#dao-tool #deep-dive ## **What is an ISPO?** ISPO is short for **initial stake pool offering**. It is one of the **ways** for a **crypto project** to **raise funds**. **Note:** * This mechanism is specific to Proof of Stake blockchains (Cardano, Solana, Polkadot, Tron, etc.) * The ISPO mechanism was popularised in the Cardano ecosystem. ### **Important Terms:** * [SPO: Stake Pool Operator](https://cardano.org/stake-pool-operation/) * [Proof of Stake](https://www.investopedia.com/terms/p/proof-stake-pos.asp) * ADA (Native currency of the Cardano blockchain) * [Dex: Decentralized Exchange](https://www.coinbase.com/learn/crypto-basics/what-is-a-dex) * Single Stake Pool Operator (one stake pool - one operator) * Multi Stake Pool Operator (multiple stake pools - one operator) --- ## **How does an ISPO work?** * The crypto project that is conducting the ISPO selects a stake pool/pools. * Reward percentage is decided (50% ADA + 50% Reward Tokens, 100% Reward Tokens, etc.) * ADA holders can delegate their stake to the pool/pools. * Delegators earn rewards based on the size of their delegation, blocks minted by the stake pool, and other factors as decided by the Stake Pool Operator. * Usually rewards are distributed every epoch but may vary from ISPO to ISPO. (Fact check needed) **Note:** In short, the delegators are exchanging their staking rewards for the token being offered. ## **Further Reading on setting up an ISPO: https://academy.geniusyield.co/guides/ispo ## **Example of ISPO: MELD** To participate in the MELD ISPO, investors were needed to delegate their ADA to the MELD staking pool, and 100% of the ADA rewards go toward supporting the MELD project. The investors, on the other hand, receive MELD tokens during the launch.   Reference: https://cointelegraph.com/funding-for-beginners/ispo-101-a-beginners-guide-on-initial-stake-pool-offerings ------ ## **Why ISPO? ### Advantages: * Tokens are offered in return for staking funds and not exchanging them * Delegator funds are not locked * Helps in network decentralization * Flexibility in reward structure * Serves as a tool for Community Building/Marketing Disadvantages: * Funding time period is longer * Doesn't encourage long-term staking * The credibility of the stake pool needs to be considered * Multi-pool operators can be picked for the ISPO ________________________________________________________________________ ## **Legal Considerations: In many countries people are restricted based on their income or profession from investing in startup companies, which are deemed too risky for most unsophisticated investors to understand.  In the United States, an [accredited investor](https://www.investor.gov/introduction-investing/general-resources/news-alerts/alerts-bulletins/investor-bulletins/updated-3) has to have an earned income of $200,000 (or $300,000 if married) in each of the prior two years, a net worth that exceeds $1 million (excluding the primary residence), or be a professional investor by having certain licenses.  Many countries have similar requirements.  In these countries, most of the population could be legally restricted from buying the utility tokens of Cardano-based startups. Since all participants interact with the blockchain protocol, which pays them the rewards, participants are usually not restricted from participating in any ISPO based on current regulations.  However, the projects retain most of the delegators’ ADA rewards and in return give delegators their dApp’s native token. Since the ISPO is a decentralized method of fundraising, it has not been held to the same regulatory requirements of similar traditional finance methods.  This question on regulatory compliance for ISPOs could change in the future. Reference link: https://academy.geniusyield.co/guides/ispo --- ## **Alternate Funding Mechanisms:** * [**IDO: Initial Dex offering**](https://coinmarketcap.com/alexandria/glossary/initial-dex-offering) Works by offering tokens in exchange for liquid cash * **IEO: Initial Exchange Offereing** Offers investors with registered accounts coins on an exchange market. * **ICO: Initial Coin Offereing** Enables new projects to reach investors through white papers. The investor benefits when the project's coins increase in value over time and reach more individuals. * [**FISO: Fair Stakepool Offering**](https://docs.minswap.org/faq/fiso) Uses algorithms to dispense tokens among the delegators in a fair manner. ## **Useful Links:** Funding for Beginners: https://cointelegraph.com/funding-for-beginners/ispo-101-a-beginners-guide-on-initial-stake-pool-offerings Recommended Read (ISPO): https://academy.geniusyield.co/guides/ispo