Crypto Projects Can Drive More Organic Growth Through A Fair Launch

Although the cryptocurrency industry professes to be one that’s focused on egalitarianism, the reality is often anything but, with many new token distributions skewed in favor of a handful of private investors. Those are generally the people who created the token, and those connected to them and the professional investment community, who are tipped off prior to the project’s launch. 

A quick look at the token distributions of some of the most popular cryptocurrencies in the industry today reveals that early investors often control a huge swathe of those networks, with everyone else left to play second fiddle. The general public is very often only left with a few crumbs, and they have to pay significantly more for the handful they can get their hands on.  

This explains the recent emphasis on what’s known in the crypto industry as a “fair launch”. It’s a concept that aims to remedy the inequalities that plagued most early projects by giving everyone an equal chance to acquire new tokens, no matter what their status is or how much inside knowledge they have about the project. 

In crypto, fair launches have become popular among more cynical crypto enthusiasts who believe the market is being rigged by pre-mine, whitelist and venture capital allocations that preclude everyone else from getting first access at the lowest possible price. 

How do fair launches work?

A fair launch refers to a token distribution plan which gives the wider community a chance to earn and buy tokens from the outset, so everyone has the opportunity to get in early and participate in its governance. A fair launch means no-one gets any early access opportunities, no pre-mining and no allocations of any kind. 

To enable a true fair launch, it’s necessary to define what “fairness” actually means. One useful framework adopted by many crypto projects was proposed in 20219 by the researcher Hasu and the venture capitalist Arjun Balaji, which defines the concept as ensuring an equal opportunity for everyone to acquire tokens over a long duration. The more people who are made aware of the existence of a new project, the fairer its token distribution will be. For instance, if the entire supply is sold within one month of the token being launched, that can’t really be considered fair, because the market wasn’t given enough time to become aware of the token. 

Another aspect of fairness, according to Hasu and Balaji, is price equality. By that, they mean that no group or individual should be allowed to acquire new tokens at a significant discount to the market price. However, Hasu and Balaji don’t completely preclude early token access, saying that discounts are acceptable if the tokens they acquire are going to be vested or locked-up for a long time, as they need an incentive to take on the risk involved. 

Why should a project commit to a fair launch?

For projects that want to be able to claim they are truly democratic, it’s important to give everyone the chance to get involved from the start, without any privileges for early investors. Fair launches mean that early investors in the project cannot accumulate an outsized influence on matters like governance. This means that any decisions made by the community will genuinely reflect the will of the network’s users. 

One of the problems with the traditional VC model, especially when it’s applied to crypto projects, is that when a VC wants to cash out, they may dump a substantial number of tokens on the market, shortly after the token is launched publicly. They’ll let public investors drive the price up first, and then dump thousands more tokens on the market. This very often has the effect of crashing a new token’s market price, leaving public investors with much less value than what they originally invested. 

So if a project wants to be true to the community that helps it to grow, it needs to ensure its token distribution is fair. 

Examples of a fair launch

One of the fairest ways to launch tokens involves getting the community to earn them through various activities that support the project’s growth. 

Perhaps the best example of a fair launch is Bitcoin, which kicked off no tokens allocated to anyone, but instead invited users to start “mining” coins by contributing computational resources to the network. Initially, this could be done with a basic PC powered by a simple CPU. The creator of Bitcoin, one Satoshi Nakamoto, didn’t reserve any tokens for himself/herself or anyone else, though he/she did begin mining coins before the network went live. Also, the initial number of participants in Bitcoin’s network was small, as no one had heard of it during those nascent days of 2009/2010, when it was just getting started. 

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. 

More recently, the AI-focused blockchain network Qubic crafted what has to be one of the fairest launches of all, strictly retaining its entire supply of QUBIC tokens for those that secure its network via its Useful Proof-of-Work consensus mechanism. 

Qubic was founded by Sergey Ivancheglo, the creator of IOTA and NXT, which integrates blockchain to secure AI models via its uPoW-powered Quorum Protocol.

Ivancheglo was committed to a fair launch, rejecting any form of VC involvement, team allocations or pre-mining. As such, the entire supply of QUBIC was only distributed to those who actually contributed to the network’s growth, which means governance is also dictated by those users, rather than external investors who would likely be more concerned about creating a profit than the project’s actual long-term success. It was a solid model that has already proven itself to be successful, with Qubic recently hitting a market capitalization of $1 billion, and its mining network now spanning around 500,000 machines. It’s a showcase for how a fair launch model can help crypto projects drive organic growth. 

Still, it would be misleading to suggest that fair launches are always guaranteed to achieve success. One notable failure is OpenDAO, which opted for a token distribution model that aimed to reward early adopters retrospectively via an airdrop. 

OpenDAO’s aim was to create a decentralized insurance protocol for non-fungible tokens sold on the NFT marketplace OpenSea. It allowed any wallet that had previously interacted with OpenSea to participate in its airdrop. 

However, this token distribution model may have been too generous, in light of the fact that the project itself was not without problems. Although the launch was certainly fair, OpenDAO itself failed to establish a clear roadmap or goals, and security researchers flagged a number of problems with the protocol’s code. The negative perception of OpenDAO encouraged many token holders to dump its SOS tokens shortly after the airdrop took place in January 2022, crashing its price. The value of SOS has flatlined ever since, and today it’s notable for being one of the most worthless cryptocurrencies of all, valued at $0.00000001739. 

Fairness must be done right

A fair launch is no guarantee of a project’s success, and it is just one of several options available to project teams when it comes to launching their token. The advantages of a fair launch include giving a project greater credibility, because such projects are unlikely to be a scam if the founders don’t get early access to its tokens. That means more transparency, and the perception of fairness increases positivity around the project. 

On the other hand, a fair launch can mean that the project team struggles with financing if the token launch isn’t well planned, as early access is one of the crypto industry’s primary ways of attracting funding. In addition, the lack of a big public debut means that the project won’t be able to benefit from the traditional bump that many achieve in the wake of that event. 

For crypto project teams, the concept of a fair launch can be inspirational and help to drive significant growth and community adoption, if it is done right. But the project founders must ensure that the community has a compelling reason to want to participate and help drive organic growth.

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