In this article, we introduce a unique crowdfunding tool called Initial Validator Offering (IVO) which will soon entirely revolutionize the cryptocurrency industry. We will revisit the legacy kickstarting mechanisms like StakeDrops and Initial Coin Offerings to later deep dive into our latest industry standard.
IVO TLDR, and what to expect?
- Invest in crypto and enterprise businesses without spending any of your existing assets
- Keep full custody over 100% of your assets and the ability to pull out at any time
- Maintain full liquidity over your investment, trade and participate in decentralized finance (DeFi) at the same time
- Mitigate volatility risk, by no need to exchange any of your existing assets for tokens
- Invest with a negligible risk exposure while allowing new startups to profit and innovate
The concept of token sales is not new and it comes back to July 2013, when Mastercoin held a first Initial Coin Offering, later followed by the Ethereum ICO, which in 2014, increased 3,700 BTC in its first 12 hours of operation. Ever since the exponential increase of ICO’s helped the cryptocurrency industry to fuel its growth and played a key role in the bull run of 2018, this trend continued until 2019 but then lost its momentum due to regulations; scam projects exploiting the concept, and a general increase in risk exposure of the ICO investors.
- Requires (investment) exchange of tokens or fiat money for tokens
- Investment can’t be pulled out in case of project’s failure to be deployed
- High exposure to volatility and risk of “ICO token flipping”
- Lack of privacy and risk of identity theft
Since 2018 the concept of ICO’s and making a better way of token distributions was attempted to be revitalized into lockdrops by Edgeware, and stakedrops by projects like Keep Network which in short introduced a concept of time-locking assets on one network to, later on, distribute new tokens on another. Those ideas, although provided alternative token distribution mechanisms, could never compete with ICOs. The only efficient way projects deploying stakedrops and lockdrops could incentivize their operations was by selling their own, pre-mined tokens on exchanges while forcing others to “mine” through locking assets thus creating the illusion of token scarcity. The obvious downwards market pressure due to such practices highly invalidated the ideas and is not offering the incentive level known from ICO’s.
- Poor or no incentivization mechanism for projects deploying LockDrops
- Downwards market pressure on the LockDrop “miners”
- Exposure to the market volatility of the tokens locked
Fast forward to 2019, and a unique idea, coined by Kira Core to revolutionize crowdfunding sphere — The Initial Validator Offering. With the fast growth of the staking industry and the increase of the first delegated/nominated Proof of Stake networks, it eventually becomes possible to deploy a new type of token offerings utilizing the staking mechanism.
To fully grasp the importance of the concept and its impact on the cryptocurrency industry we will present in this post a simplified concept, advantages, disadvantages, and solutions that will rapidly accelerate the growth of the IVO’s, staking industry and flourish the Proof of Stake paradigm.
What is Initial Velegator Offering?
The IVO is a crowdfunding mechanism where users place their existing tokens or assets at stake using one or many PoS networks to “interchain-mine” a new token instead of liquidating their valuable assets to gain new, highly speculative tokens.
In short, investors delegate their tokens to validators charging a commission off all block rewards, and instead of receiving the same token they staked — investors receive a newly minted token. The new asset that is being “interchain-mined” is then pegged to the value of their old token, so that for each one cent earned by the IVO validator, the investor receives equivalent one cent in the new token.
The Initial Validator Offering allows investors to maintain full custody over all their existing tokens, while “interchain-mining” new assets. Additionally, IVO projects are coerced to deliver on their promises because if investors get disappointed with their progress they can re-delegate all their assets to other validators at any time. It means new projects can fundraise their operations without being able to “run” with investors’ money, as it was often happening in case of legacy ICO’s.
Risk, Reward and Money Flow
There ain’t no such thing as a free lunch, and just like every investment mechanism there are risks to which both the network and IVO investors are being exposed to. On the investor side, just like in case of LockDrops there is a big risk of the locked asset volatility, and on top of it the risk of validators being slashed. On the network side, there is a possibility of “assets centralization” (Security Leaks) resulting in a single validator acquiring the majority of the voting power.
Some might ask, if investors do not spend any money, then how do projects fund themselves through IVOs? In simple words, and in most cases, the majority of funds come from block rewards and inflating the token supply, so passive token owners who do not stake, like active traders and actors not interested in securing Proof of Stake networks, are the ones paying for this innovation to happen. Depending on the network maturity and incentivisation model, capital accumulated by IVO validators can also be a result of network fees paid by the users to do smart contracts or submit transactions to the distributed ledger.
Challenges and Solutions
There are currently several challenges that the Proof of Stake networks have to solve in order to position Initial Validator Offering as the number one crowdfunding mechanism in the cryptocurrency space. Kira Core plans not only to mitigate those issues but bring the idea even further, and make it a viable alternative in funding non-crypto startups. In other words, we can make Initial Validator Offering a tool that will merge cryptocurrency and real-world industries.
Kira Protocol is going to deliver the first Proof of Stake consensus that will make it possible to safely stake both cryptocurrencies and real-world assets, rather than a single token with dubious value. Kira introduces The Multi Bonded Proof of Stake (MBPoS), where Security Leaks (one validator acquiring the majority of voting power) are not possible, and all assets at stake maintain full liquidity because of the concept called Staking Derivatives.
How does MBPoS relate to IVO?
The Multi-Bonded Proof of Stake allows IVO investors to safely and trustlessly stake highly valuable cryptocurrencies like Bitcoin, but also real-world assets like digital fiat or commodities, all without limiting their liquidity. This means you can crowdfund your new venture or non-profit, without the need to convince your investors to spend or convert their valuable assets for cryptocurrency tokens.
Besides the MBPoS, the next step of bringing IVO to a wider public will be a full on-chain automation of the Initial Validator Offering by making a blockchain application (module or webassembly contract) that will enable automated, fully trustless and transparent token distribution.
One of the purposes of the Kira Protocol is to fully integrate On-Chain IVO mechanism with a Multi-Bonded Proof of Stake consensus to help new interchain ecosystem projects to benefit from its superior security guarantees, particularly when it comes to crowdfunding through “interchain-mining”. As a result, Kira Core thrives to create an unstoppable network effect where new projects crowdfunded through IVO mechanism can themselves be used to safely and efficiently host more IVO’s. Experts believe that through this mechanism, the new exponential growth of the cryptocurrency industry can be achieved on an unprecedented level, due to the inflow of real-world assets into the so far limited economy of the crypto ecosystem.
To summarize, Initial Validator Offering can offer the best of both worlds — ICO and LockDrop, as well as the high incentivization level and security, but without a single one of their disadvantages. The biggest difficulty in this way is not technology, it is education and spreading knowledge to make the industry aware of the new trends that will forever change the future of the cryptocurrency industry.