Crypto Projects Can Drive More Organic Growth Through A Fair Launch

by

A fair launch refers to the distribution of a cryptocurrency or token without any preferential treatment to insiders or early investors. In other words, every participant has an equal chance of obtaining the tokens by contributing to the network in some way, such as mining or providing liquidity.

In contrast to the egalitarian image portrayed by the cryptocurrency sector, the distribution of new tokens frequently benefits a select group of private investors. These individuals, who often include the token creators and their networks, as well as professional investment communities, receive preferential treatment and are informed before the public launch.

As an analyst, I’ve observed that early investors hold a substantial portion of the token supply in many well-known cryptocurrencies. The rest of us, including the general public, typically own a smaller percentage and often pay higher prices to acquire even those limited holdings.

As a crypto investor, I’ve noticed a growing focus on the idea of a “fair launch” in the industry. This approach aims to address the issues of inequality that were prevalent in early projects by ensuring that everyone has an equal opportunity to obtain new tokens, regardless of their current standing or level of inside information about the project.

In the realm of cryptocurrencies, there’s growing preference for fair launches among skeptical crypto supporters who suspect market manipulation through pre-mining, whitelists, and venture capital deals. These practices allegedly give certain individuals an unfair advantage, denying others the chance to purchase at the most affordable price.

How do fair launches work?

As a crypto investor, I believe in the importance of a fair token distribution for every potential participant. A fair launch signifies an equal opportunity for everyone to acquire tokens right from the start. No exclusive pre-sales, no preferential access for select individuals, and no pre-mining or hidden allocations exist. This ensures that the community has a level playing field in getting involved and influencing the project’s future through its governance.

To ensure a genuine and equal opportunity for all in the token distribution process, it’s crucial to clarify what constitutes “fairness.” A popular perspective put forth by researcher Hasu and venture capitalist Arjun Balaji in 2019 proposes this as allowing an extended period for everyone to acquire tokens. The wider the reach of awareness about a new project, the more equitable its token distribution becomes. For instance, if the entire token supply is sold within one month of its launch, it’s hard to deem that fair since the market didn’t have sufficient time to learn about the token.

One perspective of fairness, as proposed by Hasu and Balaji, pertains to price equality. This signifies that no specific group or person should be granted the opportunity to purchase new tokens under substantially lower prices than the current market value. However, Hasu and Balaji don’t rule out the concept of early token access entirely. They acknowledge that discounts can still be permissible if the acquired tokens will be subjected to vesting or long-term lock-ups, thus providing necessary motivation for assuming the associated risks.

Why should a project commit to a fair launch?

To ensure a democratic project from its inception, it’s crucial to provide equal opportunities for everyone to participate right from the beginning, without favoring early investors. Equal access launches prevent early investors from disproportionately impacting key areas like governance. As a result, community decisions accurately represent the collective will of the user base.

One issue with the conventional venture capital (VC) approach, particularly when dealing with crypto initiatives, is that when a VC decides to sell, they might flood the market with a large quantity of tokens shortly after the token’s public launch. Initially, they allow public investors to inflate the price, then sell vast amounts of tokens, causing a significant price drop and leaving public investors with significantly less value than their initial investment.

To truly reflect the values of the community that contributes to its success, a project should strive for equitable distribution of its tokens.

Examples of a fair launch

One effective approach to introducing tokens is by allowing the community to acquire them through different engagements that foster project development.

As a crypto investor, I’d describe a fair launch in crypto projects by referring to Bitcoin‘s example. Bitcoin started with no pre-mined tokens, instead inviting users to join the network and “mine” coins through computational resources. I could mine Bitcoins using a basic PC back then. The creator of Bitcoin, Satoshi Nakamote, didn’t hoard any coins for themselves or others before the launch. Although they started mining earlier than most people, it was a decentralized beginning. In the early days of 2009/2010, the number of participants in the Bitcoin network was minimal since not many people knew about it yet.

Another prominent example of a fair launch is Yearn Finance, a DeFi protocol that refused to allocate any tokens, not even to its creator Andre Cronje. Instead, its first tokens went only to the liquidity providers that helped to bootstrap its platform. Although the YFI token has not made the same gains as Bitcoin has this year, it still ranks among the top 200 cryptocurrencies and is noted as being one of the most successful DeFi projects around, with more than $260 million in total value locked as of June 2024. 

Lately, Qubic, a blockchain platform specializing in AI, designed an exceptionally equitable token distribution method. They kept their entire stash of QUBIC tokens only for those who contributed to securing their network through the Useful Proof-of-Work consensus algorithm.

As a analyst, I would put it this way: IOTA co-founder Sergey Ivancheglo established Qubic. He’s also the mind behind IOTA and NXT. Qubic employs the uPoW-driven Quorum Protocol to fortify AI models using blockchain technology.

As a researcher studying decentralized cryptocurrencies, I’ve come across an interesting project called QUBIC. This project stood out to me because of its commitment to a fair launch. Unlike many other projects, Ivancheglo, the creator, rejected involvement from venture capitalists, team allocations, and pre-mining. Instead, the entire supply of QUBIC was distributed only to those who actively contributed to the network’s expansion.

Despite the promise of fair launches, it’s important to note that success is not guaranteed. A case in point is OpenDAO, which employed a token distribution method intended to recognize early supporters through an airdrop, but ultimately experienced failure.

OpenDAO intended to develop a decentralized insurance platform specifically for non-fungible tokens traded on OpenSea, the NFT marketplace. Eligible participants were any wallets that had previously engaged in transactions with OpenSea, enabling them to partake in OpenDAO’s airdrop.

As a researcher looking into the distribution model of OpenDAO’s token, I have come to question its generosity in retrospect. Despite a successful launch, OpenDAO lacked a definitive roadmap and clear objectives. Security issues were identified in the code by researchers, leading to a wave of skepticism towards the project. This negative sentiment resulted in mass sell-offs of OpenDAO’s SOS tokens shortly after their distribution in January 2022, causing a dramatic price drop. The value of SOS has remained stagnant ever since and is now among the least valuable cryptocurrencies, worth just $0.00000001739.

Fairness must be done right

As a researcher studying the topic of token launches, I’ve come across the notion that a fair launch is not a definitive indicator of success for a project. Instead, it represents one among various strategies that a team can adopt to introduce their token into the market. The benefits of a fair launch are threefold: firstly, it enhances a project’s credibility by making it less likely for the founders to have pre-mined tokens, reducing the risk of scams; secondly, it promotes greater transparency as there is no special treatment given to specific investors or groups; and finally, the perception of fairness fosters a more positive outlook among potential investors and supporters.

Alternatively, a fair launch for a project may result in financial challenges for the team if the token introduction is poorly planned, as early access is a common method for crypto projects to secure funding. Furthermore, without a grand public debut, the project will miss out on the price surge many experience following such an event.

Crypto project founders can inspire substantial development and community engagement through the idea of a fair launch. However, it’s crucial that they provide a persuasive motivation for the public to get involved and foster natural expansion.

Read More

2024-07-04 13:11