Summary of the Polkadot ICO

tl;dr: the Polkadot fundraiser is done: 485,331 Eth was raised. On the final day the dollar value of 1 Eth was ~ $300.

New contributors will have to wait until the network launches if they wish to purchase dots. The developers have already started to work on the first working Proof of Concept.

Overview

The Web 3 Foundation announced the Polkadot DOT token pre-sale on their main website back in July; however, I can’t find the exact date of the announcement. Shortly afterwards I launched the Polkadot Market subreddit and more recently this website.

The key points:

  • The sale was a “spend-all” second-price Dutch auction where a fixed amount representing 50% of the total genesis block allocation of tokens were sold.
  • In the sale the token price (and therefore “cap”) started high and decreased over time until all tokens were sold. The timetable of how fast the price reduced was predefined: starting fast and getting slower over time.
  • Accepting Ether and possibly other cryptocurrencies (depending on technical feasibility and timeline).
  • The team was originally targeting a mid-August for the start of the sale. The sale actually occurred in October. Originally there was an intention to have a 14-day countdown timer; however, this was reduced to a 3-day countdown timer.
  • Tokens purchased during this sale will not exist until the genesis block launch, currently estimated to happen in Q3 2019. This has been stated as a pessimistic timescale.
  • On the remaining 50% in the genesis block we received some insight From a comment made by Gavin Wood in the Riot chat: “20% of the tokens is reserved for later pre-launch distributions; probably sales, but can’t rule out other mechanisms, too”.
  • There was a bonus period in the first hour of the fundraiser. This started at 15% but quickly decreased to zero.
  • Polkadot was the first project to use Parity’s PICOPS as its KYC service.
  • The auction contract can be found here: Second Price Auction from the W3F GitHub.

Pre-sale vs ICO

Ok, so it was supposedly a pre-sale rather than an ICO. For most people that doesn’t really matter. Ultimately, the developers raised money via a crowdsale on Ethereum. Most people, including myself, will use the terms interchangeably.

DOTs won’t exist until the network launches

The fundraising happened via a smart contract on Ethereum; however, we won’t receive our dots until the network actually launches. This should be an obvious point since we can’t have any tokens if the network doesn’t exist. It should be clear that that Polkadot is a completely new and separate blockchain from anything which has preceded it.

Investment Risk: Illiquid Tokens

A 2 year holding of the ICO investment isn’t terrible by any means, but it is a barrier to entry and which probably detered some would-be investors. Moreover, once the project has launched Gavin expects the actual tokens (dots) to be fairly illiquid too. So there are two sources of illiquidity:

  1. the ICO provided no tradeable token,
  2. DOTs are expected to be illiquid (won’t know exactly until the network is up and running).

Investment Risk: Inflationary supply of DOTs

The supply of tokens is inflationary over an indefinite timespan. There is no upper limit on the total supply as there is in Bitcoin. The intention is that this mechanism will encourage participation: nodes (holders of the tokens) will receive a pro-rata payout from the rewards of ‘staking’ (Polkadot will be Proof of Stake). Those nodes (/holders) that don’t take part will have their share of the total economy diluted.

In some ways this does remind me of fiat money which are always inflating; the only way to avoid being completely diluted is to invest in risky assets which can provide a return investment: e.g. stocks. Return on cash is near zero in the current climate so essentially always at risk of dilution. As participating nodes receive a share of rewards then owning one is much like receiving interest on a bond.

This also reiterates the notion of illiquidity: by holding tokens in a node and using them in staking then the tokens are more likely to be ‘hoarded’.

Bug in the Parity multi-sig wallet freezes the pre-sale funds

The pre-sale went as planned, but afterwards a problem with the contract was found. A malicious user found some unintended functionality in the smart contract and froze the funds. Unfortunately, this means that the funds held in the Polkadot fundraising contract cannot be withdrawn at present. If the funds can ever become unfrozen then the team will be able to withdraw the tokens and spend them as necessary.

The team have stated that they have enough funds to build Polkadot; however, they had further supplementary projects which they had hoped to fund as well. For now these additional projects are on the back burner.

Timeline

I’ve put together a timeline of events for the development of Polkadot. I’m intending to keep it up-to-date as best as I can:

Polkadot Markets Timeline of Events

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