IDO Launchpad 101: What is a Crypto Launchpad?
Thought Leadership
What is a crypto-launchpad, and what is usually the indicator of a good one? Questions to be answered by a launchpad Co-Founder, Eric Hung Nguyen, with the explanation of why he views launchpad investment as a home run game.
From the birth of Bitcoin in 2009, digital tokens now reach any field and aspect of our lives, serving much more utility than just a “digital currency.” By 2022, there are more than 12,000 crypto tickers in the market and growth of roughly 1,000 new projects each month. With no barrier, the crypto world is now wide open for anyone involved.
Parallel to the crypto ecosystem’s expansion is the evolution of the crypto fundraising method, the main topic of today’s discussion — crypto launchpad and Initial Decentralized Offering (IDO). We actually did not have such third-party services from the primitive day of crypto. Throwback to 2017, early crypto investors were familiar with ICO — Initial Coin Offering, when all the fundraising was project-operated on their website. The exchange platform then led the market from 2019 with IEO — Initial Exchange Offering, before the launchpad system and IDO dominated the crypto fundraising industry by late 2020.
As an investment bank trader and hedge fund manager, the crypto ecosystem’s whole transition is fascinating to look at. Since 2017 when I was first introduced to crypto and blockchain, I believe this will be a cornerstone of the next stage of our society’s evolution. To the point that I decided to quit my 6-figure job, deep dive into this space, and end up operating a crypto launchpad.
This article series is where I can share my viewpoint about the crypto world, specifically the crypto launchpad business that I am a part of. Hopefully, it can support the crypto journey of whoever is reading this piece. To all my friends and loved ones, this is dedicated to you, too.
What is a launchpad business?
A simple explanation for rookie investors: launchpad is a matchmaking platform where new crypto projects and investors meet. The new projects need initial capital to bootstrap the product, so they offer investors early access to the sales of tokens. On the other hand, investors benefit by buying the token earlier, believing that its price will take off after trading opens. Launchpad, as a matchmaker, hand-picks promising candidates to introduce to their own community, offer a meeting venue (its platform), and gets a commission fee when the deal is successfully closed.
Suppose you are familiar with the traditional financial market. In that case, it is most straightforward to think of a crypto launchpad as an investment bank, and buying IDO is like investing in an IPO of an early-stage company. IDO is also the first time that an average retail investor can get access to the token sale before the project officially hits the market. In the crypto world, we call it before TGE — Token Generation Event.
As a retail investor, it is best to look at the launchpad as a financial product with 2 key components. First, you must buy the launchpad’s token and commit to stake it for a certain amount of time. Second, in return, you get access to an allocation of token sales. Each launchpad has its own tier system to ration the allocation of the token sales amongst stakers. Yet, the general rule of thumb is the more you stake, the more IDO allocation you can access.
Actually, very few crypto projects rely on their core budget on public round funds. Instead, launchpad fundraising is viewed as a marketing exercise. Since each launchpad has its own community of investors, distributing a small number of tokens to them before trading is a way of raising awareness and creating hype.
What determines a good launchpad?
When evaluating a launchpad, the most apparent parameters are the All-Time-High average return (ATH trading price ÷ IDO price) and current average Return-Of-Investment (Current trading ROI ÷ IDO price).
Personally, I do not see the ATH return as an excellent measurement of whether a launchpad or a project is decent or not. That ATH ROI does not apply to most IDO buyers since typically you cannot sell at the “roof”. Besides, a sudden peak second after its listing does not promise us that the project can thrive in the long run. Looking at the top 10 launchpads by ATH ROI, 4 experience over -33% in the average current ROI, which means if you buy all of their IDO deals and keep them until now, your account is at 33% loss.
Nowadays, the “fast dumper” mindset is restricted by the vesting schedule, which generally means the token you buy at IDO will be given to you in a small amount over a period of time. Investors then must commit to the project and care more about the sustainability of what they fund. This is why I look at the current ROI as a more accurate measurement of a good project/ launchpad. The above charts show the outstanding performance of the DAO Maker launchpad with 158.8% of current ROI, which indicates that if you bought all 99 IDO projects they launched and held onto them, you have 158.8% profit on your total account.
Why is launchpad a game of home runs?
If we put the return distribution of DAO Maker side by side with that for US venture capital, they look surprisingly similar. The performance of a launchpad also fundamentally depends on a few outstanding projects that produce outsized returns. I call it home run wins. The only dissimilarity is that the skew is much more significant in the crypto market. As an IDO participant, it means that no matter how many strikeouts you have in the previous ones, a good home run will save the day.
If so, what should an investor do?
Since IDO return is a numbers game, there are two options for an IDO hunter. Either you are very confident in picking the right ones that deliver the outstanding return or participate in as many as possible so you do not miss out on the home-run one. Accordingly, a good launchpad may not guarantee profits on every launch but is the one that brings you projects with the capability of home-run hits.
We should think of a more holistic way to examine the return opportunity of a launchpad. As mentioned, each launchpad requires a different number of staking costs in return for a limited amount of IDO allocation. Thus, not only the launchpad average ROI that we should consider but also the staking benefits of each. Since this one is quite packed, I will explain my detailed methodology for this proposal in the following article.
References:
Launchpad performance charts and statistics reproduced from cryptorank.io, snapshot on 14 May 2022.
Graham A, ‘Three Core Principles of Venture Capital Portfolio Strategy’, Investment and Fund, Toptal, viewed 9 May 2022, <https://www.toptal.com/finance/venture-capital-consultants/venture-capital-portfolio-strategy>.
About the author: Eric Hung Nguyen is the co-founder and CEO of Spores Network, established in 2021, and now operates as a multi-function blockchain company in Launchpad, Incubator, GameFi/ Metaverse Publisher, and Venture Capital. The company currently incubates and owns several games and metaverse studios, with a diversified investment portfolio of over 30 web-3 start-ups in GameFi, metaverse, infrastructure, DeFi, and entertainment.
He started his career as a trader and hedge fund manager at Nomura and Elliott Management — one of the world’s largest hedge funds, before exploring the potential of blockchain in 2017. Eric strongly believes that blockchain will greatly transform human society through borderless integration of our digital and physical lives, decentralization of ownership, and the redistribution of wealth.
About Spores
Spores’ mission is to create a GameFi/Metaverse Publisher — incubating, launching (IDO, IGO, INO), and operating NFT stack projects — that is creator-centric, community-driven, and borderless engaging entertainment IP and corporate brands.
Spores Metaverse ecosystem encompasses physical and digital experiences (phygital) that generate community engagement and revenue through our NFT aggregator marketplace, Republique gallery and retail experience, and cross-chain metaverses.
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