In part 1 of this post I made a case for why the Nxt platform and its successor Ardor platform are important Blockchain technologies and serious competitors to Ethereum. I also explained the relationship between the NXT, ARDR, JLRDA and IGNIS tokens. In this post, I will summarize the ICO rules from the last post with some additional new information deduced from the newly posted whitepaper, and do a deep-dive analysis of the ICO. Keep in mind that this is not investment advice and I am not a professional investor. I am simply attempting to give some insights into the types of things you may want to consider if you plan to participate.
Facts of the ICO Structure
As explained in the previous post, the details of the ICO are listed on the Jelurida website (the company responsible for development of Nxt and Ardor platforms). Here are the facts in bullet point form:
- There will be 5 rounds each of which attempts to sell ownership of a fixed supply of IGNIS coins at a fixed price which increase per round.
- Each round will last the shortest of one week or until the assigned supply for that round is sold out. The round details and their assigned amount are as follows:
| Dates | Supply | Price in NXT |
|---|---|---|
| Aug 05 - Aug 12 | 60,000,000 | 0.40 |
| Aug 26 - Sep 02 | 80,000,000 | 0.55 |
| Sep 09 - Sep 16 | 100,000,000 | 0.76 |
| Sep 23 - Sep 30 | 100,000,000 | 1.05 |
| Oct 07 - Oct 14 | up to 100,000,000 | 1.45 |
- If any round sells out its assigned supply before its scheduled end date, the scheduled start date of next rounds are not affected.
- If any supply is left at the end of any round, it will be added to the supply of the next round. (For rules on how any leftover IGNIS at end of ICO will be distributed see last bullet points below)
- You don’t actually get IGNIS coins during the ICO as the Ardor platform has not been launched yet. Instead you get a “controlled currency” called JLRDA on the NXT platform which represents ownership but is not tradeable. This is done to avoid speculation and manipulation of the ICO price on secondary markets. These tokens will then be traded 1:1 for IGNIS when the Ardor platform launches at the end of the ICO.
- The first round has the smallest supply of IGNIS (60 million) and the best price of 2.5 IGNIS per NXT (that is approx 24 million NXT worth of value or 2.4 million USD at current NXT price of 10 cents). Each round after that will have a progressively worse price.
- The second round starts two weeks after the end of the first round, with a price that is 37.5% more expensive. Each additional round after that will start a week after the scheduled end of the previous round with approximately 38% additional increase in price.
- The last round’s supply is stated as “up to” 100 million at a price of 0.69 IGNIS per NXT. Jelurida may hold back up to 20% of this for promotional and marketing use. This will be in addition to the 60 million tokens that they have earmarked for the development and maintenance of the platform.
- Jelurida will keep as NXT up to 20% (but no more than 40 million NXT) of the proceeds collected through the ICO. The rest will be converted to BTC or fiat at any time of their choosing.
In addition to the above points, Jelurida has now posted an ICO whitepaper with the following information:
- Jelurida will not collect more than 50 million Euros (excluding all IGNIS crowdsale related commissions, marketing, legal and organizational expenses).
- If at any point during the ICO the total amount collected in NXT exceeds €50 million, the remaining scheduled rounds will be cancelled and any NXT in excess of the 40 million NXT reserved for Jelurida will be sold.
- In the event that there are remaining IGNIS at the end of the ICO, if the total NXT collected is worth less than €50 million, Jelurida will keep all the remaining IGNIS. If the total NXT collected is worth more than €50 million, any unsold IGNIS (excluding the 60M set aside already for Jelurida) will be distributed half-half between Jelurida and the Ignis investors (i.e. Jelurida will take half of the unsold IGNIS and the remaining half will be distributed to the investors depending on their IGNIS holding at the time of the Ardor Genesis Snapshot. To be clear that means you either participated in the ICO or you have NXT and you get 0.5 IGNIS per NXT in your wallet.)
Analysis Assumptions
Clearly this is a fairly complex ICO structure and the addition of recent information in the whitepaper has only made things more complicated. In order to proceed with the analysis, let us formalize some assumptions:
(i). Nxt platform is unlikely to survive long after the launch of Ardor Platform. Given the fact that the official developers of Nxt are the same as those of Ardor and the functionalities of Ardor are superior in every aspect, highly unlikely for Nxt to survive much past the launch of Ardor. The Jelurida team has said that they will commit to maintaining this platform for at least a year and up to 3 years, but it is my personal opinion that they are unlikely to maintain this platform more than a year because it is not in their financial interest and it is easy to migrate assets from Nxt to Ardor so there is no good reason not to. The main risk to this assumption is that if something goes horribly wrong with the Ardor launch it could lead to Nxt finding a solid following of more conservative users which somehow figure out a way to keep the platform going.
(ii). The price of NXT could experience a pump in fiat and BTC terms during the weeks before the ICO, and reach a maximum in the days prior to the first round. Given the fact that NXT is the funding currency and that the first couple of rounds have pretty favorable terms, it is likely that many people will try to participate and at least some of those people will not be holding NXT already so they will have to purchase it.
