ISPOs

2024/07/23 | Monish Iyer

ISPOs on Cardano | Waffle Capital Ltd

In the ever-evolving world of blockchain and cryptocurrency, various fundraising methods have emerged. However, these methods typically require participants to invest their capital in exchange for tokens. In contrast, Cardano has introduced a fundraising approach called Initial Stake Pool Offerings (ISPOs). Unlike conventional methods, ISPOs allow the public to participate in fundraising activities without the need to give up their capital. This not only simplifies the fundraising process for projects but also provides unprecedented investment opportunities for Cardano users. In this blog, we will explore the significance of ISPOs and how they are transforming the fundraising landscape within the Cardano ecosystem.


What is an ISPO


Originally, when staking on Cardano, and individual delegates their ADA to a stakepool of their choice. This stakepool secures the network, gets rewarded ADA, and distributes the ADA rewards amongst the stakers. Instead, in an ISPO, a project will run a stakepool, secure the network, get rewarded ADA, and then keep the ADA but distribute a certain amount of their own tokens instead. The specific amount of their own token that they distribute in lieu of the ADA varies project to project and can depend on factors such as the amount of ADA staked and the duration it is staked for.


ISPOs differ from traditional fundraising models like Initial Coin Offerings (ICOs) and Initial Public Offerings (IPOs). ICOs typically involve direct token purchases and IPOs offer the option to purchase shares that represent equity ownership in a company. In contrast, an ISPO encourages ADA holders to demonstrate their support by staking ADA they already own to a project stakepool to earn the token of the project. The only cost in an ISPO is the opportunity cost of the ADA rewards you give up.


Crypto fundraising methods have evolved to introduce more convenient and accessible processes for developers and investors. ISPOs, exclusively in the Cardano ecosystem, offer several key advantages over other models. The project gets to decide what percentage of ADA rewards they retain, how much of their own tokens to give out, and the timeline to do it all in. Investors get exposure to a new project without having to pay anything and while still retaining ownership and control over their staked ADA. Furthermore, there is no lock-period or pre-defined commitments when participating in an ISPO. Individuals can, at any point in time, decide to use their ADA in another way, including restaking somewhere else, selling, trading, or using them to acquire NFTs.


How do ISPOs work?


ISPOs, or Initial Stake Pool Offerings, involve several steps and mechanisms to distribute tokens and incentivize community participation. Here's a detailed explanation of how ISPOs work:


• Staking: Participants delegate their ADA to a stakepool associated with a project. Projects with active ISPOs can be found here.


• Token Distribution: The projects stakepool will secure the network and they will be rewarded ADA. They will keep this ADA and instead distribute a previously agreed upon amount of their tokens to each stakers. The amount will depend on how much ADA each individual stakes.


• End: When the projects ISPO has concluded, users can delegate their stake to any other stakepool.


To implement an ISPO on the Cardano blockchain, a new project would typically follow these steps:


Marketing: The project markets its innovation and solution on Cardano, highlighting its functionality and utility of their token.
Token Generation Event: The project creates its token, specifying parameters such as maximum supply and distribution.
Creating Stakepool: The project sets up the infrastructure required to secure the Cardano network such that any ADA holder can delegate to them.
Fees: Project will internally decide how much ADA rewards they will distribute and how much they will keep. The most popular option is for the project to keep all the ADA rewards.
Distribution Amount: The project decides on the exchange rate between their token and ADA. For every ADA reward redirected to them, they will distribute their own token accordingly.
Distribution Logistics: At the end of the ISPO, the project will calculate the final amount of their token that needs to be distributed to each staker and will set up a mechanism for users to claim the rewards they are entitled to. In some cases, there are vesting periods and phased distributions.

Advantages of ISPOs


Community Involvement: ISPOs promote community engagement and decentralization by involving ADA holders in the project's growth. This inclusivity strengthens the sense of community ownership and fosters future collaboration. Furthermore, it generally leads to a well distributed supply amongst community members.

Incentivizing Holding: ISPOs incentivize ADA holders to stake their tokens for extended periods, reducing market volatility in the price of ADA. This mechanism promotes long-term commitment and reduces short-term speculation, contributing to a more stable and sustainable token ecosystem.

Project Funding:ISPOs act as a fundraising avenue for projects without relying solely on traditional funding methods. Instead of conducting an Initial Coin Offering (ICO) where a project has to release a chunk of their token supply, ISPOs enable a slow distribution to users who are already active on Cardano.

Community Engagement: ISPOs foster active participation and engagement by incentivizing early research on the project and knowledge sharing - participants become more invested in the project's success and contribute their expertise, ideas, and resources to support its growth.

Alignment of Incentives: ISPOs align the interests of ADA holders with the long-term success and stability of the project.

How to participate in an ISPO


• Acquire ADA and send it to a wallet of your choice (Vesper, Eternl, Tokeo)


• Find active ISPOs and evaluate them based on team, vision, roadmap, tokenomics, etc.


• Delegate your ADA to the ISPO of your choice via your wallet and begin earning rewards! You do not need to transfer your ADA at any point.


• After delegating, monitor the projects announcements on discord and twitter for updates and instructions on redeeming your rewards. Rewards are typically distributed once every five days or at the end of the ISPO.

Remember to exercise caution, conduct thorough research, and use secure wallets when participating in an ISPO. By participating in an ISPO, you can support promising projects, earn rewards, and contribute to the growth of the Cardano ecosystem.


Conclusion


ISPOs introduce a novel fundraising approach within the crypto industry, highlighting the significance of community involvement and providing incentives for ADA holders to actively support projects. By recognizing and rewarding participants' dedication, ISPOs foster robust connections between projects and their communities, setting the stage for a more comprehensive and decentralized landscape in the realm of cryptocurrencies.


These innovative ISPOs symbolize a paradigm shift in token distribution and community engagement within select Proof-of-Stake (PoS) blockchain networks. By actively encouraging early stakeholders to engage with the ecosystem through token delegation, ISPOs establish the groundwork for a decentralized, inclusive, and resilient network poised for sustained success and continuous innovation.


Furthermore, ISPOs serve as a testament to the transformative potential of community-driven governance, collaboration, and empowerment. Through purposeful participation and active engagement, stakeholders have the opportunity to contribute to the ongoing expansion and advancement of the blockchain ecosystem, shaping the future of finance, governance, and beyond.


In summary, ISPOs not only revolutionize fundraising methods but also embody the fundamental principles of community-driven growth and development. By embracing ISPOs, projects embrace the power of collective action and pave the way for a more inclusive, decentralized, and prosperous future in the ever-evolving landscape of cryptocurrencies.


Disclaimer: This post is intended solely for informational purposes. It is not designed to provide investment guidance or to endorse or solicit the purchase or sale of any investment. Furthermore, it should not be utilized as a basis for evaluating the benefits of any investment decision. This document is not a source for accounting, legal, or tax counsel, nor does it offer investment recommendations. The views expressed in this document represent those of the authors at this time and are not issued on behalf of Waffle Capital or its associates. Moreover, these opinions do not necessarily align with those of Waffle Capital, its affiliates, or personnel associated with Waffle Capital. The opinions herein are liable to alteration and may not be updated.