As previously announced, we are now planning on implementing three separate presales for Credits, distributing a percentage of all Credits at each stage. The first of these is slated to begin in February 2015, ending with the launch of the Credits network. Although this is quite unusual in the Cryptocurrency world, we believe it makes sense for a variety of reasons.
Milestones vs Staggered Presales
I’ve previously discussed the pros and cons of having a presale altogether, but I haven’t yet publicly addressed the issue of setting goals for future development and how those will be funded and accomplished.
Under a traditional Milestones model, the project raises all the money they can raise up front, and then portions of it are released when a third party determines they have met certain predetermined goals.
This can lead to problems wherein there is an incentive to game the release conditions or otherwise under-deliver relative to expectations. This is more generically known as the principal-agent problem. There is also a huge incentive to over-promise and over-extend the project at the outset to justify as large of an initial outlay as possible, since this is the last fund-raising opportunity the original project will have.
Instead, Credits is approaching this problem from the other direction. Staggered Presales are very much in the spirit of Milestones in that they base funds being available based on substantive progress to the project. However, they don’t suffer from the principal-agent problem because participants are primarily paying for completed progress, with the understanding that they also have future progress to look forward to, funded by their contribution.
Instead of having the economic incentive to over-promise and under-deliver, we instead have a very strong incentive to do the opposite. Assuming the project goes well, there’s every expectation that the second and third presales will be substantially larger than the first one, although the public expectations as to what we need to accomplish will be larger each time as well.
In traditional open-source software, you would instead run into a tragedy of the commons situation where there is little incentive to pay for open-source software that is already released, especially if you can let other people pay the costs and still reap the benefits from the completed code. However, benefiting from using the Credits software relies heavily on being involved in the Credits ecosystem, and the most cost-effective (legitimate) way to do that is likely to be through these presales.
The First Presale
The deliverables for the first presale are, more or less, similar to what have been promised all along. There will be a fully-working network based on the Proof of Consensus Protocol, downloadable desktop clients, and fully-functioning mobile clients (well, at least Android) at launch.
Additionally, hierarchal tagging and oracles, recurring payments, and basic Sidechains will all be available at launch of the main network.
The funds raised during the presale will then primarily be used for polishing the user experience of the Credits clients, building out the ecosystem in a select few fairly narrow niches, and of course maintenence and development of the core protocol itself.
Up to a given point, the more money that we raise in the first presale, the more we’ll be able to accomplish before launching the second presale. As such, we will provide KickStarter-esque milestones for the presale, commiting us to delivering more, the more we raise. These will all be finalized in the coming three weeks.
It’s most likely that 20% of the total number of Credits will be distributed in this first presale, with the remaining 80% distributed over the second and third presale. While this number is far from finalized, it seems a good starting point that allows for the earliest adopters to be rewarded sufficiently, while also not discouraging participation in later rounds.
Finalized details on this will be posted closer to the time the presale goes live.
The Second Presale
Before the second presale kicks off, we’ll need to accomplish a number of things, all of which will, as dicussed in the previous section, depend on the level of funding raised in the initial presale.
The general philosophy is that work done between the first and the second presale will build the infrastructure necessary for developers to build products for (and port existing products to) the app stores we will have built. Then, after the second presale, we will push heavily into building out adoption in the first niches that we feel we have unique strengths in providing for. This is mostly likely to be turn-based gaming, both because of the domain knowledge the team bring to the table in this regard as well as the partnerships we anticipate coming through by this time.
For more details on this adoption plan, keep tuned over the coming weeks!
The Third Presale
At this point, the Credits product(s) should be fairly well established, and it should be fairly obvious whether the anticpated benefits of the platform are bearing out in reality.
Funds raised in this presale will be used to expand the focus from the initial consumer niches targeted in the adoption plan in order to target wider, mainstream audiences. Once we’ve managed to show the advantages in the small niches that have the most obvious benefits, there should be a clear path to garnering more mainstream adoption, even if the direct benefits are less dramatic in those verticals.
The funds raised to this date will also need to last until Pythia (the company building the initial Credits protocol) can develop a sustainable business model based on building software on top of the Credits protocol.
The concern regarding the potential for dilution is a very real one, and it’s also a case where it’s not the easiest problem to reason about. However, I don’t foresee it being an issue in practice.
The main reason for this is that there are three broad scenarios that can happen in between one presale and the next: Credits fails more or less completely, Credits stagnates around it’s initial state, or Credits takes off significantly.
In the case that Credits fails altogether, you’re losing what you initially put in the system anyway, so dilution doesn’t hurt you at all at this point. Likewise, if credits takes off significantly, you’ll not only have had the opportunity to exit if you had so wished, but there will be enough people looking to enter the ecosystem that you won’t significantly notice the dilution from the remaining Credits being sold.
This leaves us with the scenario that the market cap of the project doesn’t change significantly in between two of the presales. In this case, you will likely notice the dilution resulting from the extra Credits being released, but given the volatility we’ve come to know and love in the cryptocurrency world, I see that as being the least likely outcome by a fair margin.
This is also ignoring the long-term benefits that follow from being able to take on additional funding during the formative months of the project, leading to much lowered existential risk and much higher potential upside. As the adage goes, it’s better to own a small piece of something huge than a large piece of zero.
In each of the presales, 10% of the amount distributed will go to Pythia, the company formed to develop the initial Credits protocol, for developing the initial protocol and implementation, as well as providing skin in the game for future development.
An additional 10% will be set aside to eventually be turned over to a suitable non-profit built to maintain the protocol and build the ecosystem. This will be turned over in full once such an entity can be formed and agreed upon, ideally through Credits stakeholders voting.
The remaining 80% will be distributed to those who participate in the presale, weighted by the amount they contribute. This portion includes affiliate rewards, where you will be able to receive a 5% bonus of the Credits that anyone you refer to the presale purchases.
While this structure is quite the departure from most previous Cryptocurrency presales, staggered presales are a much better method to solve the stated goals that a standard presale combined with milestones was supposed to solve. As a result, the project should be able to grow significantly while it’s being built without relying on a huge leap of faith from early adopters, but rather building trust and community as time goes on and the project grows.