Словник

Initial Stake Pool Offering (ISPO)

The Initial Stake Pool Offering (ISPO) is a comparatively new crypto fundraising method exclusive to the Cardano ecosystem.

What Is an Initial Stake Pool Offering?

Crypto fundraising methods have undergone a notable transformation in recent years to introduce more convenient and accessible processes for developers and investors alike. Initial Stake Pool Offering (ISPO) is a promising new fundraising model that offers more advantages than the IDOs, ICOs, and other existing models.
The Initial Stake Pool Offering (ISPO) fundraising model is unique to the Cardano ecosystem. It allows project developers to start staking pools where ADA token holders stake their tokens. For each staking pool, developers can set variable margins, collect rewards, and in turn, pay the stakeholders with their project’s utility tokens. The greater the stake in a pool, the higher the likelihood of it being selected as a validator node for the next block.
However, the major difference is that, unlike other models, which require investors to buy, sell, or exchange one token to buy project-specific tokens and stake them. The ISPO model allows users to use the ADA token they already hold. Instead of staking ADA in Cardano’s proof-of-stake (PoS) ecosystem, users stake those tokens in the project’s staking pool to earn the project’s native token as a reward. 
Compared to other funding options, an ISPO is more secure for investors. It is less risky because users are just giving up their ADA rewards to receive project-native rewards. The staked ADA is still theirs, and it stays in their personal, non-custodial wallets. Additionally, there is no lock-in period in an ISPO. Users not only retain full control over their assets, but they can also enjoy the flexibility of using their ADA as they want, be it unstaking, selling, trading, using the ADA to buy NFTs, or anything else.

How Does an ISPO Work?

Let’s consider an example to illustrate how an ISPO works. 

In general, Cardano stake pools use the PoS (Proof-of-Stake) consensus mechanism. Hence, the network relies on network validators to verify transactions and produce new blocks. Validators are effective ‘nodes’ or stake pools that allow users (delegators) to stake their funds. 
Powered by the Ouroboros protocol, the network chooses the staking pool with the highest amount of stakes to distribute validator rewards. So, after every epoch (which is five days in Cardano), validator rewards in the form of ADA are divided among the delegators of the winning staking pool based on the amount of ADA staked by each user.

With the ISPO model, delegators (users) stake their ADA in staking pools that project developers create. The staking pool with the highest stakes becomes a validator node in a block and ultimately part of the Cardano network’s consensus. 

However, when users stake their ADA tokens in these pools, they don’t receive ADA rewards. Instead, they receive rewards in the project’s native token. The ADA rewards that would have been ideally distributed among the delegators are instead delivered to the operator of the validator node itself.

Author Bio

Ryan Matovu, the founder of Ardana - Cardano’s decentralized stablecoin hub, is an early adopter of blockchain technology. Ryan studied Mechanical Engineering degree at the University of Warwick and has hands-on experience in blockchain technology, trading systems, Python, and smart contracts, among others. Ryan (and his team) are spearheading the efforts to make DeFi accessible for all.

Connect with Ryan on LinkedIn.