fact that the cryptocurrency crowdsale mechanism is still unregulated and unaffected by financial laws is one of the main reasons why it’s so popular. Although this is fantastic for the numerous businesses and people who prefer this avenue of funding their startups, crowdsales are less secure than traditional investing. In the worst case scenario, an investor might end up with a few lines of useless code in return for the investment they believed they were making. While most of the programs that are supported in this way are developed for legitimate initiatives, others are created to raise money. They might even eventually wholly disappear from the digital environment.
There are no assurances with any investment, whether in the “real world” or online. Even so, traditional investors have access to certain checks and balances. For example, both the investor and the business are required to meet minimum standard criteria. This is not the case with a crypto crowdsale.
How do cryptocurrency crowdsales work?
1) Project developers identify the crypto crowdsale goals
The most successful cryptocurrency crowdsales typically include:
- Defined objectives
- Rules for how the crowdsale operates
- Plans for how the revenue will be used
It’s also useful to specify the minimum amount that must be raised, known as a “soft cap,” or the maximum amount that can be raised through the crowdsale, known as a “hard cap.”
2) Developers establish guidelines and rules for the crypto crowdsale
Project developers often turn to smart contracts to guide a crypto crowdsale. Since a smart contract executes both sides of the transaction for both parties, it eliminates the need for trust.
When the buyer and seller accept the transaction in their software or wallets, the smart contract transfers the funds (in the form of cryptocurrency) from the buyer and starts the necessary procedures to deliver the item from the seller to the buyer.
3) Project developers promote the cryptocurrency crowdsale to potential investors
When a new cryptocurrency is ready, its developers and proponents need to pique investor interest. This often entails a variety of internet marketing techniques, including social media marketing. Additionally, token promoters provide free money via cryptocurrency airdrops, which are sporadic token distributions.
4) Developers find a platform to sell their new cryptocurrency on
After finding an exchange platform, the sale launches, and anybody can take part and purchase a token, frequently using another coin.
Steps to conducting token sales
There are specific steps that a crypto project developer needs to take in order to achieve a successful token sale:
1) Create a powerful product
Many cryptocurrency project founders skip this stage when conducting their token sales. Failure to create a powerful token that offers valuable utilities will lead to the eventual failure of the token sale. A good way to ensure that a token has utility is by developing a product that token holders can use.
2) Develop a token
Tokens are fungible and tradeable goods like money, IOUs, and in-game items in the blockchain ecosystem. Tying this token to a robust product, as discussed above, could go a long way towards ensuring that the token sale is successful.
3) Study laws and regulations on token sales
The legal landscape for token sales in 2022 is constantly evolving. Therefore, it’s crucial for businesses planning to hold an ICO token sale to get legal advice from a qualified attorney.
Crypto developers can reduce potential legal disputes by incorporating a legal perspective into their crypto project. Additionally, getting legal advice early on reduces the chance of getting into trouble with law enforcement.
4) Develop a whitepaper
Once the business has an understanding of how the legal landscape will affect their token sales, it’s time to create a whitepaper. The whitepaper should cover the aim, economy, governance, and technology of a company’s cryptocurrency project.
The whitepaper should be written in the style of a scientific treatise and include factual data that supports decision-making. An effective whitepaper also goes into detail about how a token will be used and distributed.
5) Create a community
The community will determine the success or failure of a particular project. Therefore, it’s crucial to engage crypto enthusiasts and investors frequently. There are many ways to engage these people, such as AMAs, competitions, airdrops, etc. Keep in mind that interacting with their community is a part of the pre-sale stage of your token sale.
Communities play a crucial role in the acceptance of blockchain projects. Therefore, building a community that supports a company’s concept is a key component of its token sales strategy. Communities are also crucial for disseminating information about a company’s token pre-sale. They also serve as a platform for businesses to promote their token sales. If crypto developers want the community members to keep their tokens for a long period, they should educate these people about the value of these tokens.
There are numerous social media sites where businesses can establish a community for their initiative. Twitter, Facebook, Discord, Reddit, and Telegram are among the most popular ones. However, these platforms each have their own benefits and limitations. Therefore, businesses need to work with a token sales agency to help them establish and maintain a community.
5) Determine the technology to use
Companies must select the best blockchain to fuel their token. For example, Ethereum, Cardano, Hyperledger Fabric, Tezos, Bitcoin, Waves, and Stellar are some of the most well-known blockchains for token pre-sales. However, every blockchain technology has advantages and disadvantages. Therefore, to make an informed choice, businesses must conduct background research.
