How to accomplish a real “fair launch”?
Token launch is a unique product of the crypto world. To a great extent, token carries the consensus and wealth of whole crypto project, so token launch has become the most sensitive and concerned existence.
Then how to accomplish a token launch? How to evaluate whether token launch is successful or not?
It is customary to think that “fair launch” is the best way in the circle. However, what constitutes a fair launch? The crypto world lacks a consensus standard.
In this article, I would like to summarize my view of a fair launch by analyzing a bunch of token launch projects that I have personally participated in, and in comparison to those projects, let more people understand the original intention and thinking of LoserChick token launch.
In 2019,Hasu and Balaji wrote an article discussing about the fair launch. They argue that a fair launch offers equal opportunity — not equal outcome — to acquire a coin 1) over a long period of time 2) at a relatively equal price.
First of all, I agree with the overall idea, but I got my own ideas in different phases of the token launch. Hasu and Balaji describe the entire process from initial issuance to full circulation of tokens, and I think a more accurate term for this process would be “token distribution”. And token launch is just a phase of token distribution, which is the initial phase when token starts to circulate. During the launch phase, the token circulation exceeds 5% of the total supply and this period usually will be done within one month. This definition is very important, and the token launch mentioned below refers to this phase.The same as below..
Firstly, we should think about the purpose of token launch:
1) Find the first batch of ecological contributors and governors;
2) Make a good foundation for subsequent ecological builders to join;
3) Complete the price discovery of token.
Therefore, fair launch should obey the following criteria (the first two points are quoted from Hasu and Balaji):
1) Over a long period of time.
2) At a relatively equal price.
3) Low threshold.
4) Decentralized token position.
I will then give a set of examples to illustrate these criteria.
There are usually three types of token launch: airdrop, liquidity mining and IDO.
Airdrop gives “company stock” to users for free? This seemingly pie-in-the-sky act has become a custom in the crypto world.
But free doesn’t mean standing at a crossroads and spreading money around at will for anyone to pick up.
Who is eligible for airdrop is a very serious question. Currently, airdrop in the crypto world is usually done through retroactive airdrop and task airdrop. Retroactive airdrop, that is, tracing the past behavior of addresses. In general, existed protocols that have been running for a period of time will choose regular users of their own protocols, that is, users who have interacted with the contract ; new protocols do not have much usage records, so they will often choose users who have interacted with the leading protocols or protocols that users with similar user attributes for airdrop. Task airdrop is to complete the corresponding tasks to get airdrop, such as filling out specific forms, joining the project discord channel, etc.
The second serious issue is how many token to be used for airdrop. Airdrop token percentage of the max supply, often determines the purpose of the airdrop, and also relates to who will be eligible for the airdrop. Generally airdrop token percentage within 10% is more of an activity, while more than 10% is more of a partner incentive, just like a company allotting stock to their key employees. Of course, 10% is actually an unimaginable ratio for a corporate system, especially many founding teams in the crypto world have a token ratio of only 10%. After determining the total amount, we still need to confirm how many token each person can get, whether it is an egalitarianism where each address is similar, or an elitism where the head effect may be very obvious by contribution.
Free distribution may seem simple, but it is not easy to deliver to the right people, and there are lots of pitfalls.
Where there is the best deal, there is no shortage of econnoisseur. In particular, the airdrops in the crypto world are so substantial that many of them are worth more than 10k USD, and the high returns have induced many ordinary users to turn into econnoisseur. At Christmas of 2020, 1INCH airdrop Christmas gifts caused the whole industry exuberance, a lot of media and KOL have summarized the list of projects that may send airdrop, followers and the volume of RT are extremely high, matcha.xyz and other protocols were affected by airdrop of 1INCH, the number of users go up nearly 10 times that day.
There are even some KOLs who professionally guide users to claim airdrops. The largest amount of addresses registered for claiming airdrops by one person I know is over 2,000 (a single user in the crypto world is often identified as a single address), which is not a small number. The amount of addresses for most project airdrops will not exceed 50,000, and if it got high hit rate, this user will get 4% of the total number of airdrops.
Token is a valuable resource, and econnoisseur is stealing the wealth crazily.
It is now common to use higher thresholds to prevent econnoisseur, for example, UNI airdrops require users who have interacted with the contract, even if the interaction fails, while 1INCH requires a transaction of at least $20.
