By Adam B. Levine
Originally published & pulled from TechCrunch (They didn’t like the tip widget)
Things move fast in the world of Bitcoin - Two days ago, we saw the launch of the much anticipated MAIDSAFE distributed computing network. Their aim was to collect around 8 million USD worth of cryptocurrency over a four week period, build excitement and vest interested parties with its new token, MaidSafeCoin, in anticipation of the network’s completion and launch.
Things did not go to plan. Instead of a month, it took only 5 hours to raise the funds. This is both good and bad at the same time.
Simply put, the MAIDSAFE network will have users download a client and define part or all of their computer as in the service of the network. People who do this are called “Farmers” (compared to bitcoin miners), and they are compensated by the network in these tokens based on how many other computers are farming. If a botnet is slavery for your computer, MAIDSAFE is gainful employment with pay directly corresponding to how much value you add to the network.
This is not hypothetical either; the project has been underway for eight years and is very close to launch. The funds raised are intended to power the non-profit company for the next three years of operation.
So the Crowdsale: On the one hand this was very successful. MAIDSAFE completely sold out of tokens almost immediately, even before many interested parties had a chance to purchase.
On the other hand, many who did not get to purchase feel like they’ve missed out on a promised opportunity to the benefit of a few. With a normal round of fundraising, that would be fine; fewer bigger supporters makes things simple. But when it comes to cryptotokens, where owning a MaidSafeCoin is as legally onerous as owning a Bitcoin, there really is no disadvantage to having more smaller holders of your token.
In fact, having a broader base means you have more people who are interested in your project and vested in your success. Tokens gain value as the project they power succeeds, so anyone holding your token will directly profit from your success. This is a powerful motivator.
So on the “being inclusive and building a gigantic community vested in your success”, the MAIDSAFE Crowdsale was a bit of a flop. It was also a very predictable flop that we can learn from.
You Get Two But Not Three
Life is about variables, monetary fundamentals is entirely about variables. When it comes to fundraising with a new token, there are three primary areas of concern.
Quantity (number of tokens) Value (price per token) Duration (length of Crowdsale)
The market is a wild force and while you have some controls, it is not possible or even desirable to lock down every variable.
For example, if you lock the Value and the Duration, there would be no cap on the amount that would be created. If the price is .01BTC per token and the duration is 1 week, than however many bitcoins are received during the fundraising period are divided by the value of each token they will generate to determine the actual number of tokens created at the end of the Crowdsale.
So if 57BTC are collected during the Crowdsale week, 5700 tokens would be created. If 57,000BTC are collected it would be 570,000 tokens created. Everybody would have paid the same per token price, but at the beginning of the process it is impossible to predict the number of tokens that will be created at the end.
MAIDSAFE fixed two of these parameters; Quantity (429,496,729) and Value (.00005822BTC or .00002941MSC each). They gave guidelines for the duration of the Crowdsale (4 weeks). Because both Quantity and Value were fixed and more value came in than was expected, it quickly blew through the quantity and eliminated the duration.
Setting the number of tokens is not necessary, but is fine - Setting the price INSTEAD of the duration is absolutely catastrophic for community involvement. The truth is we simply do not know what a fair price for a MaidSafeCoin is. We have very, very rough estimates (19,000 MaidSafeCoins produced by a participating computer over the first year) but don’t even really know what they’ll be used for, or what their primary use will be. The temptation is always to pretend we know important things, but when we tie ourselves to decisions formed out of what we wish reality to be, things like this can happen.
My opinion is of course, not definitive. When I asked him about the move, Ron Gross, Director of the Mastercoin foundation said
“The choice to limit the market cap was to be fair to backers.
If someone buys in an uncapped crowdsale (variable issuance) that has a pre-mine (Coins distributed before the coin launches), they have no idea how much that pre-mine is worth and have a hard time knowing whether it's a good decision or not.
They used an estimate for the cap, just like traditional startups do.”
