Civic's Secure Identity Platform (SIP) provides access to identity verification services that give businesses and individuals the tools to control and protect their identity. Individuals can access identity verification services by downloading the Civic App and setting up their digital identity by verifying their personally identifiable information (PII) with a trusted third party.

Additionally, Civic is spearheading the development of Identity.com, a decentralized identity ecosystem that will be completely open sourced, opening up access to secure, trusted identity verification services to people around the world.

The Civic token

Civic introduced a Civic token or CVC as a form of settlement and governance for participants in Identity.com. The user approaches a Requester to use a service or purchase a good. The Requester sends the user a list of Validators it accepts and the PII required. If the user has the required PII attested by a Validator, that is acceptable to the Requester, then the user selects to share that Validator's attestation with the Requester.

If the user does not already have a suitable attestation, then they will be asked to approach an acceptable Validator with unverified PII. Once the Validator is satisfied with the authenticity of the PII, it will attest to the accuracy of this information. This attestation, or digital fingerprint of the PII, is recorded onto a blockchain and the original PII is stored on the user's mobile device in an encrypted form.

The Requester and Validator mutually agree on a price for the attested PII. Once the price has been agreed, the Requester places CVC tokens into an escrow smart contract and the user sends the PII to the Requester. Once the PII attestation is received, the Requester inspects it and, if acceptable, provides the user with the desired service. In turn, the CVC tokens are released from the escrow smart contract and the Validator is paid in CVC. Therefore, Requestors pay for verification services with CVC, Validators are rewarded with CVC, and users are rewarded for sharing their information:

Figure 2: The interaction between users, "Validators," and "Requestors" in Civic's model (https://www.civic.com/wp-content/uploads/2018/05/Token-Behavior-Model-May-16-2018.pdf)

The use of CVCs provides several advantages over an existing token or cryptocurrency. Firstly, it shields the ecosystem from extraneous considerations, such as volatility observed in other cryptocurrencies, and secondly, it makes it possible for the community to manage incentives to better control and drive the benefits of the ecosystem.

In its June 2017 token sale, Civic created one billion tokens: 33% were allocated to be sold to the public at $0.10 each, 33% were allocated for distribution to incentivize participation in the ecosystem, and 33% were allocated to the company. There was no bonus, meaning investors couldn't get more by purchasing early. In fact, this was prevented by a queuing system, where a random number was assigned to participants regardless of the order in which they arrived:

Figure 3: Civic's token sales terms (https://tokensale.civic.com/)

A bonus often helps to build momentum and attract buyers. Without a bonus structure, there is more risk that not all the tokens will be sold. To mitigate that risk and ensure that all 330 million tokens were sold, Civic held a presale for large buyers, with the provision that one-third of the tokens, or 110 million, would be available for sale during the token sale. This meant that if all 110 million tokens were purchased in the main sale, only 220 million would have been purchased in the presale. The idea here was to ensure that Civic received a much broader base of supporters to help kick-start the network. If, for some reason, Civic hadn't sold the full 110 million token allocation, then the bigger buyers would have effectively agreed to buy the difference. This meant that there were two ways that Civic's goal of ensuring all 330 million tokens were sold could be achieved. Clever!

Lingham explained Civic's strategy:

"We're creating a fixed supply of 1 billion tokens. We are pricing them at $0.10 each. We felt that we needed enough tokens to power the smart contracting system for years to come and we could go to 2 decimal places for fractional smart contract execution. 1bn felt like the right number — no crazy scientific reason here".

(https://vinnylingham.com/the-vanity-headline-is-not-the-goal-introducing-the-civic-token-sale-3675b883fb05).

Civic announced that it had over 10,000 purchases and all had to be identified via Civic's own KYC (Know Your Customer) process, using the Civic App (https://www.ccn.com/civic-token-sale-concludes-earlysuccessfully-with-33-million-raise/). The goal was to provide the little guys with an even playing field against the big guys. The more people using CVCs, the better. That is why Civic aimed for broad adoption and support. In its own words, the company was chasing results and adoption instead of vanity headlines, such as being able to raise tens of millions of dollars in a matter of seconds.

Civic also kept the token price simple and straightforward throughout the process, at $0.10 USD. So, in the end, there was no complicated math for token allocation based on what day or week the tokens were purchased on, and most importantly, there were no discounts, which can often attract a different kind of buyer. These buyers are often speculators who do not plan to be users of the system and tend to dump their large holdings for profit shortly after the ICO.

At the Consensus 2018 conference in May, Civic debuted the world's first anonymous age-verifying beer vending machine in partnership with Anheuser-Busch InBev, the world's largest brewer. The vending machine displayed a QR code and anyone with the Civic App, that had verified their identity, could prove to the vending machine that they were over the age of 21.

