On the line for 16 days, the lock warehouse is 1.6 billion. Why is the ILO so bad?

Suddenly, ILO (Initial Lock-up Offering) is on fire! The token distribution model of this lock-up airdrop is accelerating every day to attract more funds. Taking Edgeware as an example, according to Dapptotal data, the project has now locked 856,000 Ethereum, valued at about 230 million US dollars (nearly 1.6 billion yuan), up 5 times in 7 days. Behind a fiery hot, Babbitt will explore why the ILO is actually burning? Does this model work?


Edgeware lock position (data source: Dapptotal.com)

The same IXO family, but ILO and ICO are also different

Although the name also belongs to the scope of IXO, ILO is very different from ICO and IEO. Participants in the ILO project lock a certain amount of cryptocurrency (often ETH or BTC) in the smart contract provided by the project party. After a certain period of lockout period, the user can obtain the token of the project party's airdrop, or retrieve it. All tokens for locked positions. It can be said that the user's investment is not his own ETH or BTC, but the opportunity cost of this part of the principal during the lock period. However, the ETH and BTC of the lockout do not actually generate additional revenue. The project-side token is also based on the investor's expectation of “out of thin air” to generate value, so the ILO and ICO are not fundamentally different.

However, the underlying value of the project token seems to have a certain benchmark – that is, the opportunity cost of the user's principal. Conservative calculation of opportunity cost, if the principal is deposited into BlockFi, a well-known American cryptocurrency lending company, users can get an annualized 6.2% return. Therefore, the value of the token on hand is calculated, and the user can easily understand the approximate income.

On the line for 16 days, the lock warehouse is 1.6 billion. Where is the ILO project attractive?

Obviously, the most obvious feature of ILO is the capital preservation (the investor's principal can be taken out of the smart contract at any time after unlocking, unless the smart contract is broken). Although the legend of the 100-fold project is often circulated in the encryption investment market, high returns necessarily mean high risks. Many investors often greet the fate of “cutting”, and hundreds of thousands of admissions leave thousands of pieces. The stories abound. Therefore, the capital preservation investment will attract a lot of investors' attention. The low-risk investment model actually fills a gap in the encryption investment market. The reason is that the blockchain investment community Axonomy CEO Tao Quming said in an interview with Babbitt:

"The two major currencies of BTC and ETH are not widely used in POS Staking. The threshold for users to pledge or lock is relatively low."

At the same time, Tao Quming believes that the project's own attractiveness is also a major factor. Boca has always been a high-profile star project in the cross-chain field, and the $230 million Edgeware on the 16-day lock-up is the first parallel chain of Bokaqin. It has its own aura, and in another mode, it may still Will be welcomed by many investors. Conversely, if the project loses its appeal or the prospects are worrisome, investors can also withdraw in time.

Of course, low risk often only brings low returns, so this model can only meet the needs of some investors, and the willingness of large households to participate may be stronger than that of small ones. Tao Quming told Babbitt that the current users of ILO are generally more geek users, especially some big BTC and ETH, for them, they can get a new project with low opportunity cost.

The heat is skyrocketing, and the ILO economic model is not reliable?

For the user, the ILO sounds great, after all, the principal is not at risk. Take the Edgeware project as an example. 90% of the project's tokens are allocated to investors who participate in the lockout, and only 10% are reserved for the project side. The project is progressing smoothly, and ordinary investors can enjoy most of the benefits from the growth of the project. However, it should be noted that the ILO project token is in fact the same as ICO, and there is no endorsement of value. The project still has the risk of being cool and cool. Although the loss is only the opportunity cost, the risk of loss is very large.

Pan Chao, head of MakerDAO China, believes that:

“ILO is a seemingly valuable ICO, and it’s really just a wealth screening for investors.”

As far as the model itself is concerned, in addition to the restrictions on the lock time, the users participating in the lock position have no obstacles to unlock and withdraw. Once the project faces great difficulties and the investors unlock a large amount, it is easy to trigger the effect of “snowball”. The amount of locks often represents the investor's confidence in the project side. Because the seller's pressure in the circulation of the token is very large, the price drop caused by the decrease in the lock volume is likely to trigger a “selling”.

Of course, from another perspective, these pressures may be a good thing for projects that actually do things. Since there is no hope of "pull", then concentrate on development and work hard. The project is really well done, and naturally there is no need to worry about these issues. The price of tokens will also rise, and even attract more people to lock the warehouse to participate in the entire ecology surrounding the project.

However, it is worth noting that from a professional investment perspective, ILO seems a bit weird. In general, the early risks of the project are extremely high, and investors need to take on high risks to obtain high returns. In the ILO, many investors want to invest in high-risk projects in a low-risk way to achieve high returns, which is not in line with investment logic.

Babbitt consulted many professional investors in the industry and found that most of them are not optimistic about this model. ILO essentially does not conform to the seesaw theory as ICO and IEO. The so-called seesaw theory is the threshold for the financing side and the investor, one end is low, and the other end is high. For example, the threshold of the main board and the small and medium-sized board is very low. Any adult can open an account, so the threshold for listing is very high. The listing conditions of the GEM are lower than those of the main board and the small and medium-sized board, and the threshold for opening an account is relatively high. The threshold for digital currency investment and financing is not high, and high-risk financiers are mixed with risk-free investors. Such a financial financing method is against the law.

In fact, the ILO project has a precedent. In April of this year, AEX Exchange launched the ILO project PLD, users get the project token by locking the AEX platform currency, and the basic gameplay is similar to EDG. After experiencing a 5250% surge in opening, PLD quickly fell after a few days and quickly fell 90% from its high point. The gameplay can be constantly innovated, but in the end, the fundamental question remains, can the project itself not work?


Source: AEX Exchange