What is Initial Stake Pool Offering (ISPO)?

11.08.2022 2 min 0
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Since the launch of the leading cryptocurrency - Bitcoin - the crypto industry has been continually developing.

Since the launch of the leading cryptocurrency - Bitcoin - the crypto industry has been continually developing. Innovators are constantly looking for ways to improve the experience for investors and help their communities. A major concern for innovators and enthusiasts is funding technology-based projects.

 

An Initial Stake Pool Offering (ISPO) is a relatively new way to fund crypto projects. It was first introduced on the Cardano blockchain. Cardano is a Proof of Stake (PoS) blockchain that lets investors stake their ADA tokens to support the network's decentralization and earn rewards. They can delegate their tokens to a pool operator, even if they don't have the resources or time to run one themselves.

 

What is an ISPO?

 

The ISPO is a new fundraising model in which developers raise money by having people stake their cryptocurrency. In the ISPO model, developers set a variable margin and collect the rewards, paying their delegators with utility tokens.

 

Let’s look at an example of how an ISPO works on the Cardano example.

 

Cardano uses the Proof-of-Stake (PoS) consensus mechanism, so network validators verify transactions and produce new blocks. Validators are effective ‘nodes’ or stake pools that allow users to stake their funds.

 

Each validator's rewards are determined by the amount of ADA staked by each user. The Cardano network is powered by a protocol called Ouroboros, which determines which staking pool will receive the most rewards. This happens after every five days, which are called epochs.

 

Cardano users rely on stake pool operators to help secure the network. The staking pools with the highest stakes become validators and thus become part of Cardano's consensus.

 

However, users don't receive ADA rewards for staking their tokens in the pools. Instead, they receive the project's native token as their reward. The ADA that would have been ideally distributed among these delegators is instead delivered to the validator operator itself.

 

Here are some notable PoS blockchains to look out for Cardano (MELD), Terra (Anchor Protocol), Solana (Sunny Aggregator), and Polkadot (Kusama).

 

Initial Stake Pool Offerings (ISPOs) have the potential to spark the ecosystem of Proof-of-Stake blockchains, as it has benefits for all involved parties. Since most crypto community members have seen the many empty promises of ICOs, the new ISPO model could earn their trust.