Figure 4: The Civic vending machine on display at Consensus 2018

Although this was just a proof of concept, it was a user-friendly demonstration of Civic's identity verification protocol and just one of many potential use cases for identity verification services. Based on partial-knowledge proofs, the ability to anonymously perform age verification opens up new possibilities. This process is and will continue to be free for the end users, while Requesters are the ones responsible for paying for identity verification.

One year after its token sale, Civic's platform includes secure login, a reusable KYC solution and ID codes, a secure relationships verification service that enables anyone to securely verify a business, advisory, or investment relationship. Civic is also rapidly expanding its partner ecosystem with over 90 so far (https://www.civic.com/solutions/partners/).

The road ahead includes enhancing security capabilities and lowering barriers to entry, such as making transactions using fiat currency an option.

Kyber Networks also had no bonus structure. What it did have was a very cumbersome registration process. There was so much demand for its token, though, that it still met its cap of 200,000 ether, resulting in $48 million USD raised in 24 hours. Users had a seven-day window to be whitelisted. Whitelisting meant signing up to Slack, Telegram, or Wechat, which meant providing an email address, along with a full name, and other personal information. The next step was that the user had a 10-day period to register by going through a KYC process. A passport or national ID had to be provided to ensure one email and one Ethereum wallet address was linked to one real-world identity and that no one could game the system and register multiple times.

Figure 5: Kyber Networks' token purchase process (https://blog.kyber.network/kybernetwork-public-token-sale-901b3e7f5457)

What was interesting about the Ethereum ICO was that over the 62 days that it ran for, the price of bitcoin dropped from about $618 USD to $398 USD. This is a 36% drop in value. This meant that those who invested at the very last minute, ended up paying about the same rate of $0.33/ETH as those that invested early.

This highlights two important points. Firstly, the volatile nature of the cryptocurrencies being collected in an ICO can play havoc with the expected calculations and secondly, the duration of the ICO plays a part as well. The longer the duration, the more exposure to potential volatility, in both directions of course.

Ethereum is unique in that there is no finite limit on the total supply of ether, unlike bitcoin. Bitcoin has a maximum supply of 21 million bitcoins, of which about 17.19 million are currently in existence as of August 2018 (https://blockchain.info/charts/total-bitcoins). The current supply of ether is 101,106,416 as of August 2018 (https://etherscan.io/stat/supply). The number of ether created at its inception started at around 20% and drops in a non-linear fashion. This means that it drops approximately 4% in the first year, 3% the following year, 2% after that, and it keeps getting smaller for subsequent years (https://docs.google.com/spreadsheets/d/150B9eytmjZ642tYD0jSdFZQHldmk7VG5Wm3KVctydpY/pubhtml).

It was assumed that eventually the annual loss and destruction of ETH would balance the rate of issuance, so that a balance or equilibrium would be reached. Ethereum, however, likes to throw the proverbial spanner into the mix and is pondering a consensus model change from the energy intensive Proof of Work to Proof of Stake, which has been given the nickname "Casper." It also has this concept of a difficulty bomb dubbed "Ice Age", which slows down the block creation process at certain times. Add to this an April Fools' 2018 joke from Ethereum co-founder Vitalik Buterin:

"In order to ensure the economic sustainability of the platform under the widest possible variety of circumstances, and in light of the fact that issuing new coins to proof of work miners is no longer an effective way of promoting an egalitarian coin distribution or any other significant policy goal, I propose that we agree on a hard cap for the total quantity of ETH. I recommend setting MAX_SUPPLY = 120,204,432, or exactly 2x the amount of ETH sold in the original ether sale." (https://github.com/ethereum/EIPs/issues/960).

Buterin then clarified in a tweet that it was a meta-joke, but some in the community took this seriously.

Figure 7: Buterin clarifying in a tweet that his proposal to limit the supply of ether was a meta-joke (https://twitter.com/VitalikButerin/status/980744740277661696)

Tezos took a leaf out of Ethereum's book and also had an uncapped ICO. Note that Tezos is an Ethereum competitor! The Tezos white paper gave an explanation:

"Following the example set by the Ethereum Foundation, there is no cap on the amount of contributions that will be accepted by the Foundation. This is done in order to ensure that participation is not limited only to insiders or the "fast fingered". The Tezos development team believes that an uncapped fundraiser will promote a widespread distribution of the tokens, a necessary prerequisite to launching a robust network." (https://www.tezos.com/static/papers/Tezos_Overview.pdf).

