Initial Stake Pool Offering (ISPO)

An ISPO is an innovative and secure funding mechanism in the blockchain space, offering enhanced safety and accountability compared to traditional methods such as Initial Coin Offerings (ICOs) or Initial DEX Offerings (IDOs).

Originating from the Cardano ecosystem, the ISPO concept was first successfully implemented by MELD, capturing significant attention with $600 million delegated at its peak (1 billion ADA).

Mechanism

In an ISPO, participants do not directly exchange fiat or other tokens for project tokens. Instead, they trade their staking rewards for project tokens, effectively trading immediate returns for a stake in the project's future potential. This mechanism is exclusive to proof-of-stake blockchains, where staking is integral to the network's operation.

Project teams set up and maintain validating nodes on their chosen blockchain. These nodes validate transactions and earn rewards based on the blockchain's staking logic. Participants, or delegators, stake their tokens to these nodes and receive staking rewards. The node operator, in turn, can apply a "tax" on these rewards, which is higher than usual, in exchange for the project tokens.

This model not only incentivizes early involvement but also ensures that participants are backing a project with real, ongoing utility and commitment.

Security Features

The ISPO model offers several security features and benefits that make it more attractive and less risky than other funding mechanisms:

Technical Competence: Projects must demonstrate their ability to set up and manage nodes, requiring a high level of technical knowledge and commitment.

Skin in the Game: Projects must invest significantly in node infrastructure, operational costs, and minimum stake requirements, ensuring they have a vested interest in the success and longevity of the offering.

Reduced Risk for Participants: Unlike ICOs or IDOs, participants stake their tokens without investing actual funds, reducing their financial risk.

Long-Term Engagement: ISPOs typically unfold over an extended period, reducing the likelihood of large, sudden sales or "rug pulls". This extended timeframe also encourages ongoing interaction with the community, fostering trust and transparency.

Implementation Example: MELD ISPO on Cardano

MELD conducted its ISPO on the Cardano blockchain by running two types of nodes:

- 100% Fee Allocation Nodes: These nodes offered 2 MELD tokens for every 1 ADA staked per epoch.

- 50% Fee Allocation Nodes: These nodes offered 1 MELD token for every 1 ADA staked per epoch.

The ISPO spanned 32 epochs (160 days), with MELD maintaining a significant pledge across multiple nodes to secure and stabilise the offering. Participants could also earn bonuses based on the duration of their stake:

- 1-9 epochs: 0% bonus.

- 10-19 epochs: 8% bonus.

- 20-29 epochs: 15% bonus.

- 30+ epochs: 25% bonus, plus a "Diamond Hands NFT" for sustained support.

Shortcomings Observed During the ISPO

Node Soft Cap Limitations: Due to a soft cap of Cardano nodes, MELD had to set up multiple pools to accommodate the demand for the ISPO. This opened the door for scammers to create fraudulent pools that impersonated legitimate MELD pools, capturing staking rewards from unsuspecting delegators.

Wasted Stake Above the Cap: Once the soft cap was reached, additional delegation did not generate extra rewards, rendering those stakes ineffective. Projects then faced a dilemma to either: (a) withhold token rewards, risking community dissatisfaction; or (b) distribute rewards anyways, leading to financial losses - defeating the purpose of the ISPO.

Communication Challenges: ISPO awareness had to rely heavily on marketing and/or word of mouth. Cardano's pool descriptions did not provide an easy way to convey detailed information about the ISPO, leaving many potential delegators uninformed.

No Lock-Up Mechanism: Cardano's staking mechanism allows ADA to be staked and unstaked instantly, limiting the project's ability to incentivize long-term investment.

Addressing the Shortcomings onMELD

Lock-Up Mechanism: MELD offered staking options where users could lock their stake in exchange for a higher reward percentage from block rewards, incentivizing long-term investment.

Flexibility with Locked Staking: To address concerns about locked staking, MELD allows delegators to maintain full control over their staking decisions. Even with a locked staking position, participants can move their stake between different pools, whether they are ISPOs or non-ISPO staking pools. This flexibility ensures that delegators can adjust their investments as needed, without being locked into a single choice, providing greater freedom and confidence in their staking strategy.

Unlimited ISPO Node: MELD set up a dedicated ISPO node without a hard cap, eliminating the need for multiple pools and reducing the risk of fake third-party pools. It also eliminated wasted stake from delegators. Furthermore, it ensured that all the rewards were given to all delegators without a project risking a financial loss.

Simplified Delegation Process: With only one functional node for the ISPO, the process was streamlined, simplifying participation for delegators and improving the management of communications and reward distribution.

Enhanced Visibility: MELD made these ISPO pools clearly visible in their staking interface, improving transparency and ensuring that delegators were well-informed when choosing where to stake their MELD. It also made it easier to track key details, such as the number of delegators, the amount staked, and the duration of each delegator's involvement, which in turn streamlined the "bookkeeping" process ensuring more efficient reward distribution.

The above approach ensures that ISPO pools are clearly marked, allowing delegators to easily identify and compare different pools. This makes it simple for those specifically looking for ISPOs. MELD further enhances this by providing a concise summary of the ISPO directly on the node page within the MELDapp, streamlining the comparison process. This increased visibility not only benefits delegators but also helps projects more effectively raise awareness about their offerings.

What's Next for ISPOs

The DEGA ISPO marks the first ISPO hosted on MELD.

Launched on 8th March 2024, and running for 37 epochs until 9th September, 2024, the DEGA ISPO has already shown significant success. Within the first month, DEGA achieved 150 million MELD delegated, allowing the MELD community to earn DEGA tokens while DEGA benefits from their MELD staking yield.

This early success highlights the strong potential for future ISPOs on MELD.

Stake Pool Name: DEGA ISPO Stake Pool Ticker: DEGA1 Stake Pool Address: https://app.meld.com/staking > AVAILABLE POOLS > DEGA1 Stake Pool Status & Progress: Rewards Dashboard

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