Tokenomics with Vladimir Menaskop: Part one — from idea to IDO

What are the stages of fundraising for a project, how do different categories of contributors differ, and how do you choose among the many ways to conduct an initial sale? This first part of a broad primer on tokenomics basics, prepared by Web3 entrepreneur Vladimir Menaskop, has the answers.

From the author

Many still fail to grasp that cryptocurrencies, created on ostensibly anonymous, open and decentralised blockchains, are among humanity’s biggest breakthroughs in the past 5,000 years.

The internet of things, artificial intelligence and many other sectors and markets can easily exist without cryptocurrencies—but people would have no place in them. Corporations and states, perhaps; not you and me.

In this series I will focus on a few milestones and, above all, on the sequential stages of tokenomics itself, so that Web 3.0 and Web3 (WW3) can keep developing. For all of us.

From terms to stages

So, you have decided to build a Web 3.0/Web3 startup. Excellent. But what exactly is required? I will skip the generic checklist this time and go straight to the deeper details.

The term “tokenomics” is formed from two words: “economics” and “token”. Put simply, tokenomics is the internal and external economics of a token.

Its stages are:

• zero, or preparatory;
• primary, or TGE;
• secondary;
• additional. 

From stage zero to the first

At this stage you need to prepare documents, tables, models and everything else that allows you to:

• formalise tokenomics;
• visualise its key aspects;
• link it to the project’s other parts: technical, legal, marketing and organisational. 

Tokenomics should answer three questions:

1. Who should receive how many tokens? Define contributor categories.
2. Who may buy tokens before the TGE? Fix which category each contributor belongs to. 
3. When exactly should each receive their allocation?

Of course, this is only a static tokenomics model—or rather, part of one. Still, that is where we start. 

Contributor categories

Team — founders and optioned participants (in the broadest sense). Sometimes, as with Ethereum, founders are split into tranches or other groups, but for an initial allocation this usually does not matter. It used to be an empirical norm that the team kept 10%. With the spread of airdrops this share has shifted and now depends more on the relative weight of allocations across groups. 

Advisers — those who help the team on finance, legal, technical, organisational and other matters. The scope is not constrained: fundraising, legal paperwork, tokenomics design, codebase support, community work and more. 

External contributors (closed rounds) — business angels, syndicates, funds and the like. This cohort usually fights for pole position in rounds.

Community — those who will buy once the token is publicly offered. Sometimes this also includes ambassadors and participants from earlier stages. 

DAO fund — increasingly common in tokenomics; setting up your own decentralised autonomous organisation is typically better than the alternatives. 

Liquidity fund — a pool filled with stablecoins (USDT, USDC, DAI) or other assets, plus tokens for public trading on CEX and DEX. 

Reserve fund — varies widely, from 1% upward, and serves as a backstop for force majeure. 

This taxonomy has weaknesses. First, alongside contributors there are funds (pools) and stages, which muddles dissimilar categories. Second, the concepts of “external contributors” and “community” have fuzzy borders—as, indeed, do team and advisers. Advisers can do no less than founders, and founders sometimes get a seat merely for a small fundraising effort. 

Even so, this is the base. Only after it can we move to the distribution stages as they relate to capital raised.

Stages and methods

Pre-seed, seed, private A, B, С, pre-IDO, IDO are the basic stages for initial sales via decentralised exchanges. In practice, labels vary by jurisdiction (US, EU, CIS, Asia), founder experience and so on. 

To orient ourselves, here are several related categories:

TGE — Token Generation Event. It used to resemble an ICO or an ITO, but today TGE more often means the technical birth: a smart contract is created and deployed on-chain and a token is issued. This is treated as a sufficient legal fact to start clocks under SAFTs and other agreements. 

ICO — Initial Coin Offering. The ICO era began with Mastercoin in 2013 and ended with the big 2018 sales such as TON (GRAM). 

IEO — Initial Exchange Offering. Popularised in the crypto winter of 2018 and still around. Tokens are sold on a centralised exchange—via a drop or through listing. Each venue has its own terms: Binance says it does not charge for this, whereas Exmo, by contrast, publishes clear rates. 

ITO, INO, IGO — terms akin to the above. They typically arise for two reasons: legal spats with the SEC (ITO was born that way) or the emergence of new sale methods—say, via NFTs (Initial NFT Offering), IGO (Initial Game Offering). 

It is crucial to see TGE as a technical and organisational process that formalises a token’s birth in law. The rest is the form in which it enters the public domain.