However, a counterargument could be made that Tezos did not have a specific goal in mind. There was no budget, no forecast, and no plan. Aware of this, Tezos did include a financial forecast with the heading if the foundation is endowed with… and provided scenarios of $6 million USD, $12 million USD, or $20 million USD. Above $20 million USD, it planned to offer student grants for conducting projects related to the Tezos ecosystem, and even more creatively to negotiate with a small nation-state the recognition of Tezos as one of their official state currencies, which would immediately give Tezos favorable treatment in terms of financial regulation (https://www.tezos.com/static/papers/Tezos_Overview.pdf). Attempt negotiation to purchase or lease sovereign land. (https://www.tezos.com/static/papers/Tezos_Overview.pdf).

Needless to say, with $233 million USD raised, this was significantly over the $20 million USD project, so it sounds like Tezos will be purchasing land if it ever gets through the legal issues and can access its funds!

Being uncapped also meant that the potential number of Tezos tokens in circulation is limited only by investors' willingness to participate. Scarcity is not an issue here but abundance is, along with the risk of overflooding the market with tokens when they hit exchanges, which they will.

While some entrepreneurs love the idea of having a war chest of funds and their names all over the media for being the next "largest" ICO, it can also show a lack of discipline. How many companies really need $100 million USD at the outset? With this negative perception of uncapped ICOs, capped ICOs became the de facto standard.

A soft cap is the minimum needed for a project to proceed. This is typically determined by a project's budget and a forecast of the required funds to bring the product or service to market. The term "soft cap" is actually quite misleading because it is not actually a cap as such. A more accurate term would be a "minimum threshold" or a "minimum goal." If it isn't reached, then the project will shut down and return all the raised capital to the investors. Not all ICOs do this and some proceed with the project regardless of the capital raised. Some projects enter what some call "life support mode", where a decision is made on whether to continue, pause, or dismantle the project.

Veredictum was one such unfortunate ICO that had a soft cap of $2.5 million USD or 7,752 ETH, which it did not reach in September 2017. It then issued a blog post on how investors could reclaim their ETH.

Figure 8: Veredictum missed its soft cap and refunded ETH back to its investors

A hard cap is the absolute maximum an ICO will take. If reached, the ICO finishes and excess funds are returned to investors. Positive aspects about having an upper limit are that there is not an excess of investors and it creates scarcity. The investors that missed out will be eager to buy the tokens when they are made available on an exchange, for instance, and a hard cap that is reached often leads to a price increase when it is listed on exchanges. If all the investors were catered for then there is a potential for excessive selling or a "dump" when a token is listed, as investors attempt to realize short-term profits.

There is no exact science when picking a hard cap compared to a soft cap, but it does depend on the project needs. There are some general rules, though. Firstly, specify the hard cap before the launch. This figure must remain fixed to protect the token's integrity. This means that more tokens should not be created, even if it is programmatically possible to do so. Secondly, don't set a hard cap too low or else your project could be strapped for funds in the future. Thirdly, it is important to justify the amount of funds required, typically in the white paper.

The core issue with hard caps is that they tend to create an undesirable stakeholder distribution if they are reached too fast. For open-source or open-community projects, the founders will benefit from a wider distribution of ownership, with a lower average stake. Wider community-owned tokens create stronger network effects, which grow faster and are highly desirable for projects. Unfortunately, a hard cap or maximum limit naturally prevents these desirable distributions. Hard caps on popular projects create a first come, first served competition, where "whales" or large investors gobble up the majority of the supply and lock out the smaller players.

Most ICOs did not initially require identity verification or even have limits on the transaction size itself, allowing large investors to do as they pleased. In fact, those ICOs without KYC found that they could not convert their cryptocurrencies raised to fiat currency because of banking regulations. To combat the problem of not having a limit on the transaction size, maximum contribution limits were placed for each transaction. Whales then had to buy in lots of small tuna chunks! While this may be a pain, it can be easily circumvented by automating the purchase process.

Another option was to place a maximum contribution limit per transaction, plus a maximum contribution per block. For example, on the Ethereum network each block takes around 20 seconds to confirm. One could place an artificial maximum of $20,000 for every 180 blocks. 180 blocks represent one hour and therefore the contribution limit becomes $20,000 per hour. This is like a time delay for the whales, but it is still not a particularly strong deterrent.

A proportional structured ICO is an option, such as the one performed by Augur. Augur created 11 million tokens, of which 80% or 8.8 million tokens were distributed in what it saw as a fair and equitable manner. Augur called it a live action model, where the bigger the contribution, the more tokens were received proportional to everyone else. An example would be to imagine a pie with 8.8 million slices (http://augur.strikingly.com/blog/the-augur-crowdsale). That is either a really big pie or it has lots of very thin slices! If the first contributor, say Alice, paid $1 or the crypto equivalent, she would own all 8.8 million pieces. If the second person, say Bob, contributed $2, he would get twice as much as Alice. In this case, it would be 2.93 million for Alice and 5.87 million for Bob. It is basically a primary school fractions calculation.

