DISCLAIMER: The purpose of this article is to explain how Coin Machine works in theory and the parameters of the $CLNY sale on Coin Machine. Participating in any token sale, including this one, is risky. Proceed with caution. This article is for informational purposes only and is not financial advice. Do your own research.
Coin Machine is a new kind of token sale mechanism which seeks to find a fair market price for a new token by selling limited amounts of tokens in fixed-price batches, adjusting prices up or down in between sale periods based on recent demand.
Think of it like a continuous series of hard-capped micro-ICOs in which token price is determined by performance in prior sales: if demand for the token is high, then the price will increase, if demand decreases as price increases, then price will decrease to attract more buyers.
Coin Machine sacrifices continual availability and real-time price adjustment for the simple semantics of fixed price and fixed supply, thereby also sidestepping the challenges of price manipulation, volatility, and front-running.
Specifically, Coin Machine takes the following parameters: a target and maximum number of tokens to sell per period, as well as a period length (i.e. hour, day) as well as a number of periods to use as a price averaging window. Coin Machine then sells up to the maximum number of tokens per period, but adjusts the prices based on the target number of tokens.
In this way, if more than the target number of tokens is sold each period (representing high demand), the prices will adjust upward. Alternatively, if fewer than the target number of tokens are sold, the prices will adjust downward. If exactly the target number of tokens are sold each period, prices remain constant, while the length of the averaging window determines the volatility of price over time.
$CLNY sale key facts
The sale will start at 12:00 UTC on 14th December 2021 and run until all 20m CLNY have been sold. This will take a minimum of 40 hours, but as explained below, in practise we expect it to take longer.
Coin Machine will sell wrapped CLNY (wCLNY). CLNY needs to be wrapped so that we can prevent it from being transferred while the token sale is ongoing. Once the Coin Machine sale has concluded, wCLNY may be unwrapped so that it can be freely transferred.
Parameters of the $CLNY Coin Machine
Token to be sold: wCLNY
Purchase token: xDai
Batch Period Length: 1 hour
Each batch of the sale will last one hour. If the tokens of a batch sell out, it will be necessary to wait for the next batch to begin.
Averaging Window Size: 16 periods
This is the number of periods over which the moving average of the token’s price is be calculated. In the long term, 86% of the weighting is in this window size. The higher the number, the slower the price will be to adjust.
Target per Period: 250,000 wCLNY
This is the number of wCLNY Coin Machine will be aiming to sell per hour. If it exceeds this target, then the price in the next batch will increase, if it does not reach the target then the price in the next batch will decrease. The amount of the increase or decrease is a function of the amount by which the target has been exceeded or missed in the preceding 16 periods (i.e. the averaging window size).
Maximum per Period: 500,000 wCLNY
This is the maximum number of tokens that can be sold in a period.
Per user purchase limit: 5%
The maximum % an individual could purchase would be 5% of 20m, so 1m CLNY. They would need to do this over a minimum of two batches due to the maximum per period.
Starting Price: 50 XDAI
The starting price. In a Coin Machine sale there are several initial price strategies one could take. We have chosen to start with a price we think is very high, and hope and expect that the price will fall until the market does its thing and finds a fair price.
DO NOT FOMO in immediately!
Many of you will have participated in other sales in the past where you must get in ASAP in order to either get any tokens at all, or to benefit from the best price. There is no benefit in buying early in a Coin Machine sale configured as described above.
To make the token sale as safe and fair as possible, and in particular to avoid price manipulation and front running the sale will initially start with a very high price of $50 per CLNY which equates to a $10bn fully diluted market cap ($50 * 200m CLNY). The price will then start falling until the market discovers a price it believes is appropriate.
Furthermore, there will be many batches available: CLNY will be sold over a minimum of 40 batches, and will be in price discovery for the entire duration of the sale. Hence, there is no need to FOMO in! As there is no guarantee whether the price will go up or down at any particular time, there is no advantage to buying at any given moment in the sale. Simply wait until you see a price you like.
Here are a few hypothetical examples of scenarios which, while unrealistic, help illuminate how the mechanism works.
Scenario 1: No Demand
If nobody buys the token, it falls in price. Price falls fastest at the start. It is designed to start at a very high price so that whales and bots do not have an advantage in front-running everyone else. This makes token distribution much fairer.
Scenario 2: FOMO in at the start
In this scenario, a gorilla (or several chimps) has aped in hard at 50, pumping up the price. However, assuming there isn't a neverending supply of apes, the mechanics of Coin Machine then cause the price do drop again. Again in this example we show no demand after the initial purchase in order to demonstrate the price progression. This shows that apes have little to gain from FOMOing in early as the price isn’t guaranteed to rise.
Scenario 3: Steady Demand
In this scenario, price falls until the market finds its perfect price. In this case, the perfect price means that Coin Machine sells precisely the target number of tokens (250k) every hour until all of the tokens are sold, and as a consequence the price does not move up or down and everyone receives the same price.
- Sale start date: December 14 @12.00 UTC
- Place of the token sale: https://xdai.colony.io/colony/meta
- Registration/KYC: open now until December 14
- Initial token price: 1 CLNY = 50 xDai = 50 USD. (To repeat, this is a deliberately high price to enable price discovery, and not the price at which we propose people should purchase CLNY.)
- Accepted currency: xDai