ISOs and Airdrops
A new tool just appeared in the ecosystem, manifested by the folks at Sundae Swap. It’s the “ISO” ( initial stake offering.) And, like the NFT, it’s a concept that gets more interesting the more you wrap your head around it.
The idea of the ISO is this: A stakepool’s would-be rewards payouts to ‘delegators’ (aka normal ada holders who ‘stake’ their savings) instead funds a project, which in return mints tokens to air drop to delegators. Delegat
For detailed background on Sundae Swap and why they’re building a ‘dex’ (decentralized exchange, like Uniswap or Sundae Swap) on Cardano, I recommend the Big Pey interview w Pi from SS.
After Sundae and the concept of the ISO started building a buzz in the cardano community, Sundae made an interesting decision NOT to do an ISO. The volume of the ISO buzz was set to push a lot of delegators to the pool, which in turn would risk saturating the pool (lowering the rewards) and creating strong incentive for sundae to spawn new pools to absorb new delegators and maximizing the air drops for delegators while bringing in more and more ada to the project. The tokens’ utility will take time to build up, there is only so fast a project can grow, and it was perhaps too much hype and too much initial cash flow for the project to handle. With buzz comes expectations, and if those expectations aren’t managed, there’s a risk of building ill will towards a project.
There is a way that an ISO can “throttle” the cash flow. In a given epoch (rewards payout period which currently turns over very 5 days), the pool operator could decide to deliver ordinary rewards instead of tokens. But this creates a scenario where the project is using up more of its resources operating stake pools rather than doing what they set out to do, which could slow things down for them.
We will see where Sundae goes with the project, but I would have to agree with Pey that it is a positive sign that— after introducing us to the idea of the ISO— they took a hard look and decided the ISO was not the right avenue for them at the moment. This took a level of discipline and foresight that the Cardano community loves to see.
Some of my initial thoughts about what ISOs bring to the ecosystem:
With ISOs, projects launching on Cardano enjoy yet another decentralized funding mechanism besides Project Catalyst and traditional token sales (like NFTs). On top of the jewel of funds from IOG (Input Output Global, the parent company behind Cardano’s development), the Cardano Foundation (the non-profit), and good old fashioned investment from outside the ecosystem. It’s incredible to think about how these diverse sources of funding wil spawn revolutionary projects, bringing so much value to the cardano ecosystem, ada-holders and the world.
The ISO simplifies the process of obtaining native tokens for the average Ada holder. Air drops are great, who doesn’t love seeing new tokens pop up in their wallet. When someone comes into possession of a token, they are more likely to look into accumulating other tokens.
The ISO may encourage higher rates of delegation. Ada holders delegating to stake pools is the backbone of security for the ada network. Normal annual staking rewards hovers around 5%. Traders looking to make better than 5% returns on their ada keep their ada liquid on exchanges. Successful ISOs that follow through and bring value to the ecosystem will no doubt air drop tokens that far exceed 5% on the aftermarket and may attract those playing the market to pull their ada off the exchange and instead delegate it to an ISO. This aftermarket will, in turn, spread tokens outward beyond those delegating to the ISO stake pool which distributes utility and creates a network effect of adoption for the project doing the ISO.
On the flip side, we can expect an initial onslaught of scammers launchig stakepools, airdropping tokens which have nothing backing them, projects showing up with fake teams, all the things we saw in the ICO mania in 2017-2018. Hopefully the “wild west” of ISOs on Cardano will be short lived. Watch as the ecosystem finds ways to put pressure on ISO issuers to be transparent, show progress, prove that they have skin in the game.
Will we see a bubble in ISOs? I think maybe. Like we saw in NFTs. But these early spikes are just an indication that something big is on the horizon. And like IOG and its partners did for Cardano, the cardano community will step up and build, methodically, steadily to make cardano the most useful, reliable, secure, low friction blockchain ecosystem in the world.
Long Live the ISO!