Does an ICO make sense for your gambling app?
Whether an ICO is the right capital raising vehicle for a gambling project depends on how strongly the advantages and disadvantages of gambling ICOs apply to the project in question. The other main consideration, in some cases, is how well an application specific token (an app-coin) will suit the project.
ICOs and those that promote them have a reputation for scam, spam and hype. This brush paints anybody who issues an ICO, no matter how good their intentions and actions are.
Crypto gambling operators already have a poor reputation to begin with. One might expect that they would be less worried about reputation because most of the mainstream, regulated world already thumbs their noses at crypto gambling operators.
On the other hand, the case could be made that because crypto gambling operators are in an industry with a less than ideal reputation, they need to do everything to maintain the best reputation possible and avoid anything that could re-enforce negative pre-conceptions about them.
On balance, the news that a cryoto gambling operator is having an ICO would be bad for their reputation. It would affect their reputation in the following ways depending on who you ask, ordered from majority to minority
- To someone unfamiliar with ICOs (the vast majority of people):
No effect on reputation.
- To someone familiar with ICOs who is not directly involved in ICOs (the vast majority of people involved in crypto and modern finance):
Bad for reputation.
- To someone directly involved in ICOs:
Good for reputation.
If the fundraisers make an honest mistake that investors perceive as costing them money or if the fundraisers fail to meet investor expectations, they will quickly be publicly labeled as scammers by an angry internet mob, which could cause reputational damage.
Most crypto gambling sites operate in a legal grey area, to say the least. For example, having a license in 1 jurisdiction rather than in all jurisdictions in which they operate, or not doing KYC/AML checks on users. These operators would be less bothered by the legal uncertainty of ICOs.
Fully compliant wagering businesses, such as the High-Street bookmakers, who try to steer clear of legal grey areas should be concerned that the legal risk profile of any ICO they undertake could deteriorate, resulting in the need to cancel the project.
See our legal guide to gambling ICOs for details.
Gambling ICO details to decide before launch
Fundraisers considering a gambling ICO should consider the following matters.
Where appropriate fundraisers should follow the guidance listed in Part 2: Best practices in token sales, from A Securities Law Framework for Blockchain Tokens.
What will the token’s use be?
Tokens can be used for anything the fundraiser can think of including any combination of
- Ownership rights.
- Dividend rights.
- Betting on the platform.
- Voting rights.
- Access rights.
- App-coins to be used on the platform.
The more rights the token gives (with those in the above list ordered from most weight to least weight) the more legal complications the fundraiser is likely to face.
These are some of the questions to consider in launching a gambling ICO
- When will the ICO start and finish?
- Will there be a whitelist, for example, to gather KYC/AML information on investors?
- What will the price of tokens be?
- Will there be discounts/penalties for buying early/late or for certain investors (e.g. discount for existing customers)?
- How many tokens will be created?
- How many tokens will be sold to the public (typically ~70% but could be any amount)?
- How many tokens will be kept by the project (typically ~30% but could be any amount)?
- What will the funds raised be used for?
- Will there be a minimum and/or maximum amount of funds raised?
- What will the tokens kept by the project be used for?
- How and for what currency will the tokens be sold?
- How will the tokens be traded on the after-market?
- What is the monetary policy of the toekens? This requires consideration of the next 3 points
- Under what conditions would the fundraiser buy-back tokens?
- Under what conditions would the fundraiser burn tokens?
- Under what conditions would the fundraiser create more tokens (emission schedule)?
The most common technological platform on which to create tokens and accompanying smart contracts is the ethereum ERC223 token protocol. This is an evolution of the previous standard ERC20.
The advantages of using the ethereum ERC223 token protocol include
- Users can hold their tokens in most ethereum wallets.
- Exchanges can easily enable trading on the token.
- There is a wealth of existing open source ICO, app-coin and smart contract code already available that can be customized for the fundraiser’s ICO.
- A large number of people are already familiar with the protocol meaning human resources like developers are easier to find and investors are more able to understand the token when considering whether or not to participate in the ICO.
Marketing and public relations
This is the most important factor in determining how much capital an ICO raises. There are specialist marketing and public relations firms offering services for ICO fundraisers.
Care should be taken that the promotional side of an ICO does not overpromise on what the technical and administrative sides can deliver. Any difference will lower the price of the token and immediately see the fundraiser publicly accused of scamming investors, which could result in reputational damage.
Our guide is the best place to start. Then Industry specific expert legal advice should be sought for every potential ICO in all relevant jurisdictions.