UNIVERSAL PAYMENT BLOCKCHAIN

How we priced GRAFT ICO

  We get a lot of questions about the ICO pricing, including “Why GRAFT ICO is so expensive”. What follows is an attempt to explain how we arrived at the ICO pricing and what all contributed to it.  

Not All Altcoins Are the Same

There are two types of altcoins (aka tokens) out on the market today – one that sit on top of another blockchain (like Ethereum), and others that implement their own blockchain. The ratio of derivative tokens to custom blockchain ones are roughly 100:1.   It is a lot easier to do a derivative token based ICO – you just write a small amount of code in  Solidity (if Ethereum) – and you have a token you can sell. Doing or modifying a blockchain on the other hand involves a very substantial amount of engineering efforts – the team has to figure out the math and economics behind the blockchain, implement additional capabilities, secure that new functionality, create API’s, in many cases create applications like a wallet, etc. They also have to create a whole new network complete with node installation procedures, upgrade processes, and many other considerations. GRAFT is the latter of the two – while leveraging CryptoNote protocol which addresses privacy, decentralization and fungibility as well as  great work that Monero team has done to improve scalability among other things, GRAFT is having to implement a new communication protocol that allows instant authorizations, a distributed API (DAPI) that allows connections from the POS and other applications, and a set of reference applications for the point of sale  and the wallet – just to name a few high-profile tasks.    

Derivative Tokens Cost More

Tokens run on top of another blockchain (say Ethereum), so purchasing a token is not sufficient to run the application that the token represents – you also need to purchase “fuel” (which is the underlying coin/token). The amount of fuel depends on the amount of transactions that the token application represents. Compare this to the blockchain like GRAFT which encompasses the value of entire transaction. As you can see, the cost of a token is more than meets the eye, in some cases much more.  

Pay Attention to Valuation, not Token Cost

Valuation (or capitalization) follows a simple formula: (Number of tokens or coins) x (Price of the token / coin). It’s natural for people to think that smaller price of the token represents a bargain, but the critical piece in this equation is the number of coins or tokens that are being issued. For example, which is less expensive (has higher valuation) – 1 billion tokens at $1, or 10 million tokens at $10? It is as you could calculate the latter, with corresponding valuations of $1B vs $100MM.  So when you buy a $10 token from a 10 million token pool, you actually end up with a significantly (10x) larger piece of the pie than if you buy the same amount of the $1 token in a 1 billion token pool. Most token ICO’s are not burdened by emission math (the formula that guides how the coins are mined, making the later mined coins harder to mine than earlier mined coins), so they issue a very large number of tokens (often in 100’s of millions or even billions) and then pricing the tokens low for the perception of the low entry cost. Top 10 Derivative tokens (illustrating circulating supplies differences)  

GRAFT Valuation is 1/40 of Dash

GRAFT’s total final emission (the number of coins to ever be minted) is roughly 18 million (18,446,744 to be precise). We’re pre-mining certain number of coins (45%) to cover the ICO, marketing, reserves, and incentives. This is it. We will never be able to add or pre-mine any more coins!  We have also decided not to siphon off any fees from the transactions to fund the development like some of the other blockchains are doing.    As such we have to make sure that whatever we raise now will be sufficient to sustain GRAFT project until no further development or support from the core team are required (we estimate that to be roughly 7 years with the overall team growing to 30-40 people). This is roughly $25MM.   Now, we also have to account for additional unexpected expenses, crypto-currency fluctuations at the time of the raise, and potential taxable events. This means that we need to need to double the $25MM getting us to $50MM. Since the ICO represents 25% of the total coin supply, the $50MM has to be equal to 25%, which brings the valuation to $200MM, and subsequently the price of the coin to roughly equivalent of $11 USD.  

Summary

When evaluating GRF pricing, it’s really important to compare apples to apples in terms of:
  1. size of emission (or the number of tokens available)
  2. type of a token/coin – a blockchain or a token on top of another blockchain
  3. valuation which is a product of number of tokens multiplied by price
If you do such comparison, you will see that GRF token ICO compares very favorably against other blockchains on the market:
Current circulation Price Market Cap / Valuation
Bitcoin 16,678,650 $6,100.00 $100,000,000,000
Ethereum 95,715,037 $310.00 $29,500,000,000
Ripple 38,622,870,411 $0.20 $30,000,000,000
Litecoin 53,819,707 $60.00 $3,250,000,000
Dash 7,687,407 $340.00 $3,200,000,000
Monero 15,345,839 $118.00 $1,800,000,000
Graft (after ICO) 100,000,000 $.32 $32,000,000 (numbers are approximate)

Update:

We have made couple of changes to the ICO and token structure since the article was first written:
  1. decided to lower our ICO hard cap to 5% of the total emission (or around $11,000,000 in USD), down from 25%,  and keep the rest of the coins slated for ICO in reserve for subsequent raises as needed.
  2. Do a 1:100 split, multiplying the total emission by 100
These changes doesn’t really change any of the math, just help us improve usability of the coin at pont of sale, and address some of the perceived value concerns.