Here's an alternative structure that I have been discussing with one of my clients:
1. Start-up defines token buyback rate in terms of revenue (not profit!)
2. Start-up sells tokens
3. At every defined interval (e.g., monthly), start-up updates revenue statistics and buys back tokens according to 1 and destroys them.
This means:
- it's an eternal bond if you never sell your tokens
- the actual interest rate payment is done via token buybacks, so it's also kind of a dividend
- token value is largely determined by future revenue of company
Some thoughts:
- Re 1: You have to scale the token buyback according to the number of outstanding tokens (otherwise the long-term holders benefit relatively more per time held than short-term holders)
- You might want to define a cap after which you will stop your buybacks (still haven't thought this fully through)
- You may want to start 3rd party audits after some predefined event (to increase trustworthiness), e.g., after reaching an annual revenue of X
- This is especially suited if you have some quantified business metric like "loans repaid", so you don't even have to define it in terms of company revenue.
* For every $X we will spend $0.0001 buying back tokens?
* For every $X we will buy back Y coins?
* For every $X we will buy back Y coins at a set value?
I guess it's got to be the first or third since the second would imply that the cost of buying back the coins could be greater than the revenue of the company (let's saying I buy all the coins and refuse to sell them, whachagonado?)
Basically what you're describing is selling a royalty interest with a fixed buyback value.
Which whilst technically achievable seems like a strange thing to do. Since when you're starting a company it's very difficult to calculate your margin. The result would be that you could very well end up finding that the royalty makes your company unprofitable.
IMO only the first makes sense. The third would imply a "non-market" setting which kind of defeats the purpose of an ICO.
The company I talked with was in the loan business, so if you set a target rate of 10% on every interest rate payment, it's possible it's gonna break your neck but then you didn't have a very good business model to begin with.
The idea is that after 5 or 10 years you already bought back a decent amount of your tokens and initially you can set different buyback rates (e.g, X% for the Xth year up to 10) to "soften the blow" in case you're entering a highly competitive market (aka shark pool).
The good news is that it's kind of self-regulating: if you underperform, the tokens will be worth less so your buybacks in terms of coins will be higher and your subsequent buybacks therefore cheaper.
1. Start-up defines token buyback rate in terms of revenue (not profit!)
2. Start-up sells tokens
3. At every defined interval (e.g., monthly), start-up updates revenue statistics and buys back tokens according to 1 and destroys them.
This means:
- it's an eternal bond if you never sell your tokens
- the actual interest rate payment is done via token buybacks, so it's also kind of a dividend
- token value is largely determined by future revenue of company
Some thoughts:
- Re 1: You have to scale the token buyback according to the number of outstanding tokens (otherwise the long-term holders benefit relatively more per time held than short-term holders)
- You might want to define a cap after which you will stop your buybacks (still haven't thought this fully through)
- You may want to start 3rd party audits after some predefined event (to increase trustworthiness), e.g., after reaching an annual revenue of X
- This is especially suited if you have some quantified business metric like "loans repaid", so you don't even have to define it in terms of company revenue.