However, the threshold is only a temporary way, and it is difficult to ensure long-term effectiveness. If the threshold is too high, it will inevitably block real users by mistake and may not deter econnoisseur. But econnoisseur will also evolve, as long as the threshold is reached and still profitable, that is, the proceeds of the airdrop exceed the cost of reaching the threshold, they will calculate clearly and will take all the profits. Theoretically, it’s almost inevitable that airdrop earnings exceed the cost of reaching the threshold, otherwise airdrop is more like a subsidy, and the attractiveness of itself will be insufficient.
To eliminate econnoisseur, the core is still to complete the identification of a single user. At present, the decentralized infrastructure in this area is still immature and needs to wait for further development of DID, etc. In this transition period, it is advisable to consider using some traditional technical facilities for identification, such as Twitter and Discord.
Although it may seem fairer to allocate tokens based on contributions, it often only makes whales.
The premature emergence of whales is detrimental to both protocol governance and price discovery. Excessive concentration of token holdings can lead to a lack of incentive for ordinary users to vote on governance, and in essence, when a few whales hold more than half of the votes, ordinary users’ votes are meaningless. In addition, whales may not be interested in the long-term development of the protocol, but more like a kind of advanced econnoisseur. The continuous selling of whales will affect the discovery of early reasonable prices, as well as cause negative sentiment for community and affect the entry of later users. Personally, I don’t recommend distributing airdrop solely by contribution, as it will inevitably lead to whale effect. I prefer to follow egalitarianism in the airdrop phase, where each wallet receives a similar amount of tokens.
If there is a demand on the operational side of the project, and it must be distributed according to contribution, it is recommended to do it in combination with distribution by address as well, and it should be done mainly through distribution by address and supplemented through distribution by contribution. For example, 4.91664% of the UNI airdrop was allocated to 49,192 historical LPs (by contribution) and 10.06136% was allocated to 251,534 historical user addresses (by address), which achieved a good reaction of community.
In the details: https: //uniswap.org/blog/uni/
In addition, the distribution by contribution can not be purely linear, but can be mathematically reduced by the weight of the whale. For example, TORN is cleverly handled when airdrops are distributed, although larger deposits and older deposits will receive more TORN, but a 100 ETH deposit will get twice as many tokens as a 1 ETH deposit, instead of 100 times, and the curve change in the amount of airdrops obtained based on time is not linear, as follows:
c. Evil Team
This is an issue that is not often mentioned and only likely to be noticed as a practitioner. Since airdrop is often the first phase in a token launch, there are often no tokens in circulation in the market before airdrop, so it is impossible to complete governance through tokens. At this time, airdrop rules are often drawn up by the development team to prevent econnoisseur, so the rules will not be published too early.
At this point, there are only teams that know the rules of airdrop well and can change them in their favor before they are announced. This is also an important reason why I do not recommend airdrops by contribution, when the rules are not transparent, big wallet will not know too much about the project revenue, and in the early days of the protocol security can not be completely sure, so they will not enter generally, or just a small try. Without big wallet, when a little bit larger money can often leverage a good return, when those who dare and are willing to invest big money are often extremely familiar with the project, usually they are the developers themselves or their friends. 1INCH has been exposed that the develop team sent a large number of airdrops to the team test wallet. Of course, what’s worse, a famous NFT project, airdrop volume of the top 10 addresses, are controlled by the team itself.
I am not saying that the team will necessarily adulterate in project, but the team is the easiest to use the information advantage to get a large number of airdrops, which should be avoided from the design of the mechanism.
In addition to the ratio of airdrop distributed by contribution, it is extremely important to make the airdrop address, the number of token, and the rules of the airdrop clear and transparent, so that it can be verified.
Avoid all the negative sides above, you may launch an airdrop campaign with a passing score.But if it’s an airdrop of partner incentive nature, you need to do something more.
Here is a case in point: INVERSE DAO took 56% of the max supply of $INV for airdrops, which is a huge percentage, and each person receives more than $150,000 airdrops when the price is all-time high. At the beginning, @Nour (founder of INVERSE DAO) posted a form for recruiting DAO members on Twitter, over 3,000 people submitted information. @Nour had video interviews with most of them and selected 658 candidates, almost everyone received 80 non-negotiable $INV. Everyone entered a channel in discord called #war-room to discuss the development of the project and provide power and participate in the governance of the community, and this process that lasted 2 months, the less engaged members were deprived of the 80 $INV they were initially granted. Only 409 members were eventually granted $INV who were all active DAO members, and most of them are developers or KOLs in the crypto world.
