One of the biggest advantages of Distributed ICOs is its added security. By integrating smart contracts into the ICO process, Distributed ICOs successfully curb scammers while keeping projects aligned with the needs and expectations of their investors. But how does it all work?
A major difference between traditional and Distributed ICOs is how the project is governed. Distributed ICOs involve extra guidelines that protect the investor and maintain the integrity of the project. This is achieved with a token contract that controls the entire ICO process, from start to finish. More than just a means of distributing tokens to investors, token contracts determine:
- Token prices and the number of tokens distributed during each investment period.
- The amount of money the startup can raise.
- The minimum and maximum investment amount.
In other words, the smart contract works to ensure that projects raise enough money to complete their tasks, without giving the project leaders all the money upfront. This doesn’t only prevent startups from using investments as a way to turn a large profit, controlling token prices also effectively eliminates any manipulation techniques used to capitalize on volatility.
How the Distributed ICO Is Structured
First and foremost, there needs to be a funding plan that’s based on the project’s roadmap. That way, the team can look at the goals and expectations of the project and determine how much money they need to reach each milestone.
From there, the funding plan is partitioned as follows:
- The entire funding plan is broken up into several periods.
- Each period is divided into rounds.
The total number of tokens available, the price for each token, and the number of rounds that make up a period are all determined at the beginning of that period. This information informs how each round will be managed.
Every round has a set number of tokens available, and that number of tokens can’t exceed the number of tokens available for the whole period. Each round has its own predetermined minimum and maximum investment amount as well.
There’s also a special situation known as Round 0. This happens when the project has no token holders yet, so investors receive their tokens immediately upon investing rather than at the end of a period. The same applies for projects; during Round 0, they also immediately receive the funds from investors.
Finally, there’s the end-of-round procedure. This is when investors get to vote (proportionally based on the number of tokens they have) on the continuation of the project at the end of each round.
- If the investors vote yes, the startup receives their funds and the investors receive their tokens.
- If the investors vote no, the smart contract automatically returns the money collected in this round to the investors and the ICO is terminated.
Bringing a Better Solution to ICOs
As you can see, the distributed ICO adds some much-needed structure and accountability to blockchain projects. As such, startups integrate traditional project management principles into their company roadmap. The end result is a blockchain project that has the scope, financial management, and transparency needed to attract traditional investors.
Learn more about how you can use distributed ICOs to grow your platform by visiting the ICO Success website today.
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