Fair Launch brings liquidity mining to a new level. As the name suggests, liquid mining is a "share" of the agreement they hold by distributing management tokens to participants. From the perspective of traditional finance, liquidity mining can be said to be very generous, because it is like a social media company giving KOLs or Tesla giving early customers company shares.
However, when liquidity mining is revitalized, the emergence of fair start takes a different approach, requiring 100% of the tokens to be distributed to the community.
According to Hasu's summary, the main principles of a fair start can be summarized as follows:
- All participants must obtain tokens through work or capital
- Participation does not require permission
- No one has early access to tokens (No Early Access)
- No token distribution to founders
In order to illustrate the difference between fair start and traditional project start mode, we will follow the above principles and analyze Uniswap and Year. Uniswap is a project incubated and launched by VC, and Yearn's launch has opened the era of fair launch in the DeFi field, that is, 100% of YFI tokens will be issued to the community.
All participants must obtain tokens through work or capital
As the only way to mine YFI, participants need to provide funds to the YFI token pool of Curve and Balance, that is, provide reserves for YFI token transactions. Considering that the amount of capital provided by participants is the only criterion for token distribution, the whole process is still beneficial to large liquidity providers such as giant whales or crypto funds.
At the same time, most projects initiated through traditional channels rather than fair start also follow this principle. For example, due to leading liquidity supply and protocol development, Uniswap early investors including a16z, Paradigm, Parafi, etc. received 17.80% of the token distribution, and the founding team occupied 21.51% of UNI.
Source: https://uniswap.org/blog/uni/
Nevertheless, the distribution of UNI did not completely follow the above principles. It is worth noting that 120,000 failed transaction addresses (they did not contribute to the development of the protocol) also received 400 UNI tokens short.
Participation process does not require permission
For a fair start project, although the founding team or insiders can take the lead in mining because they have first-hand information, the news can also be quickly spread on social media. As long as this information is obtained, participants can participate in mining on an equal footing with others. Take YFI as an example. On the first day of mining (July 17), only 9 addresses received YFI. There were 363 addresses the next day. At the peak of mining on July 25, 3550 addresses received YFI tokens (although many of them were obtained from the secondary market).
Source: Etherscan.io
In contrast to anyone who can equally participate in the distribution of YFI tokens, Uniswap uses multiple rounds (some of which are only for institutional participants) for token distribution. For example, in 2019 Uniswap received seed financing from Paradigm, and in August of the following year, it received $11 million in Series A financing led by a16z. These funds were subsequently used to expand the team and build Uniswap v3.
Once the UNI token launch was launched on September 16, 60% of the UNI tokens have been distributed in a unique way that has a wider audience than most fair startups.
Source: Etherscan.io
No one has early access to tokens (No Early Access)
Ryan Sean Adams put forward an interesting idea: Fair startup is a better choice than traditional startup Moss, which is backed by VC, because VC mainly cares about "their investment returns-not project development itself ".
However, due to the lack of early support from VC, the founders did not have the ability to deploy audited contracts. In order to solve this problem, IDEO CoLab Ventures investors established Fair Launch Capital with the purpose of providing founders with an opportunity to conduct agreement audits before fair launch.
However, as mentioned earlier, a fair start is often more beneficial to large liquidity providers. Therefore, it is very likely that many anonymous users participating in YFI mining still only care about the benefits of their investment in capital.
In addition, fair start may not have as many lock-in clauses as projects supported by VCs, so the agreement of interests between the project and the funding provider may face greater risks than other situations. For example, although UNI’s VCs can participate in the distribution of UNI very early, all investors have long-term exercise plans to ensure consistent interests in the foreseeable future.
Andre said that for YFI’s release, he didn’t want to make any statements about (against) VC’s views, but just envisioned Fair Launch as the best way to attract more users and create a vibrant community around Year. .
No allocation to founders
When Uniswap obtained a considerable amount of YFI tokens (21.51% of the total supply), Yearn’s founder Andre Cronjie did not obtain a YFI token!
But why? After all, Andre has spent time, effort, and money to build Year, isn't he worthy of YFI? If he competes with large capital providers in mining tokens, he may be at a disadvantage.
Maybe a search on Twitter can provide us with the answer:
In addition, YFI can also shorten the mining time of governance tokens, so that the founder may eventually hold a significant portion of its governance tokens. However, considering the huge amount of funds attracted by YFI mining, the chance of Andre successfully mining most of the YFI tokens will be very small. Therefore, the lack of incentives for the founder of a fair start is its biggest shortcoming.
Most importantly, the design of the token model is essential to encourage community activities and establish a customer base. Although YFI and UNI follow different project startup models, as we explained in "Governance & Community in Blue Chip DeFi", the token economic model is the key to creating an active community.
Conclusion: DeFi in the post-YFI era
With the great success of YFI, Fair Start will quickly flood into the DeFi field. However, with a few exceptions, most of the projects are simply duplications (forks) of existing agreements, rather than expanding innovative solutions in this field. In extreme cases, such a fork may hinder the healthy development of the DeFi industry, because there is no innovative fork, whose sole purpose is to seize ownership, which may create an unfavorable environment for researchers, developers, and entrepreneurs.
Blockchain is indeed a public product. However, in order to bring the dividends to the public, we need to rely on people of insight to develop powerful applications based on the blockchain. These people of insight are not only driven by altruism, but are aware of the opportunities and impacts that this technology can bring. If the founders continue to be threatened with financial interests, they may also lose the motivation to continue to create. After all, this is why society creates patent rights for researchers and entrepreneurs.
However, DeFi does not rely on supervision, but maintains the healthy development environment of the project through the community. So far, the DeFi community has assumed this responsibility. Among the forks, only those agreements that were very different from the original agreement gained significant gains. The original protocols (Uniswap, Curve, AAVE, or Compound) still dominate their respective fields despite the great pressure of forking.
Through lessons learned, the token distribution model is crucial, and fair start is a good tool in the process of guiding the protocol to expand itself. However, a fair start may not be suitable for all projects.
The example of Uniswap shows that building a strong community requires the strong participation of the founding team, which means that the main indicators that determine the success of the project and push the community toward the agreement are its authority and innovation. Similarly, due to the successful technology, even if Andre chooses a different token distribution concept, the success of YFI is beyond doubt. In addition, if Andre holds a large amount of YFI tokens and is fully committed to protocol development, the YFI community may be better.
Overall, having a strong incentive mechanism for founders will attract more talented people to join the DeFi ecosystem, while ensuring that innovation continues to sprout. Therefore, no matter what model is used to initiate the project, providing founders with incentives is in line with the choice of maximizing community interests.