Hack VC Partner: The project applies better liquidity management and task incentives to solve the problem of large-scale token unlocking
By Ro Patel
Compiled by: Xiaobai Navigation coderworld
TokenCurrent status of allocation
A trend in the current market cycle is high valuations and low initial circulating supply (i.e. “low circulating supply/high fully diluted valuation (FDV)”).Token”) token issuance, which triggered the cryptoCommunityConcerns about sustainable upside for public market investors. A large number of tokens are expected to be unlocked by 2030,Unless demand increases, there could be potential selling pressure.
Historically, contributors to protocol networks have typically received a percentage of the fully diluted supply of tokens, which are distributed according to a certain term structure. Contributors should be compensated appropriately while balancing the interests of other stakeholders, especially public market token investors. This is critical because if the distribution of tokens is too high as a percentage of the token's market value and available liquidity, the distribution event may have an adverse impact on the token price, harming the interests of all token holders. On the other hand, if contributors are not compensated adequately, they will no longer be motivated to continue working on the project, which will ultimately harm the interests of all holders.
Classic token distribution parameters include: percentage of tokens distributed, cliff period, distribution duration, and payment frequency.All of these parameters operate only on the time dimension.However, using only the typical parameters mentioned above limits the scope of solutions to a narrow dimension, and introducing new parameters can unlock previously untapped value.
In this article, I propose to increaseLiquidity or milestone-baseddimensions to optimize and improve the most common token distribution models we have today.
fluidity
Consider tweaking the liquidity token distribution plan. The idea is to extend the normal distribution structure by introducing a new parameter: liquidity. Defining liquidity is not an exact science and there are many ways to quantify it.
One measure of liquidity is the amount of liquidity a token has on-chain and centralizedexchangeThe availability of buy-side depth on a CEX. The cumulative sum of all buy-side depth has a notional value, which we can call“bLiquidity”(Buy-side liquidity).
Contributors can add an additional parameter to their distribution terms, namely a “bLiquidity percentage” or"pbLiquidity", which can theoretically be between 0 and 1.
When an allocation request is initiated,contractCan output: min (tokens to be collected under normal distribution output, pbLiquidity * bLiquidity * token unit FDV).
Here is an example to illustrate this: Assume a token with a total supply of 100, and 12% (12 tokens) are allocated to contributors in the allocation, with the token price being $1 each. Assume a linear allocation over 12 months from the Token Generation Event, with no cliff period, and that the token price remains constant for simplicity. Typically, an allocation would allow for redemptions of 1 token per month, regardless of other factors. Now, assume that 20% of pbLiquidity is allocated in the allocation, and that within 12 months the token has at least $10 of bLiquidity. In the first month of the allocation,contractThe bLiquidity value of $10 will be looked at and multiplied by the pbLiquidity value of 20%, which gives $2. Based on the above function, 1 token will be distributed as normal, because 1 token*$1 is less than $2. However, if the above value is changed to $2 of bLiquidity, then $2 of 20% is $0.40, so instead of 1 token worth $1 being distributed, 4/10 of a token will be distributed. This is the liquidity adjusted distribution.
Advantages
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Previously, allocation requests only cared about time, and perhaps only indirectly about whether there was enough liquidity to absorb the allocation at a given price. This structure explicitly states that contributors should focus on building liquidity for their tokens, and aligns that goal with specific incentives.
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Token holders who are not in the allocation (i.e., liquid market buyers before the unlock date) can be assured that a single allocation request will not cause a price crash in thin liquidity. Previously, public token holders could only trust the integrity and intentions of those claiming tokens. With this improvement, they now have a clear reason to feel reassured.
Disadvantages/Challenges
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If the tokens never achieve sufficient liquidity, this could cause fluctuations in payments to contributors and could ultimately significantly extend the distribution period.
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This complicates the simple payment frequency that contributors are used to.
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This could incentivize fake buy-side liquidity. However, there are ways to combat this. For example, one could consider bLiquidity within a certain mid-price percentage range, or LP positions with some time-locking element.
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People can claim tokens from an allocation but not sell them immediately, allowing them to accumulate large balances. Later, they may sell all of their tokens at once, which could significantly affect liquidity and cause the token price to fall. However, this situation is similar to someone gradually acquiring a large number of liquid tokens. There is always a risk that a large concentrated group of liquid token holders may sell and cause the price to fall.
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In decentralizationexchangeIt is easier to obtain bLiquidity values in a trust-minimized manner in a CEX than in a CEX, where the order book data is published by the CEX itself.
Before discussing the milestone-based dimension, how can a project ensure that there is enough liquidity to support a reasonable distribution plan? One idea is to reward locked LP positions of tokens as an incentive. Another is to attract liquidity providers. As we have discussed in the10 Things to Consider When Preparing for a Token Generation Event (TGE)” wrote that attracting liquidity providers can be done by borrowing tokens from the project’s funding pool and trading them with stablecoins.exchangeThe pairing helps create a stable market.
Milestone-based allocation
Another dimension along which token distribution plans can be improved is based on milestones. Milestones, data points such as number of users, transaction volume, protocol revenue, total locked value (TVL), etc., capture the overall attractiveness of the protocol through quantifiable numbers.
Naturally, protocols can set binary thresholds or gradients for the above parameters that factor into the distribution plan. For example, a protocol must have more than $100 million TVL, more than 100 daily active users, and/or more than $10 million in 90-day average daily trading volume to receive the relevant distribution in normal time. If these requirements are not met, the distribution amount will either stop completely (binary) or be proportionally reduced relative to the initial threshold target (gradient). Between binary and gradient, the gradient seems to make more sense.
Advantages
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This milestone-based approach ensures that the protocol has a level of traction and liquidity when distributions occur, leading to a healthier protocol over time.
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Milestone-based approaches place less emphasis on time.
Disadvantages/Challenges
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Certain statistics like active users and transaction volume can be manipulated. The TVL metric is less easily manipulated, but may be less important for more capital-efficient protocols. Revenue is also more difficult to manipulate, but certain activities like wash trading can translate into more fees and revenue, so they can still be manipulated in a pass-through manner.
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When judging the likelihood of manipulation, it is important to pay attention to incentives. Teams and investors (i.e. anyone in the distribution schedule) have an incentive to manipulate statistics. Public market buyers are unlikely to manipulate statistics because they have little reason to push for accelerated distribution. Additionally, strong token security clauses in off-chain legal agreements can significantly mitigate malicious behavior by incentivized parties. For example, if a team member or investor is caught pumping volume or boosting user activity, they could lose their tokens, setting up severe penalties for rule breakers.
in conclusion
The current market trend of high valuations and low initial circulating supply tokens raises concerns about sustainable returns for public market investors.Traditional time-based distribution plans may not fully address the complexity of token liquidity issues and market conditions.Integrating liquidity and milestone-based incentive dimensionsIntegrated into distribution plans, projects can better align incentives, ensure adequate market depth, and improve real traction. While these approaches introduce new challenges, the benefits of stronger distribution mechanisms are significant. With careful safeguards, these optimized distribution models can improve market confidence and create a more sustainable ecosystem for all stakeholders.
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The article comes from the Internet:Hack VC Partner: The project applies better liquidity management and task incentives to solve the problem of large-scale token unlocking
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