The recent Gnosis and BAT ICOs have drawn much needed attention to the problem with current ICO terms and strategies.
We have seen a huge demand for ICOs which has resulted in absurd valuations and/or a largely centralized distribution. This trend is unhealthy for the ecosystem and does not benefit developers or the general community. The unique benefit of a crowd-sale to generate a network effect of evangelists with a financial stake in the success of the project is somewhat limited by a structure that favors short-term speculative investors and whales.
The solution is fairly simple, though perhaps not obvious. By standardizing the ICO funding model using the following terms we should see much better results.
1. ICO contracts should remain open for a set duration of time or until the goal is reached. Whichever event occurs second.
2. ICO contracts should implement both a gas price and transaction amount cap rejecting any transaction that is sent above those limits.
3. Tokens should be distributed based on the proportion of total amount of ether raised.
4. If excess ether is raised beyond the fundraising goal, it should immediately be burned.
With these terms everyone has an opportunity to participate in the ICO so there should not be a huge spike in price when the token reaches exchanges, this reduces the incentive for scalpers to purchase tokens with the sole intention of flipping them as soon as they become listed on an exchange. Without this incentive, users should only participate in the ICO if they believe in the project fundamentals and want to hold for a significant period of time.
The gas price and transaction size limits make it difficult for a whale to quickly capture a large portion of the fundraising amount and simultaneously discourage other investors due to the value going down as the cap is exceeded. A user can still submit many transactions but must pay additional gas fees proportionally to what they purchase and they cannot pay to prioritize how quickly their transactions are processed.
By burning excess ether beyond the fundraising goal rather than refunding them we create a functional market for participation in the sale without market irrationality concentrating an irresponsible amount of Ether with a single project.
The more Ether that is burned effectively raises the price of the tokens for all participants regardless of order, therefore the Investors are incentivized to contribute small amounts immediately, and incrementally add additional ether until the cap is met to get the best possible deal.