(iii). The price of NXT will experience significant downward pressure as the ICO commences. Since Jelurida will have to sell the NXT for BTC and fiat (they have already said that they will keep 20% but no more than 40 million NXT and convert the rest to BTC or fiat), and since the price of NXT is assumed to drop significantly after the ICO is complete, it is highly likely that Jelurida will start dumping NXT for as long as the NXT price is in line with the expected trajectory implied by the ICO structure (see corollaries below).
(iv). The price of ARDR is likely to be significantly higher than IGNIS after the ICO and only appreciate thereafter. Even though currently the price of ARDR and NXT are almost 1-1, in the long term, the price of ARDR is likely to be much higher than the price of IGNIS as ARDR is the parent child which is responsible for the security of many child chains.
(v). It is unlikely that the ICO will meet or significantly exceed the funding cap. Given the fact that the current market cap of NXT is around $100 million and the funding cap is approximately $60 million USD, and given the fact that many of the IGNIS will end up with existing NXT holders since Nxt and Ardor are relatively under-marketed projects, I do not think this ICO would end up oversubscribed.
Corollaries from Assumptions
1. Note that the last ICO round prices each NXT as 0.69 IGNIS versus if you hold you NXT until the Genesis Snapshot, you get 0.5 IGNIS and get to keep your NXT. This means that the higher bound on the price of NXT is probably around 0.19 IGNIS, meaning at least 82% of the value of NXT should be transferred to IGNIS. In my opinion the price of NXT will end up being somewhere in the range of 4-10% of the price of IGNIS by the end of the Genesis Snapshot and will continue to depreciate until the project shuts down a few years down the line.
2. If Jelurida is responsible, they should try to control the price of NXT on a stable trajectory throughout the ICO. Given the approximately 38% price increase of IGNIS per round, Jelurida should try to liquidate NXT in a way to devalue it by approximately 30% per round. However, this may be very hard or impossible to do given how volatile the crypto-currency market is. Also note that the first round happens to be raising exactly the 60 million Jelurida has said it would keep for itself and is the only round with two weeks of break after it. This is strong evidence that Jelurida is most likely going to liquidate most of their own NXT during, and right after, this round.
3. Given that there is only a week left to the ICO, it is unlikely to be a profitable to buy NXT to participate in the first round. There will be too much upward pressure on the price in the weeks leading to the ICO and there is no guarantee that you will get assigned in the first round. The only exception to this would be if there is a market wide event that depresses prices significantly for no good reason (as is often the case in the cryptosphere) and creates a good buying opportunity.
4. If you don’t hold NXT or ARDR and would like to participate, you should consider holding out for the first round to be well on its way (or even completed) before purchasing your NXT to participate. This is likely a wise move because there will be less hype and there will be downward pressure on the price of NXT as Jelurida starts dumping NXT in favor of USD and BTC. Keep in mind that there is a non-zero possibility that the project reaches the funding cap early, and you may be left out.
5. If you don’t already hold ARDR, you should probably consider putting at least half of your NXT investment into ARDR during the week leading up to the ICO. ARDR is the parent chain and is likely to be much more valuable over time if the platform succeeds. In the time immediately before the ICO, as people start to acquire NXT to participate, there will likely be a short window of opportunity to exchange your NXT for ARDR at a favorable valuation.
6. Shortly after the launch of Ardor platform, the price of ARDR could be as much as 2.5 times the price of IGNIS because ARDR is currently trading at almost par with NXT and theoretically you can get 2.5 IGNIS for NXT in the first round. You should adjust your ARDR-IGNIS portfolio assignment based on your view of this insight.
7. If you already hold NXT (and have "enough" ARDR), it is probably most efficient to try to convert all your NXT to IGNIS during the ICO (ideally in the first round). As the rounds go on - especially in the last round, you may want to consider the tradeoff between possibly keeping some of your NXT for the snapshot if you think the final price of NXT will be more than 19% of the price of IGNIS. Again, I think this is unlikely barring some catastrophic event in the new Ardor platform and its Ignis child chain.
Conclusions
The Ardor Platform’s Ignis ICO is quite complex but overall it seems like a pretty fair approach for both existing investors as well as prospective ones. In this article, I laid out the facts of ICO, made some educated assumptions about the outcomes based on the facts and then explained the corollaries which may follow from my assumptions. Keep in mind that these are just my thoughts and are not meant to be investment advice. Crypto-currency investments are very volatile and risky and my analysis may be incomplete, biased or flat out wrong. However hopefully the logical flow of things are useful to any thoughtful investors out there which are considering this ICO.
A final note about this post: Unfortunately part 1 of this article did not get much love from the community so I was pretty discouraged. If you like this article and found it useful please upvote and leave any comments and questions so I get more motivation for my next post! Thanks in advance!