In this last we will briefly share some random thoughts on token distribution mechanisms as part of my tokenisation series.
A token distribution event is sometimes called an initial coin offering (ICO) or token generation event (TGE). In the traditional world, this can in some ways be compared to an initial public offering (IPO).
After the creation of some crypto economic system its tokens usually needs to be distributed in some way. Because without the tokens being in the hands of users or other stakeholders these crypto economic systems won’t provide any sort of utility.
In the last post about token price valuation I talked about some ways (and some flaws) when it comes to price valuation. A well designed token distribution model will give participants a fair way to both access of the distribution, evaluate what is offered, and for how much. Let’s break this down a bit.
Given a specific audience or jurisdiction, anyone within this target should be given a fair chance to participate in the token distribution. What the specific target audience is will differ from product to product, but things to consider are participants’ technological skills, geographical location and regulatory context with regards to KYC and AML.
Unfortunately, many token models today are designed as financial securities, and therefore must be regulated with laws around KYC and AML. This often restricts the access of the token distribution to people in certain jurisdictions, or to people who are licensed investors.
The idea behind blockchains, crypto economics, and decentralised systems is to democratise access and distribution of said systems to make them more sustainable and long-lasting. If you design a crypto economic system and a token distribution without these principles in mind, then you can as well raise private equity or aim for a regular IPO.
It’s very important to design a token distribution in a way that let participants know what they get and for how much. This is something that many distributions models today don’t take into consideration. This goes back to my post around token price valuation.
A well designed token distribution will let participants measure how many tokens are being distributed, at what rate, to what price, and for what utility ahead of time before the distribution starts.
Without going into too much detail, distribution models such as “soft-cap”, “hard-cap” or “pre-sales” that has been popular in the past years must be replaced with models that are more closely aligned with the core values of crypto economics and blockchain systems.
One post worth reading on this subject, although very technical, is Vitalik Buterin’s idea for a new type of ICO.