Going Dutch Leaves Gnosis ICO Investors Unhappy

What was supposed to be one of the most highly anticipated ICOs for the cryptocurrency space this year disappointed many. How this ICO went wrong is a lesson for the slew of others in the works.

In less than 15 minutes, Gnosis raised $12 million in one of the most highly anticipated ICOs of the year. The raise caused the predictive platform’s valuation to soar to $300 million.

Sounds great, right? Well, not so much.

Since the ICO was held in April, investors and observers have taken to message boards, social media and they have turned to anyone who would listen, to volley a tirade of complaints about the deal.

Chief among the complaints is how that lofty $300 million valuation was achieved. It wasn’t because a high percentage of the tokens were sold. To the contrary, only about four percent of the tokens were sold.

So, what happened to the remaining percentage of tokens?

That’s just one of the head scratchers stemming from Gnosis’ deal. That, coupled with the many other complaints, caused us to go back and review the wake Gnosis ICO left in the cryptocurrency investment space.

We scoured as many sources as we could to find out what was liked and detested about the Gnosis deal. Armed with this information, you can determine if ICO investing is right for you.

Some background

In April, Gnosis set out to raise tokens (GNO) to fund the completion of its network. Thanks to the ICO, it will use the Ether it received from the GNO tokens to do just that.

Those participating in the sale sent Ether to the token sale contract, and then received GNO tokens back.

The goal was to raise 250K of Ether. Gnosis hit that goal in about 12 minutes. To put that into perspective, most offerings can take days, even months to reach the goal. At the very least, it takes a few hours.

Doomed from the start

When determining how to structure its ICO, Gnosis decided to go against the grain. Instead of issuing the tokens on a basis so that their values increased over time, it chose a structure that did the opposite.

It’s called the Dutch Auction. Choosing the structure was pivotal because it’s where Gnosis’ ICO problems started.

Dutch auctions are a way of pricing offerings so that the initial price, in this case tokens, is steadily lowered until all the tokens are gone. The intention was to allow more time for investors to buy up the tokens.

That didn’t happen. People piled on immediately and bought the tokens up in the record setting 12 minutes.

There was no prolonged period to allow for people to bide their time to get in. If you weren’t ready at the moment the auction began, you likely walked away empty handed.

It’s worth noting that Gnosis reportedly did not add any cap on the amount of tokens that its team would receive, which is unusual for ICOs.

Instead, it scheduled the ICO to end once $12.5 million was raised, or nine million GNO tokens were sold.

Clearly, that did not sit well with many people. Even some Gnosis officials have acknowledged the outcome of the deal wasn’t what they’d wanted because they went Dutch.

A Reddit poster wrote:

“What a shame the Gnosis project had to go this route. It really does permanently sour the token. Extremely poor foresight by the Gnosis Dev team on this.”

The numbers

For savvy investors, the numbers related to who ended up with GNO tokens aren’t surprising. To novice investors, it’s almost infuriating.

Some findings are that of 700 to 800 addresses that participated in the ICO, $5 million came from just two addresses.

Yes, two.

Those familiar with offerings like Gnosis’ understand and expect that majority of a deal will be taken down by the “heavy weights.” The little guys, or individuals, are left with the scrapings, if anything at all.

While this is not unusual, it caused many to take to the Internet and blast the GNO deal.

Also, irritating was the fact that Gnosis retained 95% of the tokens at the deal’s closing, and that in theory, that meant Gnosis’ team retained about $288 million of the valuation.

When no other word will do, use Scam

The most disgruntled of investors decided to sum up the Gnosis deal as a scam. They didn’t like how any of it transpired.

The thought that 40% of the ETH invested in the deal came from just two transactions and that the company retains most of the valuation will never sit right with these people.

Still, some level heads prevailed, such as a Reddit poster who stated:

“The Dutch auction model worked as expected. Investors acted irrationally. That however doesn't mean it's a "scam."