Why Gitcoin Didn’t Launch With A Token
A token isn’t required for a thriving ecosystem
Gitcoin sounds like a token. I know. But… it isn’t. Let’s explore the landscape of tokens, when we believe a token is warranted, why Gitcoin hasn’t fit into that category, and what might change our perspective.
Tokens At Large
Amongst many of the points made, the following have proved to be the most timeless.
- Tokens are analogous to paid API keys. “For example, when you buy an API key from Amazon Web Services for dollars, you can redeem that API key for time on Amazon’s cloud. The purchase of a token like ether is similar, in that you can redeem ETH for compute time on the decentralized Ethereum compute network.”
- Tokens are a new model for technology, not just startups. “…token launches can be an alternative to traditional equity-based financings — and can provide a way to fund previously unfundable shared infrastructure, like open source.”
- Tokens will decentralize the process of funding technology. Tokens can be purchased by any American (30X increase in buyers), internationally (20–25X increase in buyers), and are more liquid than traditional investments.
As we’ve watched the year play out, we’ve gotten a chance to watch useful tokens rise to the top of the token economy. Great minds have expanded on concepts like token curated registries, bonding curves, and the future of tokenization.
Mike Goldin’s ‘Cryptosystem’s Manifesto’ also remains salient in our minds today.
- A token must work as a necessary element of a self-sustaining system which is a public utility.
- A token is a necessary element of a system if the use of any other in its place would damage the system’s normal functioning.
- A system is self-sustaining if it would continue to function normally in the indefinite absence of its creators.
- A system is a public utility if it is permissionless, rent-free, and does something useful.
There are plenty of scenarios in which tokens meet these standards. Quite a few projects who meet these standards have made their way onto the Gitcoin platform, including DAI, WYV, ZRX, and more.
While most projects (including Ethereum) haven’t gotten to the ‘self-sustaining’ phase, it’s clearly the goal. Many in the community speak of the increasingly blurring lines between the Ethereum Foundation and the community.
Problems With Tokens
However, in the wake of these incremental steps forward, many token launches failed. While this hasn’t adversely affected all teams, some combination of the following affects token launches.
- Misaligned Incentives: Current token issuance yields far too much capital in the hands of a founding team. Sometimes this founding team will have a complex roadmap and vesting schedule.
- Product-Market Fit: Tokens, and their products, are launched before product market-fit. The teams, however well intentioned, struggle to pivot their core business model and token utility mechanism away from it’s original launching point.
- “Necessary Element”: Many utility tokens fail to meet the ‘necessary element’ clause in the above Manifesto. “Why not just use ETH?” is usually a good question.
When spending time deep in Ethereum developer communities, it’s easy (and frankly, healthy) to drown out the noise of all the ICO’s which launch without real utility. However, it’s clear that many of these projects have fallen into the above traps — either maliciously or by fooling themselves.
The first principle is that you must not fool yourself — and you are the easiest person to fool. — Richard Feynman