And this is a point worth emphasizing, these are not normal funding rounds or traditional startups. They are experimental crypto-tokens, and they play by their own set of rules. It’ll be through watching the first few examples in the wild that we even learn what those rules are. Interesting times.
This is an exciting project so I suspect the amount of support would have been surprising no matter the structure of the crowdsale. Unfortunately there seemed to be concern about not raising the desired funds and an incentive structure was laid out that really, really incentivized people to jump in, but made the crowdsale much less profitable than it otherwise should have been.
The Mastercoin Connection
Mastercoin is a funny token - The first “metacoin”, it has had valuations starting from .01BTC back in the august crowdsale days, to as high as .4BTC during the height of the early hype. As the wait for a normal-user-operable platform stretched on, (they’re ancient in the space at nearly 8 months old), more projects emerged that tackled many of the same problems but attempted to learn from the forerunner, Mastercoin.
Mastercoin was the platform for the Maidsafe crowdsale, so this was an experiment for both Mastercoin and Maidsafe - Pioneers for the rest of us to observe.
To this point, there hasn’t been much reason to own MSC outside of thinking they’ll be useful for something some day - and in fact they are! Maidsafe valued them at almost 2x the market value (because they had to fix the price) so for the week prior to the crowdsale, people struggled with the new tools and purchased MSC with the intent of turning it into MaidSafeCoins.
This caused the price of MSC to go up, and I saw it as high as 0.17BTC (up from .09 last week), after all if you’re going into MaidSafeCoins this was still a better deal than just purchasing with bitcoins.
So when the sale opened, hundreds of people were poised with their freshly purchased MSC. Because of the fixed price and quantity, this flood of MSC consumed in hours what was supposed to take weeks, and the amount of value coming in from the Bitcoin purchasers (getting the worse deal) was a fraction of the funds raised.
This was of course, not the plan - The hope was that 40% of funds would be raised in Mastercoin, but the numbers put it closer to 73% MSC. In what must have been a long night for the team, the purchase-with-MSC address was pulled from the site (with the intention of no longer accepting MSC buyers). MaidSafe hopes to see this move closer to 50/50 over the next few days.
Again, if this had happened over a number of days, everything would have been fine. But because it all happened between midnight and 6am PST (9am to 4pm in MAIDSAFE’s native Scotland), many who had purchased MSC found themselves stuck with the tokens but still wanting to purchase MaidSafeCoin via Bitcoin. Yesterday’s MSC buyers became last nights sellers and the market slumped as low as .06BTC.
Thanks to the crowdsale, the MaidSafeCoin project is one of the largest holders of MSC in the world. Despite valuing them for the crowdsale at .2, their market value is less than 50% in practical terms, and is the majority of the funds raised so far.
This was all caused by trying to set a price when in reality we don’t know what the price should be.
In Bitcoin we have shining examples and horrible warnings. MAIDSAFE is a little of both. They’ve been wildly successful in the terms they defined, but the terms were ill defined and the consequences of success overlooked because of concern about preventing failure.
"Many within the community felt the need to step up and help others take part in the MaidSafe crowd sale, because it went more quickly than anyone expected."
-David Johnston, Co-Founder - BitAngels
Some prominent supporters of Mastercoin have undertaken privately to offer MaidSafeCoins at the original crowdsale rate (including the various incentive bonuses) for those who felt like they missed out.
The MAIDSAFE project specifically and these types of crowdsales broadly have a great future ahead, but it’s a bit like launching a boat - careful thought, diligent planning and rigorous construction must all come together or the whole thing sinks.
If you’ve got a project or concept you think would make a good early crypto-Crowdsale, get in touch with me at [email protected]
Adam B. Levine is the Founder and editor-in-chief of LetsTalkBitcoin.com. He is also CVO of Humint.is, a transnational consortium helping companies and causes apply the utility of Crypto-Currency to their specific ecosystem.