How is airdrop designed for LoserChick?
First of all, the core spirit of LoserChick is and will always be ‘Communities First’, so the airdrop program is definitely average, and each person receives the same number of airdrop. There are three types of airdrop targets:
1) Users of leading NFT projects and on-chain games. On the one hand, this behavior is to pay tribute to the pioneers, on the other hand, users are at a high overlap ratio.
2) LoserChick community users. These users are subjected to complex checks, including but not limited to follow official twitter account, retweet, join official Discord channel, etc. Basically, we ensure one person to one address, and try our best to prevent econnoisseur.
3) Continuous community cooperation. Most airdrops are done at the moment of launch, which we think is not in line with Hasu and Balaji’s ‘over a long period of time’ principle, so we specially designed the community cooperation section. For each new partner community, we will airdrop its users until the reserved airdrop portion is voted out. Each partner community will be voted on, and the rules of the airdrop will be announced in advance, and we will make sure the verification on the chain. Of course, this kind of community cooperation will also be more conducive to LoserChick promotion and gaining more users’ attention.
We will release more details about the community partnership for airdrops later, please stay tuned. If you are interested in this part of the partnership, please feel free to contact us.
In addition, most people who receive token will choose to sell it immediately, which doesn’t make much sense for the project. So we designed dual tokens — $CHICK and $EGG, we will incentivize the liquidity of $EGG, but not $CHICK. To direct $CHICK to be used playing the game, and $EGG can be used to get NFT or trade.
All token in the airdrop is $CHICK, so even if the user sells $CHICK directly, they won’t get a good price. In order to swap to $EGG and sell it, the user have to play the game and successfully pass it that means users have grabbed the EGG. This mechanism effectively converts airdrop users to players of the game and largely keeps out the econnoisseur.
Bitcoin, the industry’s pioneer, not only left the industry with blockchain technology and a decentralized ethos, but also with mining, a popular token distribution mechanism. Most projects have inherited both mining and the periodic halving of releases.
At first glance, there is nothing special about the periodic halving of releases. But if you do some math, you can easily see that if the time of each period is equal, when the first halving happened, it represents there are nearly 50% token in circulation of the max supply, and when the second halving happened, the circulation is nearly 75% of the amount. This has nothing to do with the total number of tokens, the output of each block, or the duration of each halving cycle, but all halving models with equal cycles follow this pattern. To put it bluntly, if all token of a project are diluted through liquidity mining within 4 years, and halved each year, then half of the total tokens will already be in circulation by the time of the first halving occurs. This is not a small amount, after all, many teams account for 10% of the max supply, and there is a lock-up, often not fully released until the end of mining.
So the token launch phase of mining is very important, which is more important than even airdrop. And this phase we usually call it genesis mining.
As with airdrop, the first question is who is eligible to participate in genesis mining, and the second is the limit on the amount of money that can be invested from a single account. The proportion of token produced in the genesis mining phase is not that kind of importance, and as mentioned above, airdrop proportion will not be low. There is usually no limit to the number of users involved or the amount of money invested from a single account, and anyone can participate with any amount of money. However, there are mining proportion, and that will be designed with whitelist, limit, or whitelist and limit.
Unlike airdrop, econnoisseur won’t be a problem at this phase, and the bigger impact is on whales and team counterfeiting.
When there are no limits, genesis mining is a haven for whales and vault, such as the famous 0x_b1 , whose wallet daily average liquidity gains between $200K-$400K. Annualized returns are over 35%.
Only $8.5M sits unused while 97% of the capital is being supplied to DeFi, ranging from well-known protocols like Compound and Uniswap, to lesser-known projects like YFLink and Dodo. The wallet is earning between $200k-$400k daily, just through yield farming.’
As for another project BAG that was screwed by YFI vault.
On April 10th 2021, the crowd-sourcing project “The Blockchain Adventurers Guild”launched a 2-week Genesis mining token ($BAG) distribution program, releasing 20% of the max supply. After launching,the TVL is quickly exceeding $200M, in the next 2 weeks, the Yearn vault repeatedly “mined,withdraw and sold”, dumping the $BAG from an initial price of around $300 to around $6 in 5 days. TVL also dumped over 90% within a few days. This has led to a great deal of frustration in the community, with the team being criticized for not taking the rights of the community user into consideration when designing the mechanism.
