The developers of the blockchain project NuCypher have criticized the existing models ICO / IEO, suggesting an alternative model of tokensale called WorkLock.
At the beginning of the article, the developers focus on the main problems and limitations inherented by many traditional ICOs and already familiar to IEO, as well as the mechanisms for distributing coins through airdrops. According to them, after the emergence of the ICO speculative bubble in 2017 and its deflation in 2018, it became clear to many that the tokensales had many problems.
For example, the initial coin offerings attract a huge number of retail investors, whose main goal is short-term earnings, and not the use of a token. This negatively affects the product, while the ICO organizers themselves become, in effect, hostages of the market.
In addition, the industry is full of frankly fraudulent projects, often ICO start-ups do not adhere to the roadmap. It is also a common situation when startup participants receive huge rewards, while not offering anything meaningful to the market.
Among other things, NuCypher notes significant regulatory risks, particularly related to the activities of the US Securities and Exchange Commission (SEC). The latter often classifies ICO tokens as securities, imposing severe restrictions and penalties on their issuers.
The company believes that in an ideal token distribution model, speculative factors should be reduced, compliance with the requirements of regulators should be maximized, and opportunities for market manipulation should be limited. In addition, the mechanism should encourage participants using the token for its intended purpose, and, therefore, contribute to the growth of the cryptocurrency ecosystem.
The proposed concept called WorkLock suggests the following algorithm:
- Participants in the token distribution escrow ETH into a smart contract where it is locked;
- In return, they receive tokens;
- Participants are free to use those tokens however they like;
- HOWEVER, if participants use the tokens for their intended purpose (e.g. running staking nodes) they will recoup their escrowed ETH after producing some amount for work (this is separate and distinct from any in-network compensation from fees or inflation);
- If participants choose not to use the token for its intended purpose, they forfeit their escrowed ETH, which is effectively burned;
- Participants may choose to do more work (after acquiring additional tokens to stake) to recoup their escrowed ETH more quickly.
NuCypher is convinced that such a model creates incentives for participants to use assets for their original purpose. In addition, they believe that WorkLock increases the likelihood that projects meet the requirements of regulators, since the model does not imply the purchase of tokens for speculative profits.
The developers noted that WorkLock is so far only a concept that needs to be improved and which has yet to prove its viability.