In support of the proof of work [un]fair launch



  • Insiders can purchase their own crowdsale, and covertly obtain an arbitrarily high fraction of supply for free (because they also get to collect the funds committed to the crowdsale)
  • Buyers can obtain tokens for arbitrarily low prices, since they are not created in a costly manner through proof of work, but summoned out of thin air. Thus, the private rounds that predate public sales often consist of pure seigniorage
  • Tokens often end up being a bizarre mishmash of an informal investment contract, and an arcade token for unlocking network resources. This causes speculation to crowd out usage and leads to very confused theories of value accrual
  • Tokens sold to the public (or done obliquely, a la Telegram) closely resemble investment contracts in most sensible jurisdictions, and this tends to make the issuers subject to securities laws, whether they like it or not
  • Issuers that retain a large fraction of supply tend to retain authority in the network, especially if a Proof of Stake model is opted for. This hampers the path to decentralizing authority, as issuers tend to resist divesting their share of the network
  • Early backers can obtain disproportionate shares of supply for essentially free, and then costlessly retain that advantage in perpetuity if the network follows a PoS model. This is a potent force which chills the dispersion of tokens, as stakers are not compelled to sell. In PoW, by contrast, miners must constantly spend and invest to retain proportional network authority. In PoS, retaining stake is simply the cost of running a server

Why GPU fair launches might be a thing of the past

A proposal

  • we’d like to limit seigniorage; that is, we want virtually every participant to have the ability to obtain the tokens at market price, with relatively few exceptions to this rule
  • we want the distribution period to be as long as possible
  • if being an early backer of the network does confer an advantage, it should be a temporary one and erode over time
  • a position of authority in the system should be costly to retain; it should not be costless to exert influence in perpetuity
  • being an early backer of the network should not grant you permanent anti-dilution rights
  • we want the system to work under existing securities laws in the U.S.: we want to disentangle the investment contract from the asset issued by the protocol
  • we want the network to be secure at inception (from a crypto-economic perspective)
  • we want the founding team to be able to meaningfully divest power and authority from the network; and
  • we want to inculcate a feeling of fairness and to minimize information asymmetries surrounding the network launch

The ASIC presale model

  1. Some developers create a new cryptocurrency protocol.
  2. To finance this, they sell rights not to tokens, but to physical ASICs
  3. Together with trusted supply chain partners, they manufacture these ASICs ahead of launch
  4. These ASICs are sold to investors or, better yet, to the community of users who want to explicitly support the network in its early days. They are possibly securities, although I haven’t done the legal analysis here. (I am rather uncertain about this part.) These sales are booked as revenue for the issuing corporation
  5. The ASICs support a custom hash function (which is not being employed by any other blockchain)
  6. The developers keep this hash function a secret until the day of launch
  7. At launch, the hash function is disclosed, and a race kicks off among the ASIC manufacturers to build the second generation of ASICs
  8. Within 4-6 months, the first batch is rendered obsolete as new ASICs are manufactured, and the temporary monopoly on issued supply that early backers enjoyed is eroded
  9. Over time, the advantage that early miners enjoyed fades away
  10. The developers commit to never changing the PoW function
  11. The developers hold few/no coins and can exit the project if necessary or adopt a Red-Hat/ Commercial Open Source approach to managing the chain, retaining no explicit in-protocol authority

You get ASIC-tier security at inception

The investment contract-like element is firmly disentangled from the actual coins

You get PoW distribution AND developers can finance themselves in a limited capacity

You get an arbitrarily long distribution period

The rules of the game are very clear

The initial advantage depreciates over time, providing the system with natural dispersion

  • is it possible to extract a margin on ASICs sufficient to render this a profitable enterprise?
  • what is the shape of the supply curve such that the temporary monopoly on supply would be considered acceptable to future users?
  • how can ASIC buyers have confidence that no additional ASICs were covertly created?
  • can one-shot financing be sufficient to bootstrap a business building an open source protocol?
  • is the limited amount of seigniorage disqualifying in terms of creating a monetary asset?
  • are the ASICs themselves investment contracts/securities, or are they in the clear?
  • is it possible to build an ASIC supply chain that doesn’t concentrate with one or two entities having unilateral control over the hardware production process?


If you applied this model to Bitcoin, six months of mining would represent 1.3m BTC, which is an excessively large fraction of supply

Why do you expect that the initial batch of ASICs will last 4–6 months? Why wouldn’t they last essentially forever and give ASIC buyers a permanent advantage?

The ASICs in this example actually aren’t securities

The issuers are giving ASIC manufacturers total power. They could create extra ASICs and cheat the process

We don’t need any more blockchains. Stop helping people figure out how to issue new cryptocurrencies

This launch is actually quite unfair, as you’re suggesting creating a premine

Developers shouldn’t monetize. They should work on these things altruistically. Otherwise you cannibalize intrinsic motivation

Developers can’t sufficiently monetize under this configuration

It’s too expensive to launch in this manner. Issuers won’t be able to sufficiently finance themselves

Why go through all this trouble to launch in this convoluted way? Why not just do an ICO and retain a treasury for long term incentive alignment?

ASIC manufacturing is a concentrated industry where foundry allocations and political connections determine the winners. You are ensuring the ASIC manufacturers will be kingmakers here

Any amount of seigniorage is disqualifying

Why are you wasting your time thinking about this? We already have Bitcoin and we don’t need any new chains




Partner, Castle Island Ventures. Cofounder,

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Nic Carter

Nic Carter

Partner, Castle Island Ventures. Cofounder,

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