FIMO stands for Fair initial miner offering.
And it’s a novel way to launch a token.
You may previously have heard of an IPO, an ICO, and maybe even an ISPO.
As in 2021, Cardano pioneered the phenomenon of the ISPO. It stands for Initial Stake Pool Offering. Here, delegators could stake their ADA and exchange their rewards for the new token. Notable projects to use this approach were MELD, SundaeSwap, and OccamFi.
And most of these projects were able to raise massive amounts of capital to fund their ventures.
With the advent of smart pools this is possible. As all payments, block rewards, etc are processed via smart contract, it allows projects to distribute tokens to miners participating in a given smart pool.
The smart pool and the project’s sub pool can then have a fee associated with it so that the miners are giving up a portion of their rewards to get early access to the token.
In this way, projects can bootstrap initial liquidity for the token to launch on a DEX and also raise capital for development and other needs the project might have.
HOW DOES A FIMO WORK?
We’ve had a chance to sit down with one of the developers from GetBlok.io who very succinctly explained how a FIMO works:
“Every time GetBlok mines a block, the block reward is taken and sent to an emission contract. The emission contract holds a pre-set amount of token in it.
Every time a block reward is spent with it, some portion of the block reward is taken away and sent to the project doing the FIMO.
At the same time, some amount of tokens are emitted according to the pool’s emission settings. The left-over ERG and the newly emitted tokens are sent to what’s called a holding contract. The holding contract ensures that it cannot be spent unless it’s paying out miners within the pool.
Once payment time comes, the holding contract box for that block reward is spent in a transaction to create a bunch of “command” contracts that are used to insert, update, and payout balances within the Plasma based subpool.
These command contracts are very strict and can only be used to add balances to each miner in the pool. Once the command transactions are run, miner’s will have either received a payout containing both ERG and the FIMO token (if they hit above their min. payout), or their ERG+TOKEN was placed in the pool’s box along with some data that records the miner’s new balance (if they were below their min. payout).”
WHAT ARE SOME KEY ASSUMPTIONS AND CONSIDERATIONS WHEN DOING A FIMO?
As this is a new way of doing things, there are a number of assumptions that need to be taken into account:
1. Miners want to sell to keep their operation running.
When doing an offering like this, especially in a bear market, it’s important to make sure that miners are incentivized to participate.
In an ISPO, you stake your ADA and just collect the rewards over time. When the ISPO period is over, the project pays out the accrued tokens.
Basically free “tendies” for all parties involved.
On a proof of work chain, especially in a bear market, most miners will not be able to mine at a loss for an extended period of time. That’s just the reality of economics.
So when considering making a FIMO under these conditions, a project should consider dividing a FIMO into stages.
How many stages is up to the individual project, but a project should consider having an initial stage that bootstraps liquidity for a DEX launch, thereby giving miners an option to take some profits.
Of course, this will add sell pressure on the token, but this is a necessary step in the incentive process. If you intend to hold the miners profits hostage for 6–12 months, the chances for success seem greatly diminished.
2. How much should it cost to participate in a FIMO?
Again, since all of this is uncharted territory there’s no sure-fire way to do this yet.
In our research, we’ve concluded that the best option is to give miners a choice on how much of their block reward they want to give up.
It could be as simple as 25%,50% and 100%.
We did a poll on our Twitter and 59% voted that 10–20% would be preferable.
One should take into consideration that this was posted before the Ethereum merge and there was massive uncertainty on how the markets would react to the event.
Now that we see what the fallout is, sentiment might have changed.
Since there is no precedent for this type of fund raising process, the first movers will have to see what happens and let others build on top of the knowledge that’s learned from it.
3. The question of vesting schedules.
As with any project, tokens distributed should be subject to vesting schedules.
Especially for the founders of the project. The events of the 2021 bull-run showed us that rug pulls and scams were abundant. Partly because of shady founders, opaque practices, and unauditable code that locked tokens.
Founders should not be arbiters for the price of a project. Code should keep them honest.
Given the nature of ERGO, it is easy to put a certain amount of tokens allocated to founders in a box that has specific spending conditions.
This could be something like the following:
X percentage of allocated tokens can only be spent until Y amount of blocks have been found.
You thereby have a publicly visible contract that creates spending cliffs, so supporters can make their decisions, fully in the know. And this is easily put in a whitepaper, so backers can do their own research before participating.
Technically, this could be made for miners participating as well, but for the reasons above it should be considered to have a different schedule for them.
CLOSING THOUGHTS
There’s an incredible amount of innovation going on in the Proof-of-Work space, and it will be amazing to see what kinds of things will be built during this bear cycle.
These are just our non-exhaustive thoughts on the FIMO concept.
If you have questions or feel we missed something, then reach out to us on socials.
Until next time.
