Follow-on Token Offerings
A crypto-native secondary token and liquidity offering model based on bonds
Follow-on Token Offering (FTO) is a new way to raise capital and liquidity for Web3 projects — DAOs, DeFi protocols, and other Web3 initiatives — after initial token offerings.
FTO relies on a modular bonding curve, a mathematical formula to set a relationship between the price and supply of tokens. See more for bonding curves. The general principle behind the FTO model is that tokens are sold at a discounted price in exchange for being illiquid for a certain period. This crypto-native initiative came from much-respected OlympusDAO bonds. Olympus-like bonds, such as Bonds-as-a-Service Bond Protocol, serve crypto projects to raise capital from the market, helping to diversify the treasury, acquire strategic assets, own liquidity, and generate LP fees.
The current financing problem
However, there is a giant gap in the market where most Web3 projects that seek financing after ICO don’t know what bonds are and how to use them. That’s why we’re adapting a primitive bonding system specialized for token offerings context, and branding as a “Follow-on Token Offerings”.
FTO is a growth-stage secondary token offering model that uses a simple bonding curve with a sequential Dutch auction mechanism. Buyers deposit capital upfront at a discounted price in exchange for vested tokens released fully at the maturity date. So, for being vested, they acquire discounts.
How does FTO work?
The auction starts at a pre-determined discount rate and starts decreasing linearly with the purchasers. The more bonds drive demand, the more the discount rate is decreased linearly, creating economic competitiveness for market participants.
FTO Schedules and Pricing
FTO markets are based on their sale schedules — registration periods, staking, public round, and vesting periods. The registration period is a timeline in which investors sign an on-chain message, verifying their willingness to participate in the auction. The staking round is for $OPN stakers, in which better discount rates and allocations are offered to $OPN stakers as a demand driver. Normally, 100% of the bonds are preserved for $OPN stakers. The resource allocation policy is that the more/longer you stake $OPN, the larger the allocation. Then, if there are any unsold tokens, those tokens will be opened to the public, where anyone can participate in the sale at the remaining discount rate from the previous round. Then, finally, according to the discount rate, linear vesting (vested in unit time) will be applied according to the following principle. The more discount is applied, the more vesting terms. A 0% discount results in no vesting, whereas a 20% discount results in around 20-day vesting.
FTO Pipeline Example
Example FTO Sale Pipeline
- 1.KYC: Private investors need to complete their KYC due to regulatory reasons.
- 2.Staking $OPN tokens: $OPN tokens are staked to access FTO and accumulate allocations.
- 3.Registration to FTO: Sign tx to verify you’re participating
- 4.Staking Round: Most likely a 3-day long period for $OPN stakers to deposit accepted currencies to get project bonds.
- 5.Public Round: Unsold tokens, if any, will be sold publicly without the need for staking and registration. However, KYC is needed.
- 6.Vesting Period: Everyone’s vesting terms may differ according to the discount rate they acquired in between 0-30 days.
- Initial discount rate: 20% of the market price
- Total sale amount: $1M (Total Bond Value)
- Deposit Currency: BUSD, USDT
- Vesting Terms: Maximum of 20 Days (corresponds to 20% discount) vested linearly in unit time
Note that this is not a permissionless service offered by OpenPad Labs; instead, we’ll be allowing only vetted Web3 projects to utilize bonds and connect with capital suppliers.