To take the Augur model one step further, a proportional refund scheme is yet another option. Here, a maximum cap is designated where everyone contributes as much as they want. At the end, a refund is provided in proportion to how much the cap was exceeded by. For example, if the cap is $10 million USD and $20 million USD is received, then everyone gets half their contributions back. If $50 million USD was received by five people at $10 million USD, $15 million USD, $12 million USD, $8 million USD, and $5 million USD, it means that five times as much was received. Therefore 1/5th of everyone's contribution will be accepted and 4/5ths will be refunded.

OmiseGo experienced an enormous demand for its token and ended up increasing its overall hard cap from $19 million USD to $25 million USD, with its presales cap at $21 million and $4 million sold using other pre-funding platforms (https://www.omise.co/omisego-crowdfunding-structure-update).

Aragon provided a presales transparency report where, interestingly, it didn't specify a minimum purchase but a maximum one. Institutional buyers were allowed to contribute the equivalent of $40,000 USD in ether, while personal buyers could contribute up to $10,000 USD in ether. For liquidity purposes, ShapeShift was also allowed to purchase an additional $20,000 USD in ether.

Aragon received contributions from six buyers during its presale, totaling 2,719 ETH, the equivalent of $170,000 USD. The buyers were CoinFund, ICONOMI, ShapeShift, Joe Urgo, Daniele Levi, and an anonymous Ethereum founding member.

The presales conditions were at a 20% discount and had a six-month vesting schedule, with a three-month cliff.

Aragon then employed the concept of a hidden cap in its ICO. The argument here was that an uncapped ICO would allow as many community supporters to invest as possible, but a security cap was required as a safety measure to avoid the ICO getting out of control. Therefore, a hidden cap was created, which was effectively a soft cap.

In conjunction with this, there was also a maximum hidden hard cap that was baked into the contract as a fallback mechanism. This essentially put an explicit limit on the amount raised, regardless of what happened to the hidden cap. This hidden hard cap was subsequently revealed to be 275,000 ETH, which was roughly $25 million USD.

The hidden cap was only known to the Aragon founders, Luis Cuende and Jorge Izquierdo, and was designed to incentivize small buyers. The logic here was that the whales needed to know the cap in order to be able to determine how many tokens were required to control a sizeable amount of the market. By hiding this important piece of information, a more even token distribution could be achieved.

When the ICO was about to start, the team realized that with large transaction volumes queuing up on the Ethereum network, sending a transaction signal to reveal the hidden cap was required at the start of the ICO (https://www.reddit.com/r/ethtrader/comments/6bqnhf/aragon_ico_cap_released_275k_eth_21m/?sort=old). If they sent the signal later, the signal transaction would have been stuck in the processing queue, causing potential havoc.

Aragon produced a useful circulating supply chart that showed the various vesting periods and how they would affect the supply. The initial circulating supply was 33 million ANT, with a one-month cliff for advisors and those who participated in the presale. About five months after the ICO, on November 11, 2017, advisors' and presale tokens would fully vest. This date would also represent the first cliff for founders. Founder tokens would fully vest 18 months later.

Figure 9: The Aragon circulating supply with vesting indicators (https://blog.aragon.one/the-aragon-token-sale-the-numbers-12d03c8b97d3)

The Aragon ICO ended with 2,916 transactions and 2,403 unique buyers, which Aragon believed achieved an even token distribution. While two and a half thousand contributors was a commendable amount, this paled in comparison to the likes of Status or Kyber Networks, that achieved over 20,000 contributors. Having said this, they both raised substantially more: $90 million and $48 million respectively.

Status used the idea of a dynamic ceiling in its ICO in an effort to prevent large contributors dominating and favoring smaller contributors. A dynamic ceiling was a concept where only a maximum amount of funds would be accepted over a particular time interval. It was analogous to a series of miniature hidden hard caps.

Status set the first hard cap at 30,000 ETH, which was approximately 12M CHF (Swiss Franc) at the time (~$12 million USD). This was intentionally large and made known to incentivize large contributors. This meant that Status could make one large transaction and incur less transaction fees. Subsequent hard caps were lower, meaning that large purchases were be rejected and investors had to break them down into smaller purchases for the transactions to be accepted.

A maximum upper limit of 300,000 ETH was set as the hard ceiling or maximum contribution amount.

The Status ICO was an obvious success, raising $90 million, but the verdict is still out on the dynamic ceiling model. By Status' own admission, it doesn't see this model working in the future and to date, it hasn't been replicated elsewhere, at least not to the extent seen with Status.