Avoid this token sale mistake!

...we examined the basic components of a token sale offer.

Token sales use a token generation event (TGE), to create the tokens which are sold to external investors for capital... and to create token funds for a greater range of economic uses as well.

This resembles equity financing, which raises capital by issuing new shares that are also created "out of thin air". But looking at the detail, we saw that TGE funding is actually a radically different financing option for early-stage companies. And that's because tokens are fundamentally different to equity.

Unlike equity shares, tokens are often working assets within the economic process, and in addition, tokens also facilitate early liquidity access that is impossible to attain with equity.

This means that TGE choices have the potential to be much more immediately and directly consequential than an issue of new equity shares... and that gets many founders feeling very excited!

It looks like they get TWO financial assets — money AND tokens — with ONE, single, fundraising deal!

And this is where many of them make a TERRIBLE mistake...

True, they are critical to the token sale, by allowing parties to trustlessly fix important and consequential terms for the token economy.

And yet...! However important those token supply terms are, they are VERY far from amounting to a comprehensive set of rules for good financial management... They offer crude guardrails at best!

And this is where well-intentioned founders trip up.

Many assume that the smart contract controls on supply — signed off by investors and stakeholders in a successful fundraise and listing — are enough. The tokens that those contracts release to them are theirs to 'spend'... and they can count on that.

Spoiler alert: THEY AREN'T.

Imagine that you're part of a blockchain startup.

It's been six months after your token listing, and the first of the company's token allocations finally begins to release!

And not a month too soon either...!

Spending got out of hand, product development is taking longer than anticipated, and the fiat funds were burned through much more quickly than expected.

It was always a lean funding plan to begin with:

And then, just as the plan is about to bear fruit, the markets take a turn for the worse and the value of the project's token plummets with it — no relation whatsoever to what the company had been doing.

Market makers inform you that in this new market environment, you can only spend 10% of the tokens that are now being released to you every month. If you spend any more, the token price will CRASH!

This leaves you all in an unexpectedly absurd position.

Piles and piles and piles of tokens begin to fill up in the project treasury...

They are worth MILLIONS at the market exchange price... and also worth NOTHING at the same time!

Because as soon as you try and spend any significant portion of these token holdings, their value evaporates!

By drawing up a budget that was reliant on token funding early in the project life, your team failed to create a funding plan that was resilient to market shocks.

Errors like this floored so many projects in the last bull run... But the good news, is that there is a really simple way to help you avoid ending up in this kind of situation...

These wise words have long been recited in the hallowed halls of business schools worldwide... well, without the "fiat" part... I've added that here, because it's worth stressing in a blockchain context.

First, it will often be the first time that business owners have been faced with such a situation. Normally, if you have one million USD to hand... you have one million USD to spend! That's no longer true when you are holding market traded assets with limited liquidity and volatile prices!

Second, there's an enduring ideological legacy that sees blockchain's core mission to be the dethronement of fiat currency. By this view, projects that continue to rely on fiat are not really committing to the technology, or its vision. Yet as our story illustrates, devotees of this dogma have not fared well... The fact is that the best of our fiat money has STABLE VALUE properties that most digital assets lack, and we need those properties in order to build viable and sustainable crypto businesses.

Now, to be perfectly clear, I'm NOT saying that founders need to deal with actual physical cash... but they do need to work with fiat-linked STABLECOINS at the very least, and make them the core pillar of their fundraise, startup budget, and treasury management strategy.

So when you plan your token sale remind yourself of the MANTRA and make sure that you...

• Set your fundraising target so you are COMPLETELY COVERED by the fiat capital you raise
• DO NOT make reliance on native token liquidations part of your core, early-stage spending plan

Token supply, allocation, and vesting terms only offer limited controls on inflation and financial management.

The token release schedules should NOT draw the outline of your default spending plan — it is prudent to avoid liquidating tokens for as long as possible.

Plan your fundraise to make sure that your runway is fully funded by fiat-linked capital. And if the planning ever becomes complex or tricky just remember one thing... CASH IS KING... (And blockchain offers no exception!)