Thursday, August 14, 2014

A Different Kind of Crowd Sale: AngleShares AGS Campaign

After last week's post on Ethereum and SwarmCoin I was tipped off by BitSharesHub to another interesting crowd sale: the BitShares AGS Campaign.  There are several facets to this presale, enough for two weeks of content.  This week I will focus on the crowd sale itself.

Structure

The structure of the crowdsale itself was very novel.  Strictly speaking you weren't buying anything, but you were making donations.  Based on the donations amount you would receive an appropriate portion of the tokens. I'll leave the legal analysis for the lawyers on that one.  That wasn't the novelty, the novelty was the distribution mechanism as well as the piggybacked BITX sale.

The sales itself resulted in two separate token issuances, one for BitShares AGS and one for BitShares X.  The distinction is quite involved, and their FAQ has all the details.  Shares were sold for both Bitcoin as well as ProtoShares (PTS).  This analysis only deals with the bitcoin side of the equation.

Bitshares has also been very transparent with their use of the donations received.
BitShares BTC Spent
This chart shows the cumulative amount of BTC spent from the donations address.  Each and every one of these downward dips in the chart is explained on a google docs spreadsheet.  The largest one day drop is the result of moving 2,200 BTC into cold storage.  The addresses for these cold storage draws as well as all other expenses are documented on the sheet so the shareholders can easily verify the cold storage is still there and that the other expenses went to the intended addresses for the intended amounts.

The chart of received funds shows a varied level of interest based on what was available for sale.  For the most part, the AGS shares were sold from 1 Jan 2014 (block# 278062 or so) to about 18 Jul 2014 (block# 311410 or so).  BitShares X were sold as part of the same crowd sale, but only up until 28 Feb 2014 (block#288406 or so).  Based on this overlapping offering the donations were front loaded:
BitShares BTC Received 
This chart shows only received bitcoin and does not include any of the spent funds. The bend in the curve occurs almost exactly at the moment the BitShares X tokens were snapshotted for distribution. You will also an uptick in the days leading up to the snapshot, corresponding to the announcement of the cutoff date, and then the buy rate levels off at a rate less than the initial sale period, which it sustains almost until the end.

Compare this to the cumulative coins received for SwarmCoin:

SwarmCoin BTC Received 
About a third of the SwarmCoin sales occurred in the first few blocks of public availability.  There was a slight uptick near the end but nothing like that initial wall of sales.  To me there is a rational explanation for this behavior: there was no distinction made in the SwarmCoin sale between bitcoin spent on the first day or bitcoin spent on the last day, all donations were equal during the public sale. 

The BitShares sale was structurally distinct, they paid out shares on a daily basis.  So a coin spent on day one or day two may have different values.  Based on this structure spending twenty coins on one day of the sale was almost certainly worse share wise than speeding one coin on twenty different days of the sale.  And many traders leveraged this specific "buy daily" strategy.  The would set up a pool to buy with and spend that over a number of days, either until they ran out of money, they lost interest, or the crowd sale ended.  Here is one transaction tree that showed one trader spending a fixed amount of coins from the same address on each day until the address was emptied.
Representative Daily Buy Tree
Many traders used this technique, as there are several of these towers in the transaction graph.  This is one of the shorter trees, and there are several some longer ones. I thought that this was one of the most interesting finding of all, that a particular trading strategy can be demonstrably and conclusively shown from blockchain data.

Conclusion

Usually when you do IPO type offerings you have pick two of the following three characteristics:  the total value raised, the total number of shares released, and the timeframe of the sale.  The SEC makes you attempt to hit the first two within a certain range, and fixes the last one to be a single point in time.  The market almost immediately shows how broken that thinking is, often by rewarding institutional investors. Mostly because one of the few reliable ways to comply with regulations is to engage in a "road show" of these institutional investors so you can establish the parameters and hit them.

Bitshares I feel made a good compromise to this structure by fixing only the total coins released and taking a unique spin on the timeframe of the sale. By allocating shares on a rolling basis the investors can be more sure of the size of their stake without the uncertainty of a long purchase window.  The downside is that when there is a material event that occurs during the sale (in this case the BITX snapshot), the value of the shares can take significant shifts to the downside as well as the upside.

This isn't my only significant finding.  Next week I have something so share that I found in the transaction graphs that is even more interesting than the "buy daily" trading pattern.

Also, if there are any other blockchain "events" you would like me to examine, send me a tip to my email (danno.ferrin@shemnon.com) or to my twitter account (@Numisight).  Currently I am only equipped to examine the bitcoin blockchain, but a particularly juicy tip may motivate me to improve my tooling.