What is a ‘fair launch’ anyway?
These days, there is much talk about the ‘right’ way to launch a crypto project. There are two broad ways to do so: a traditional ‘VC’ launch involving private rounds before public distribution and a ‘fair’ fully public distribution. Whilst there is no one right approach, and both approaches offer different things, we chose a Fair Launch. Here’s why👇:
All’s fair in love and crypto
Let us first take a step back and look at the context of a crypto project launch. The goal of most crypto projects is not to launch a company. Instead, it is to build a protocol that will outlive its founders and become a truly decentralised public good used by a large group of people.
As we know, true decentralisation is very hard to achieve. So far, only Bitcoin has fully reached this stage with Ethereum making good progress. Most of the other protocols are still controlled by fairly small interest groups and development is still mostly centralised in single teams.
An even bigger problem is getting real usage (the big elephant in the DeFI room is that a lot of protocols are barely used beyond the speculative hype). It’s not just about building something useful, but how to get people to care enough and take 5 mins to try your product.
In the VC model, investors serve two broad functions:
- As a signal towards other people about the quality of the team & project (everyone downstream assumes the guys upstream did due diligence)
- As general promoters (most top investors have large followings and are influencers to some degree).
Other benefits of having good investors is that they can help with recruitment, partnerships and in general just be a good place to bounce ideas off.
One might argue that the involvement of VCs runs against the aim of decentralisation. However, the general logic is that most projects aren’t ready to be decentralised in their embryonic stages. Funding, support and guidance can help them build out the technology before ownership is transferred to the community.
One problem which can arise with a VC launch is that not every VC investor is a useful one. Some are motivated purely by profit, do not provide help and will look to exit at the earliest opportunity. Of course, there are lock-ups to prevent this but even the longest lock-up is very early in a Protocol’s development. The trick here is to make sure that the founders do due-diligence on the investors as much as, and even more so, than VCs do on their founders.
Another is that some founders conflate VC investment with validation and start “celebrating” their win too early. Small, hungry and community minded teams are generally better at adapting. The best investors choose teams who are unfazed by raising and who see it as a small step in a bigger journey.
In the fair launch model, the initial distribution is aimed towards the end users of the protocol. The hope is that a wide initial distribution will align the incentives of both the users and operators. Hopefully, a subsection of the users will want to get involved on a more engaged basis and slowly become operators.
In terms of decentralisation, the belief here is that users should have an early say in the development of the product. This synergy and incentive alignment can create very powerful feedback loops (as we have seen with BTC & ETH).
The main caveat is that this does slow development a bit. However, because incentives are aligned and users are part-owners, they are more willing to be patient as the product develops
Of course, a fair launch has obvious problems, most of which come from a lack of social and legal accountability (which VC involvement bring naturally). First, the most common one is badly designed founder incentives. A fair launch will almost always under-reward or over-reward founders (this is a problem with VC launches as well but is not as acute). A team that gets rich overnight before any real work has begun will give up (even with the best intentions); equally, so will a team that has nothing to gain.
Second, fair launches do not exclude big investors. As long as the amount of capital is the only requirement the game is skewed in their favour. And unless those investors choose to be active you get the worst of both worlds
Float Protocol democratic launch
Putting this all together and whilst far from perfect, we tried to learn from past attempts and protect against some of the common pitfalls.
We decided to be anonymous founders. We are aware that anonymity has become synonymous with scams. However, one of our fundamental principles is that an open source protocol should come before the people which are making it. Crypto was started in the spirit of anonymity, particular the adage “verify don’t trust”. To this end and to mitigate basic exploits, we have implemented all of the major controls you would expect of the protocol and under a multisig behind a 48h timelock contract. We have done and will go far beyond the norm for security checks.
50% — Community distribution
10% — Community governed treasury
5% — Initial team members reward
35% — Post launch liquidity incentives
We decided to give 50% of our initial distribution to the community as part of a ‘democratic launch’. We did this to enable wide distribution and participation in the protocol. However, we wanted to make sure this 50% went to those we felt would become active community members. As such, for the first 6 weeks of the distribution (Phase 1, more details here), we put in place two features:
- Whitelist of those who are active governance participants in other protocols.
- 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.
After 6 weeks (Phase 2), we remove the limitations to allow more general exposure to various crypto communities and seeding the pools needed for auctions to run efficiently. How exactly Phase 2 will look like will be voted on by governance in due course.
How has this worked so far?
After 4 weeks we have 576 holders (people which have BANK in their wallet) and 1,574 unique addresses have interacted with at least one of the pools. Overall, 1798 unique address have either bought or farmed BANK.
This is the way we did it and our thinking (and there are many others ways of doing it depending on the circumstances and factors involved). VCs are an inevitable and a great part of the innovation (they are professionalised capital). Community is also an essential part. We decided to more fully engage the community first to build a broad range of supporters. Perhaps the best world is one where VCs and community coalesce. New fundraising models will emerge around this we are certain.
Website — https://www.floatprotocol.com/ (also available via: https://ipfs.io/ipns/floatprotocol.eth/#/pools)
Twitter — https://twitter.com/FloatProtocol
Telegram — https://t.me/officialfloatprotocol
Medium — https://medium.com/@floatprotocol
Github — https://github.com/FloatProtocol/
Discord — https://discord.gg/nVCZacJJqM