There are two general purposes of liquidity mining, one is to quickly change the fundamentals of a project, most DeFi projects have a high demand for liquidity (TVL), such as lending protocols, where there must first be enough liquidity for deposits so that users can complete the borrowing action without a large impact on interest rates, similar to AMM, where there is enough liquidity so that slippage tolerance will not be too high; the other is simply token distribution, using the familiar means of liquidity mining to complete.
If the whale has some significance to the former, it has minimal significance to the latter, as can be seen from the discussion of the whale in the airdrop section above. In the early days, the liquidity surge caused by the entry of the whales was also of limited benefit, it just like being more of a PR campaign to enhance the brand image through high TVL and a stress test for the protocol itself. However, at this time, when user habits have not yet been developed due to the small size of the user base, too much liquidity is a waste from a user usage perspective, and funds are not well utilized, while for ineffective liquidity, the cost is higher than usual APY.
Team counterfeiting tends to occur in two situations, liquidity mining with Non-transferrable reward and whitelist.
The former is liquidity mining where the APY cannot be measured. All token are not in circulation under this situation, so if they cannot be traded, there is no price and no way to measure APY. It may seem like a benefit to the early community, but it is the same problem, poor information. At this point, the whales won’t come in, the market-based miners won’t come in, and it’s likely to be mainly the team and the people around them. So, personally, I don’t push the former one, and I don’t push any design that creates an information gap in the rules. Whitelist, which means that only certain addresses are allowed to participate in mining. The rules of whitelist are designed by the team, so it’s a good chance for counterfeiting. The whitelist mechanism itself is fine, what’s important is that the rules for whitelisting users are open,transparent and verifiable.
A case study of Genesis mining that I admire is $BANK (FLOAT). Here is a direct quote from their original presentation:
As such, for the first 6 weeks of the distribution (Phase 1, more details here), we put in place two features:1.Whitelist of those who are active governance participants in other protocols.2.Limit of $30k per address.This allows us to a) prevent big players coming in early and taking up all the distribution, b) educate and engage a wide audience, c) have a base of users who we know could become active participants in Float Protocol.
In addition, it makes sense that FLOAT does not do LP token incentives during the genesis mining phase: without guidance, the market spontaneously creates a pool of liquidity that is not too deep, allowing a less intervened market to engage in price discovery naturally and gently. At this point, with a shallow pool, the vault and whales will most likely not enter the market even if the APY is higher. (Of course, this is not obvious if whitelist and limits are made in the rules.)
The feedback on the FLOAT mechanism was ultimately good and caused a stir in the community, with 2,563 addresses participating in the Genesis mining phase and a TVL of $57M.
There were a few regrets, however, including the low amount of addresses participating at the start, with only 288 addresses participating in the first three days, the strict whitelist rules set by the team at the start, and the lack of publicity and warm up before the official mining phase. The $30k limit is not too low, and the results show that some users are actually not saving the full $30k.
LoserChick Genesis Mining pays much homage to FLOAT, but with some optimization.
1.Whitelist. All addresses that receive airdrop are whitelisted. At the airdrop phase, these addresses are finely screened and the base is more selective compared to FLOAT.
2.Staking cap. Each address can stake up to 1,888 $BUSD. LoserChick, as a game, has a much larger users than that of most DeFi projects, so the threshold is kept extremely low to meet the demand of the majorities. In addition, TVL is not meaningful to the protocol itself. LoserChick is more interested in the number of participating communities than TVL.
3.Reduce the duration. The period is adjusted to 14 days. FLOAT Genesis mining phase lasts 42 days, which means it got enough time left to brew, but this is actually a bit too long and can cause user fatigue, as well as a relatively large difference in mining returns for those who enter at different times. The fairest way is to warm up before the mining starts so that people who are interested in can take full notice, which is not just a matter of model design but also requires operational effort. Luckily LoserChick is doing well, attracting over 8k Twitter followers without any testing and online, compared to FLOAT’s 7k+ Twitter followers after 5 months of operation.
Our vision is to build a community based GameFi DAO, which will start with a real fair launch of a fantastic play-to-earn game — LoserChick!
Portals to get airdrops: