One of the more popular trends to emerge in the past year is the ICO bounty program, which rewards users and community members for participating in a variety of activities that help push development and marketing forward. ICO bounties are excellent ways to foster a larger and more engaged community, but they can also be a costly endeavor depending on the extent and reach of the program. Moreover, some industry observers have questioned the real-world value of such programs on the tokens they’re meant to support.
Recently, Element Group, a full-service advisory firm that works with digital capital markets, performed a study to determine how effective ICO bounties truly are when going past the anecdotal evidence available online. Their research model studied over 160 ICOs and found some interesting signs that bounties may be here to stay, and for good reason. Regardless, the study does prompt important questions about ICO bounties and how they may look and act moving forward.
Adding Value To The Community
The argument for ICO bounty programs is that they are an easier way to create goodwill and build organic word-of-mouth reach as they involve not a pricey marketing machine, but rather community members themselves. Bounty programs are multi-faceted and cover a variety of bases for an ICO, ranging from social media and blog posts to Telegram communications and even bug reporting. The goal is to reward community members who participate with tokens, providing companies with a cost-effective strategy for reaching broader audiences.
Moreover, bounty programs can be cleanly characterized in pre-ICO and post-ICO categories, giving companies different tools at each phase. Until now, it has been commonly accepted that these programs do add some value. Even so, there are some risks in the process, and ways that the system can be abused by both community members and companies themselves.
Regardless, Element Group, which offers a variety of services for tokenized companies, wanted to understand the real impact of an ICO bounty program on a company’s fundraising performance over the long term. Thanks to their blend of advisory and research services, the company is uniquely positioned to understand the phenomenon. In their initial scan of the sector, Element found anecdotal evidence of increased awareness for ICOs, as well the possibility of improved funding as a result.
To test their initial findings, Element built a model based on stratified sampling that selected 164 ICOs between late 2017 and early 2018. Excluded from the sample were companies that raised under $1 million and those whose bounty allocations were under $10,000. They also ignored companies that placed a disproportionate number of tokens (over $1 million), as they are generally considered outliers. The goal was to find a correlation between dollars spent on bounties and the amount of funding raised during the ICO process.
ICO Bounties Represent An Effective Tool
Element Group’s findings are surprising, though they do fall in-line with the company’s predictions. In its first pass-through, Element’s model found a positive correlation between dollars spent on ICOs and the total amount raised. The findings were shocking, however, in terms of their scale: the model predicted that $1 dollar allocated to bounties resulted in a $15 increase in the total amount raised.
After concluding that the results seemed too high, the company excluded more outliers from the second iteration. They removed larger ICOs with more internal resources available and added a hard cap limitation to their regressions. Finally, they removed companies that had $0 listed as their bounty allocation. Even with these more restrictive parameters, Element still found a highly positive correlation.
Per the company’s analytical model, a $1 investment in an ICO bounty program translates roughly into an additional $7.70 for the total amount raised. More impressive than the figures themselves was the level of precision with which Element was able to forecast the final amount raised by ICOs simply by analyzing how many tokens were allocated to bounty programs. To test its model, Element examined several ICOs and found that it could predict the amount of capital raised with a high degree of accuracy.
For instance, CREDITS (a cryptocurrency focused on reducing transactional friction) raised $20 million during its token sale, which Element was able to predict within $260,000. The company had similar success predicting several other token sales’ funding, including Expertly (accurate within $400,000) and OriginTrail (which surpassed the prediction by $3 million).
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Correlation Is Not Causation, But It Is Enlightening
The company is quick to note that while their results show correlation and not causation, the model does display some inner workings of ICOs more clearly. For example, Element uncovered evidence that a more vibrant and active social media community, especially on Telegram, points toward a higher likelihood of a successful fundraising drive. Similarly, placing articles in top industry publications also signals success, as it provides strong and reliable exposure.
More than the particular findings, however, the company’s test validates one of the newer and more controversial tactics ICOs have employed to improve their chances of a successful sale. While the results represent only the tip of the iceberg in efforts to explore the matter further, they do point in promising directions for blockchain startups. By focusing on creating a vibrant and active community, ICOs can improve their likelihood of success, and set themselves up for better longevity.