6) Decide on the approach to use
Companies must choose an appropriate strategy for the token presale, one that takes into account their legal environment. The two choices are receiving initial funding from conventional venture capitalists (VCs) or giving tokens directly to certain community members. It is crucial to get the opinions of the two groups before selecting one of the solutions mentioned above. Additionally, businesses can choose the appropriate strategy with the assistance of their legal staff.
Even though VC fundraising takes time, it builds trust, improving the success of a company’s token sale. Additionally, the company will get crucial input in a private setting, which will help them in developing a strong campaign for the next token sales.
7) Execute a strategy
Crypto developers must decide on the number of token rounds for private, pre-sale, and public sale. It would also be beneficial for businesses to choose the ideal discount scheme for every round. Companies must always be fair in the token distribution process. In this way, they can prevent a small number of people from buying up all the tokens.
A useful strategy is to verify the user’s identification before allowing them to make a purchase. Making a whitelist is a straightforward way of carrying out the verification work. Additionally, businesses should be aware that failing to follow a KYC protocol when conducting token sales could result in legal action from some jurisdictions. Additionally, certain exchanges may reject token sales without KYC.
8) List tokens on exchanges
Contacting exchanges to sell the tokens is a crucial step in this process. To increase success, the token developers must identify the top exchanges. It might help to list the tokens on CoinMarketCap, a well-known stock ticker for token sales. A lengthy list of coins and their market values is available on the website.
According to SEC laws, pre-sales for permitted buyers are common during token sales in the US.
9) Conduct pre-sale
Before we move on to the next stage of token sales, let us look at how to conduct an effective pre-sale strategy.
The project team can collect funding to complete the development with the aid of a pre-sale cryptocurrency. In addition, a pre-sale helps the team working on the project to gather critical investor feedback in addition to meeting the fundraising goal. Therefore, when executing an ICO pre-sale, a project should use a variety of tactics.
Companies must first develop a polished website that documents key information about their project. The website needs to be visually appealing, user-friendly, and optimized.
The project team should also look for and take part in industry-related events. This strategy helps businesses to market their project to potential investors and increasing awareness.
Building a crypto community is an integral approach that can support a business’s ICO preselling activities. As was already mentioned, a community adds value to a company’s tokens by popularizing them. Therefore, project developers must make sure that their project has the support of a strong community.
Additionally, project developers should know the laws governing token sales in the nations where they intend to issue their tokens and employ the proper PR strategies.
Benefits of token presale
A pre-sale token event aims to draw particular private investors who can help fund a project’s development. The fundraising strategy offers numerous advantages to both investors and businesses.
After the pre-sale phase, project developers can predict how the public will respond to the tokens and the project in general. This offers crucial information on how to improve marketing efforts.
Through a pre-sale, investors can obtain tokens at a lower cost. In addition, multiple investors may be drawn to the exclusive discounts and bonuses being given to fund a business initiative.
A company’s initiative may receive extensive media coverage, positive PR, and significant crowds thanks to the pre-sale event. The excitement generated during the pre-sale may also carry over to the main public sale.
Multiple programs for projects call for funding. Therefore, some activities, including hiring people and hiring a marketing agency, can be financed with the money raised through a pre-sale.
10) Promote tokens
Companies that want to increase sales must generate excitement when their tokens are available to the general public. Therefore, it would be beneficial if they raised awareness of their token on numerous platforms and discussion boards. Forums on Bitcointalk, LinkedIn, Facebook, Twitter, and subscription lists are a few well-known venues to do this.
The majority of crypto enthusiasts and investors congregate on particular websites, such as YouTube and Discord. Therefore, businesses need to make sure that they establish a community on some of these websites.
They should also communicate with relevant crypto influencers who can promote their coin and inform people of its main advantages.
Crypto crowdsales are destined to grow as a very successful means of generating money and investing in digital currencies. Although there are whispers of enhanced responsibility in the digital currency world, there is presently little proof to suggest such changes are about to happen. As with any investment, there will inevitably be a certain amount of risk that might naturally counterbalance the potential profits of astute investors. A well-planned and expertly carried out cryptocurrency crowdsale will likely be the key to maximizing the possibilities of success for both investors and project creators.