The current trend in the crypto space involves projects launching with a small percentage of their total token supply in circulation, with the majority locked up for a period of time. This practice is known as the “low-float, high FDV” launch. Research by CoinGecko shows that nearly 25% of the industry’s top tokens utilize this model. Recent projects like Starknet, Aptos, Arbitrum, Optimism, Celestia, and Worldcoin have all adopted this approach, with Worldcoin locking up a staggering 95.7% of its token supply.
However, this model is problematic as it distorts the market signal and misleads participants, both current and potential. By restricting the movement of tokens, the true demand for the project is obscured, leading to private investors capturing most of the upside potential while the public markets receive little benefit. This short-term focus on metrics at the expense of long-term sustainability erodes public trust in the industry.
The concept of token vesting in the crypto world differs significantly from traditional finance practices. In traditional corporations, vesting mechanisms are used to align incentives and ensure stakeholders meet certain performance expectations. However, in the crypto space, tokens are merely locked up for a set period with no performance conditions attached. This lack of true vesting mechanisms leads to distorted market signals and disadvantages public token holders who join a project post-launch.
While lockups may delay token sales, they do not prevent them entirely. Eventually, these locked tokens will flood the market, putting downward pressure on prices and causing an artificial decline in market capitalization. This practice undermines the ability of network participants, such as validators, to accurately predict income and operational costs based on market signals.
Calls for fairer token distribution models have emerged, with the concept of a “free-market launch” gaining traction. This approach allows all participants to freely express their preferences by buying or selling tokens as they see fit. By enabling transparent and real-time trading, this model promotes a more meaningful price signal and fosters a sustainable community of committed stakeholders.
While the free-market launch approach is often associated with meme coins, its potential for creating vibrant and organic communities should not be overlooked. Experimenting with new token distribution strategies is crucial for the long-term success of projects in the crypto space. Breaking away from the current vesting orthodoxy and embracing innovative approaches like the free-market launch can lead to the development of projects that offer real utility and value to the world.
In conclusion, it is time for the crypto industry to move away from the status quo and explore new ways of token distribution that prioritize transparency, fairness, and long-term sustainability. By challenging existing practices and embracing innovation, the industry can pave the way for a more vibrant and thriving ecosystem that benefits all stakeholders involved.