In a bizarre turn of events, an ICO worth $8 million ran out of tokens halfway through the process.
U Network, a content enhancing crypto-based company announced its ICO on 13th July and it might be the first ever ICO to have run out tokens mid-ICO.
The company provides solutions to the content creators by offering them appropriate algorithms to smoothly work their way through heavy internet traffic. It is also a platform where content makers get remunerated with the coins for their participation in the online active community. U network is like a counterpart of Patreon and Twitch, with the only difference being the medium of rewards and payment.
The members of the community have to just guess what content will get popular, like how people interact on Reddit. The one with the most effective prediction skills gets rewarded. Other cryptocurrencies with similar business models are Reddcoin, TRON, Steemit and Basic Attention Coin.
The U Network management after announcing its ICO, put a 10 billion UUU cap on the token supply, and the total supply was valued at $15.6 million. They retained 40% of the ICO for the founders and the R&D department. However, the subscriptions crossed the 60% mark leaving the company with the option of buyback fund.
The team intended to buy back UUU tokens equivalent to 1000 ETH, step by step, buying 200 ETH at every stage. The entire ETH buyback amount is valued at $486,000, currently. It is being spoken of as low enough to not affect the prevalent prices.
A source related to U Network was quoted as saying, “We believe it’s a reasonable amount. Not too high to affect market price, not too low to affect the expansion needs.”
Catherine Tucker, Professor of Marketing and Management at MIT observed, “I think this case illustrates the huge trade-offs founders face. If they keep too many tokens in reserve, they are often accused of being greedy. But if they give away too many tokens then they lose a crucial lever they need to incentivise people to use their platform or service in the future.”
It is difficult for a company to strike a balance between whether they want to hoard the coins or they want to sell all of them. Hoarding the tokens would mean that they’re uptight about it and selling all of them would put them in a position to risk being labeled shady. Buying back the coins also is not a feasible idea as they are buying back at higher prices than at which they sold.
Tucker advised curbing the initial token offerings until a stable plan has been devised for a longer period of time.
Frankly speaking, terminating the token distribution once the cap is reached would be the best plan to follow through. Advantages of doing so include avoiding expensive buybacks and unwanted labels of shadiness.