A token can appear in the following ways:

1. By deploying a smart contract and surfacing it on an explorer. Most often used in testnets when a quick claim is needed (a token claim).
2. By creating a faucet with a front end. Popular in crypto’s early days; today used mainly for testnets or community tokens.
3. Mass distribution (airdrops). Projects once pushed tokens directly to wallets, but owing to abundant spam and «poisoned» transactions the method fell out of favour. The more current approach is a retrodrop claimed on the official site. 
4. Exchange listing. Some projects try to list anywhere they can, mixing CEX and DEX (most often AMMs such as Uniswap). 
5. Through lockers. Via wrappers (for example, wNFT) or otherwise, tokens are stored until vesting and cliff periods run their course. 
6. Any mining—via hardware or software (“tappers”). This, too, is a way to bring tokens and coins into being. In that sense, mining is the monetisation of trivial actions—tokenising them. 
7. Other methods, including exotic ones. 

Once you have decided how to create the coin or token, you can move to fundraising stages.

Some frequently asked questions.

How many rounds should there be? 

As many as you like, but not fewer than two, to separate early and late investors. A sequence such as “pre-seed, seed, private A and B, pre-IDO, IDO” is a workable template. 

How is the token price per round calculated? 

There are many methods. My preferred one: study the target market—or, if it does not exist, adjacent sectors or niches. Produce a valuation. Estimate your potential share of the segment. From that, derive the token count so it matches a notional maximum of notional users, and obtain an initial price.

May we label rounds differently? 

Yes. Venture capital has settled on certain terms, with seed typically before private. But there are no set-in-stone standards in WW3, so you are free to invent your own—and in some cases that is better. 

Initial token price

A token’s price should reflect at least three factors: market psychology, industry benchmarks and the project’s specifics. 

In more detail: 

Market psychology includes:

• the phase: bull (everything rising), bear (everything in the red) or stagnant; 
• whether the token’s price will sit in the customary “below $1” range. Buying one token for $100 versus a million tokens for the same $100 feels very different;
• which trends dominate: the ones you have picked or the opposite? Launching, say, an NFT startup in 2018 is one thing; in 2021, another; in 2024, a third. 

Industry benchmarks include:

• at what prices did competitors or similar projects sell?
• at what prices do they trade at your TGE? 
• what are their trading volumes? 
• did any competitor execute a split—either multiplying token counts or, conversely, a denomination? 

The project’s own features decide the end state: YFI needed only a few tens of thousands of tokens; Bitcoin, fewer than 21m (fewer, not exactly); Ethereum needed infinite issuance that, thanks to burning, turned the model into a deflationary one. 

Deflationary and inflationary models

Opinions differ; mine is classical. There are two models:

• deflationary — a capped supply, as with Bitcoin;
• inflationary — an uncapped supply, where mining or other mechanisms keep “birthing” new tokens or coins. 

That is a simplification, since there can also be:

1. Quasi-deflationary models, in which some tokens are burned, steadily reducing outstanding supply. A close example: Ethereum after the move to PoS. 
2. Quasi-stable models, in which supply may be capped or not, but the token is issued with reference to a unit of account. Example: USD. 
3. Others. 

Classifying issuance is a big, complex topic. Whether the final model is hybrid or pure is up to you. 

How do we conduct the initial sale?

Today, the following token-distribution methods are common:

• IDO;
• INO;
• IEO;
• airdrops;
• mining in the broad sense;
• others.

Which to choose? There is no universal answer, but some principles follow from patterns seen across WW3 projects and established market behaviour. 

If you have a niche product and a clear business model, use an IDO: it demands little liquidity, can be done in any convenient network and does not require large marketing budgets. 

If your project is mass-market, an airdrop may fit—though be ready for possible backlash. 

In practice, no method excludes another:

1. After a drop, market participants list tokens in DeFi, effectively creating a post-IDO.
2. If a project succeeds, CEXs take notice and approach for a “secondary” listing—effectively substituting for an IEO.
3. Projects increasingly use NFTs as a boost, SBTs or other perks, so IDOs and other formats often contain an INO component.

The choice of initial sale is first ideological, then marketing, partly about legal risk and only thereafter about tokenomics and technology.

Documentation

It is best to formalise tokenomics via three documents:

1. A summary table for quick visualisation, plus a few explanatory charts.
2. A litepaper covering the project in 3–10 pages, from concept to tokenomics.
3. A white paper—a fuller document than the LP, increasingly written on GitBook. It may run to 10–30 pages and more. 

You also need legal documents and a minimal technical token spec that includes:

1. The blockchain on which it is issued.
2. Whether a multisig is used for the initial issuance.
3. The token name and ticker.
4. Basic parameters: total supply, circulating supply and others.
5. Decimals—how many digits after the decimal point the token supports; for example, 1 satoshi is 1/100,000 of a bitcoin. 

By this point it helps to have a minimal technical roadmap to map against tokenomics, as well as a marketing plan to clarify how, after the IDO, the basic law of tokenomics will be applied. 

End of part one