What is an Initial Node Offering?

Tara Annison
4 min readOct 21, 2024

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There’s always an initial ‘something’ offering in the crypto space.

At first it was Initial Coin Offerings (ICOs) in 2017/18 where projects would sell their newly created token in exchange for a more established coin, often ETH, in order to raise funds for the project and move away from the more traditional VC model of fundraising. Projects would share their website/whitepaper/roadmap and ask community members who were passionate about the project (or who thought it would result in future token gains) to invest. In total ~$50billion has been raised via ICOs but with a survival rate of just 10% and with 80% of all ICOs being suspected to be scam projects, it’s no wonder that this method of fundraising has fallen out of favour. However in the heady days of ICOs, projects like EOS raised a huge $4bn, Bancor raised $153m and even Ethereum has its history in the ICO model raising $18.3m from their 2014 ICO.

Then came Initial Exchange Offerings (IEO) which aimed to reduce the scam-risk by linking the token to a launch on an exchange, ideally a reputable one, which can undergo both due diligence on the project itself and anyone looking to buy the associated token. Binance Launchpad is an example of the IEO model where you can see their curated list of projects that they allow their customers to buy tokens from: https://launchpad.binance.com/en-GB

However this model required both the projects and users to undergo Know Your Customer (KYC) checks and many felt locked out from this model with exchanges being (understandably picky) about who they included in their IEOs. There were also complaints by projects that some exchanges were doing pay-to-play deals or taking huge token allocations for themselves. As such the Initial DEX Offering (IDO) model was bourne! This is very similar in model to an IEO however the project’s token if first launched on a decentralised exchange with the project providing funds into the initial liquidity pool and investors being able to usually ‘stake’ their assets (e.g keep them locked up to reduce the liquid supply and being rewarded for this) or can freely trade them on the DEX, alongside any lined up marketmakers.

But whilst this model is well suited to projects creating their own coin, there is a new model which has been designed for entire networks looking to bootstrap themselves through launch — the Initial Node Offering (INO), also being referred to as ‘Node sales’. I found the first reference of the term actually back in 2018 for a red flag filled project called JasperCoin, however the most recent use of the term applies to proof-of-stake networks where the initial validator set is gated and users/companies must pay for one of these slots. This can be done in a permissionless way where the only gate is the required tokens to buy a node, but anyone can buy a node, or a more selective process where the foundation/project team set certain criteria or opt to ‘invite’ users/companies to purchase a node. The latter takes a more permissioned approach to node ownership.

The nodes offer buyers the potential to generate rewards for processing blocks, which if the token value increases, could serve as a good source of newly minted assets to sell, and often extra rewards are earmarked for these initial node purchasers vs any later operators when the validator set is expanded or changed to a truly permissionless one.

Three recent INO examples are:

  • XAI, an L3 game on Arbitrum, sold ~34,000 Sentry nodes and raised $40 million in just three months. Operators got a distribution of 50% of onchain rewards as well as a share of 1m worth of XAI tokens that were reserved for early sale participants.
  • CARV, a modular data layer for gaming and AI, looked to sell 38,000 verifier nodes to raise $35M. However 4 months after the sale, the uptake looks to be very limited.

However, in the latter’s case, the term ‘node’ here is being used in a broad sense since this is not processing transactions, or being part of a decentralised sequencer set on an L2/3 but instead it’s essentially a watcher for the rollup to ensure blocks are being correctly processed by the Xai protocol. This observer role would be less necessary if the system was not centralised, and instead this seems like an approach to provide token distribution to community members with a hint of infrastructure-relevance. This could be an approach to try and avoid the more common airdrop system (which is yet to be defined in global regulation) and avoid falling into Collective Investment Scheme territory which looks like infrastructure staking could be excluded from this definition. Time will tell whether initial node sales without deep infrastructure provisions/needs are just a soft rebrand of ICOs/airdrops.

I previously wrote about airdrops, the state of global regulation and their criminal use potential here: https://xai-foundation.gitbook.io/xai-network/about-xai/sentry-nodes-explained

Originally published at https://www.linkedin.com.

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