Designing your Token Economics: Token Sale and Bonuses

This article and accompanying spreadsheet provides you with a framework for your token sale metrics. It also covers best practices about the related topics of

  • Vesting
  • Bonus levels
  • Bonuses vs. Discounts

Blockchain startups hire me to do this work, but if you’re not afraid of a spreadsheet, you can do it yourself.

In the spreadsheet I made certain decisions for you:

  • Tokens are priced in ETH (Though “ETH” could be any ICO hosting coin)
  • Hardcap is set in ETH

The spreadsheet helps you answer these questions:

  • How much should my token cost?
  • How many total bonus vs. sold tokens should I have?

The spreadsheet takes as inputs these variables:

  • Sale allocation (in tokens) — How many tokens total are allocated for your sale?
  • Hardcap (in ETH)
  • Size of sales — The percentage of your sale for the presales and public sales
  • Bonus levels for each sale period

Download the spreadsheet here. Please send feedback to claytonroche@tokenarchitect.io or @TokenArchitect.

Getting Started

You will not know exactly how many bonus tokens you will sell before the sale starts, in most cases. Why?

What if you offered a 40% pre-sale bonus, but your pre-sale does poorly? And what if after that, a thought leader hypes your product and your crowdsale sells out? You will have allocated enough tokens to give that 40% bonus, but you will not be awarding them during the crowdsale.

Or the opposite scenario: What if you offered higher bonuses to bigger contributors, and someone buys the entire pre-sale at the highest bonus level? In this case, you better be sure you planned for it by having enough bonus tokens. If you didn’t, you’ll be giving away bonus tokens you had intended to sell during the crowdsale, and you will not be able to reach your hardcap.

Before you begin, you will need to have determined your allocations for your ICO. In the example below, you will use the number 55,000,000 to in the spreadsheet.

The spreadsheet has instructions 1–6 in blue color. The main technique here is to calculate the maximum number of tokens you might need.

If you end up with a lot of unsold bonus tokens at the end of your sale, you can either burn them or use them to sell your unsold tokens through a syndicate.

Token Economics Considerations

Contribution based bonuses

One option you can use to encourage larger investments is to give higher bonuses based on contribution amounts.

You should probably plan to have enough extra bonus tokens in case the entire sale sells out at the 35% bonus. The spreadsheet has been designed to account for this.

Should we offer a bonus or a discount?

Same results, different math. But bonuses appear much higher. A 40% bonus is 1.4 * tokens purchased. So if the token is priced at 100 per ETH (.01 ETH per token), you receive 140 tokens for one ETH.

A 40% discount means that you take 40% off the price of the token, so if it were .01 ETH per token, the discounted rate is .006.

To convert a discount to a bonus, divide the token price (.01 ETH) by the discounted price (.006), which is .01/.006, or 1.66. This means a 40% discount is equivalent to a 66% bonus.

It is for these reasons I suggest using bonuses over discounts:

  • Expressed as a higher number
  • Easier to understand
  • Investors are accustomed to it
  • The number itself is what you absorb, and many investors don’t understand the difference

What bonus levels should I choose?

  • Typical bonus levels range from 10% to 40–60%
  • Bonuses of 100% or more sound gimmicky
  • The benefit of bonuses are relative. A smart investor knows their bonus level is only meaningful when compared to the other bonus levels and how many tokens were sold at each level
  • For this reason, private sale investors probably want assurance you wont sell out in the private sale, but will instead reserve some tokens for tiers with lower bonuses
  • You don’t need to disclose your private sale bonuses publicly

Tokens priced in ETH vs USD

The investor marketplace likes when tokens are priced in ETH.

If you price in USD, and the price of ETH changes wildly during your sale, it will upset people. You will also get many of questions in your telegram about “when are you setting the price in ETH?” or “The price of ETH fell, can we have more tokens for our earlier contributions?”

(Kudos to those of you who realize how inane these complaints really are.)

How should we think about vesting/locked tokens?

You lock tokens to reassure investors they will not flood the market early on and drive the price down. You also lock team tokens in order to encourage alignment.

This is something of a political topic. I will keep my advice simple: If you want to attract investors, keep your withheld tokens out of circulating supply for 6–12 months after the token generation event. This means development pools, team, advisor, and any other token that wasn’t sold.

For example, team tokens might be vested for 3 years with a 6 month cliff (a “cliff” means they don’t coming until month 6.)

Why? This protects the people who paid full price for your tokens and gives them an opportunity to benefit from initial demand on the exchanges. Ideally, the only tokens in circulation to start should be sold tokens and perhaps a small bounty portion. The 3–6 month period is enough time for exchanges to pick up your token.

You can also vest your bonuses for 3–12 months. Not only does this limit dumping, but I believe that it results in fewer resold tokens. Later bonus payouts end up in a different column in our “mental accounting.”

Conclusion

This spreadsheet will not accommodate every possible sale type. For a customized sale, you can use my spreadsheet as a template (the spreadsheet is protected but you can unprotect it without a password.) For token sale metrics, and broader token design, you can hire me.

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