TAP Token Sale – a modern twist on Dutch Auctions
–– 21 Dec 2020
After months of planning, weeks of round-the-clock work from the team, and a storm of activity and interest, we’re in the final 10 hours of Tapmydata’s token event!
Read on and learn:
- What is a Dutch Auction?
- Why it is the most fair distribution model
- Why these last hours are the most important in the whole sale
When we decided to launch our TAP token sale on Balancer, one of the key motivations behind the decision was the fair distribution of tokens to our wider community.
As happens currently, the process for getting ownership in the hands of the public is mostly controlled by investment banks. They are also responsible for setting the IPO’s price – hardly democratic!
Tapmydata wanted to do things differently; raising funds for the next stage of our journey through a ‘Dutch Auction’ process using the blockchain is a great fit for us and allows smaller investors in on the action.
The basic concept of a Dutch auction has been around since the 1600s, as a method to deal with instant demand for a new product (tulips) with a broad market of potential buyers, and where a large quantity of an asset is offered for sale.
A Dutch auction starts at a high price; at publicly-known time intervals, this price ticks down in transparent price increments. Descending prices mean buyers will bid at the price they’re willing to pay.
In a financial context, the US Treasury uses Dutch auctions to sell their treasury instruments, and in 2004 Google decided to do the same for their IPO, to minimize underpricing and achieve a fair price.
The Tapmdata team agreed a variation of the Dutch auction was the best way to achieve a fair launch, and Balancer’s permissionless design and open-access distribution are more in line with our values and goals for TAP distribution.
The LBP in our case lasts a set period of 4 days (with less than 24 hours to go) – there’s no first-come, first-served, and people aren’t incentivized to FOMO in for tokens at the start, which means better price discovery.
And since the price of the asset inside a Balancer LBP started from high and gradually goes down with the passage of time, in the event a bot immediately gets TAP when the pool is live, the price on Balancer will soon be lower than the acquisition price that the bot has paid after the weight change.
Therefore bots have no way of disrupting the token sale in a negative way, thus providing no incentive at all for people to utilize them.
So, with the LBP and our token sale, similar to a Dutch auction, users have a long time window to acquire tokens at a price they find attractive. However, if we start from an artificially high point where demand is zero, and the price is flexible upwards as well as down, then as the window of opportunity shrinks, the demand (and price) can also go up.
This makes the final day of such an auction by far the most important time to get involved…
It’s also why a strategy of making a number of investments at periodic points across the entire lifecycle of a token event smooths out the dollar cost averaging and exposure to price fluctuations, just as it does with tulips, or other more traditional investments…
The Tapmydata token sale is live until 3 am GMT with details of how to get involved here.