4 Ways to Fund and Launch Scalable Blockchain Projects
In this post I address four questions we have asked ourselves or been asked by investors and other mobility ecosystem stakeholders.
Noone will dispute the need to build scaling solutions for blockchain tech. Vitalik Buterin himself is actively involved in scalability research, and the Ethereum Foundation is funding the development of scalability solutions. I don’t pretend to be able to articulate the relative potential of the different scaling proposals being developed, although my CTO, Josep Sanjuas is of course diving deeply into sidechains, blockchain bridging, state channels and the like.
At IoMob we are building a decentralized 2-layer achitecture to enable what we refer to as the Internet of Mobility (IoM). We aim to enable public and private mobility operators in urban areas to be equally discoverable to mobility users, and to support emerging forms of intermodal mobility combinations including Mobility as a Service (MaaS). From the very beginning, we have been thinking seriously about the best way to design our protocol and cryptoeconomic incentives in ways that will enable us to scale along with blockchain and the market, as opposed to design for a future use case. I am not going to suggest that our strategy is the best, and certainly not that it is the most appropriate for all potential decentralized apps (DApps) being built with blockhain tech.
However it seems a worthy exercise to reflect about how best to fund, design and go to market with DApps in the current environment. Some questions we and others we know have been pondering include:
- Is it too early to be building DApps in the current environment while the Ethereum community has yet to resolve the scaling issue?
IoMob Response: We do not believe it is too early to build DApps leveraging blockchain technology. At this stage it is hard to identify any industry not ripe for the decentralization disruption blockchain tech can offer. Yet, it is also true that at the current time, there are few examples of how to build a DApp that can scale reasonably, given the throughput and transaction costs of public blockchains, and several examples of how popular projects or ICOs can clog the network. Our response, like many other blockchain projects, has been to design a 2-layer architecture where only a fraction of the operations actually hit the Ethereum blockchain. In particular, this will be facilitating trustless payments between mobility providers.
Moreover, given that current transaction costs are prohibitively expensive, especially for micropayments, we are building smart contracts that will allow funds to be held in escrow, while allowing for instant off-chain micropayments in the form of cryptographically signed IOUs that can be settled on the blockchain upon request (a technique called payment channels). For now the rest of the stack will be built either off-chain or in sidechains, so that, as blockchain scaling issues become resolved, and we know they will be, we will migrate more of the stack to the Ethereum main network. This 2-layered solution allows us to leverage the best of what blockchain can currently offer us, without being constrained by its limitations as we seek to gain market acceptance early.
2. What is the best way to fund the early protocol development of a pre-ICO project?
IoMob Response: We have evolved our thinking about how much funding we need prior to an ICO and the best way to acquire it. After several meaningful conversations with VCs, angel investors and advisors, we have decided to focus only on investors with an interest in an exit via tokens (and possibly ether) as this allows us to maintain more flexibility going forward. Some VCs we were speaking with were only interested in investing in a private enterprise via an equity stake, board membership and traditional exits (acquisition or IPO). Given IoMob’s primary objective to build an open source tech stack to create a token economy across an entire urban mobility ecosystem, we do not want to be constrained by the business models of the 20th century. For more explanation on our thinking related to fundraising, check out my recent post here.
3. Should we design security tokens or utility tokens and if there are utility tokens, who should use them?
IoMob Response: If you had asked me this question 6 months ago, after spending time with blockchain VC pioneers Outlier Ventures I would have said utility, utility, utility. This was because way back then :) most experts felt it best to avoid problems with financial regulators by doing everything possible to credibly market your token as a utility token. However as we all know, and Outlier would agree, times are changing. Recent rulings by the SEC and the growing consensus seems to be, that while you are building a protocol that is not functional, it is difficult to justify that your tokens serve as utility , even if you are designing utility functions into their eventual use when the protocol is live. It seems that the current wisdom is that during the pre-ICO and development phase of the protocol, it is best to sell tokens as securities even if eventually they will become utility tokens.
Another point of reflection we had early is that in order to be practical about who will use the token, we decided that expecting the average mobility user to have wallets and transact in tokens is a bad idea. While all of us in the blockchain ecosystem are convinced of the eventual ubiquitous nature of wallets and crypto even for micro transactions we are not there yet. At IoMob we aim to reach 1 billion mobility users by 2025 (I know it’s an ambitious goal, but nothing transformational ever happens with incremental targets). We are convinced we won’t get the early traction required to reach or exceed that goal by restricting use of mobility services to those savvy enough to have wallets and transact in crypto. We have been watching other blockchain startups with strong teams and good tech build their go to market strategy which requires users to embrace micro-crypto transactions. Aside from the scalability problem of such transactions described above, it just doesn’t seem logical to us that the majority of potential users would be ready for this switch. So at IoMob, the current design of our utility token is focused on more of a B2B model (transactions within the mobility ecosystem but not the users). Of course we can future proof the design to allow end users to have access to tokens and incentives when the market is ready. (Note: The details of how the utility of our IOM token will be utilized by the mobility ecosystem are included in a private white paper. In the near future this will become public).
4. How do you enable an ecosystem with current actors while future proofing for next gen tech in your vertical?
IoMob Response: 3D printing, robots, AI, big data, autonomous vehicles and other disruptive tech are going to change our world in unfathomable ways. Everyone in the blockchain world gets that. The question is, when will these technologies become mainstream and how do we design protocols to accommodate them, without putting the cart before the horse? At IoMob, this question comes in the shape of autonomous vehicles and drone technology. We are the last ones to tell you that these are just futuristic fantasies that will never become reality. Yet designing a protocol and tech stack and go to market strategy around autonomous vehicles and drones in an urban mobility arena will likely artificially limit scalability since we are many years away from ubiquitous autonomous vehicles, and in many cities we may never see their widespread adoption due to regulatory barriers such as being outlawed or, for example in some European cities, the tendency is to ban passenger vehicles (electric, shared or autonomous) in city centers. Instead, we at IoMob intend to focus on the installed mobility services today and support innovative new mobility models and technology (autonomous included) as they come online.
I realize the approach to building a blockchain project discussed above may be less sexy to retail ICO investors who get swayed by cool videos and futuristic tech all built 100% on blockchain, we at IoMob believe a practical approach to building a scalable project with blockchain tech in a 2-layer architecture may prove more sustainable long term.