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.<\/p>\n
Many still fail to grasp that cryptocurrencies, created on ostensibly anonymous, open and decentralised blockchains, are among humanity\u2019s biggest breakthroughs in the past 5,000 years.<\/p>\n
The internet of things, artificial intelligence and many other sectors and markets can easily exist without cryptocurrencies\u2014but people would have no place in them. Corporations and states, perhaps; not you and me.<\/p>\n
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.<\/p>\n
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.<\/p>\n
The term “tokenomics” is formed from two words: “economics” and “token”. Put simply, tokenomics is the internal and external economics of a token.<\/p>\n
Its stages are:<\/p>\n
At this stage you need to prepare documents, tables, models and everything else that allows you to:<\/p>\n
Tokenomics should answer three questions:<\/p>\n
Of course, this is only a static tokenomics model\u2014or rather, part of one. Still, that is where we start.\u00a0<\/p>\n
Team<\/strong> \u2014 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.\u00a0<\/p>\n Advisers<\/strong> \u2014 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.\u00a0<\/p>\n External contributors (closed rounds)<\/strong> \u2014 business angels, syndicates, funds and the like. This cohort usually fights for pole position in rounds.<\/p>\n Community<\/strong> \u2014 those who will buy once the token is publicly offered. Sometimes this also includes ambassadors and participants from earlier stages.\u00a0<\/p>\n DAO fund<\/strong> \u2014 increasingly common<\/a> in tokenomics; setting up your own decentralised autonomous organisation is typically better than the alternatives.\u00a0<\/p>\n Liquidity fund<\/strong> \u2014 a pool filled with stablecoins (USDT, USDC, DAI) or other assets, plus tokens for public trading on CEX<\/span> and DEX<\/span>.\u00a0<\/p>\n Reserve fund <\/strong>\u2014 varies widely, from 1% upward, and serves as a backstop for force majeure.\u00a0<\/p>\n 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\u2014as, indeed, do team and advisers. Advisers can do no less than founders, and founders sometimes get a seat merely for a small fundraising effort.\u00a0<\/p>\n Even so, this is the base. Only after it can we move to the distribution stages as they relate to capital raised.<\/p>\n Pre-seed, seed, private A, B, \u0421, pre-IDO<\/span>, 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.\u00a0<\/p>\n To orient ourselves, here are several related categories:<\/p>\n TGE<\/strong> \u2014 Token Generation Event. It used to resemble an ICO<\/span> or an ITO<\/span>, 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.\u00a0<\/p>\n ICO<\/strong> \u2014 Initial Coin Offering. The ICO era began with Mastercoin in 2013 and ended with the big 2018 sales such as TON (GRAM).\u00a0<\/p>\n IEO<\/strong> \u2014 Initial Exchange Offering. Popularised in the crypto winter of 2018 and still around. Tokens are sold on a centralised exchange\u2014via 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.\u00a0<\/p>\n ITO, INO, IGO<\/strong> \u2014 terms<\/a> akin to the above. They typically arise for two reasons: legal spats with the SEC<\/span> (ITO was born that way) or the emergence of new sale methods\u2014say, via NFTs (Initial NFT Offering), IGO (Initial Game Offering).\u00a0<\/p>\n It is crucial to see TGE as a technical and organisational process that formalises a token\u2019s birth in law. The rest is the form in which it enters the public domain.<\/p>\n A token can appear in the following ways:<\/p>\n Once you have decided how to create the coin or token, you can move to fundraising stages.<\/p>\n Some frequently asked questions.<\/p>\n How many rounds should there be?<\/strong>\u00a0<\/p>\n 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.\u00a0<\/p>\n How is the token price per round calculated?\u00a0<\/strong><\/p>\n There are many methods. My preferred one: study the target market\u2014or, 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.<\/p>\n May we label rounds differently?\u00a0<\/strong><\/p>\n 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\u2014and in some cases that is better.\u00a0<\/p>\n A token\u2019s price should reflect at least three factors: market psychology, industry benchmarks and the project\u2019s specifics.\u00a0<\/p>\n In more detail:\u00a0<\/p>\n Market psychology includes:<\/p>\n Industry benchmarks include:<\/p>\n The project\u2019s 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.\u00a0<\/p>\n Opinions differ; mine is classical. There are two models:<\/p>\n That is a simplification, since there can also be:<\/p>\n Classifying issuance is a big, complex topic. Whether the final model is hybrid or pure is up to you.\u00a0<\/p>\n Today, the following token-distribution methods are common:<\/p>\n Which to choose? There is no universal answer, but some principles follow from patterns seen across WW3 projects and established market behaviour.\u00a0<\/p>\n 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.\u00a0<\/p>\n If your project is mass-market, an airdrop may fit\u2014though be ready for possible backlash.\u00a0<\/p>\n In practice, no method excludes another:<\/p>\n The choice of initial sale is first ideological, then marketing, partly about legal risk and only thereafter about tokenomics and technology.<\/p>\n It is best to formalise tokenomics via three documents:<\/p>\n You also need legal documents and a minimal technical token spec that includes:<\/p>\nStages and methods<\/strong><\/h2>\n
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Initial token price<\/strong><\/h2>\n
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Deflationary and inflationary models<\/strong><\/h2>\n
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How do we conduct the initial sale?<\/strong><\/h2>\n
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Documentation<\/strong><\/h2>\n
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