There's something happening here What it is ain't exactly clear There's a man with fud over there Telling me I got to beware
Buffalo Springfield, 1967
TL;DR
- Crypto projects are usually funded by VC capital or angel investors; this capital pays the devs and other expenses.
- Token values for these projects depend on the amount of liquidity within pools as well as other factors like circulating supply and (in rare cases) utility.
- Fair launches do not have the support of investors, development costs are covered by token sales, or in worst-case scenarios, out of the founder’s pocket.
Crypto Companies 101
The other day there was plenty of commotion in the SORA network “Serious Chat,” the main subject of the conversation was regarding the outrage it causes the community to have to pay developer fees to the company working on the network infrastructure.
It is indeed a “decentralized” network like many others out there, where there is either a DAO or a treasury that is in charge of managing the funds that go toward paying the devs or adding liquidity to the pools that give their respective tokens value, but in this case, it is different.
When you turn around and look at the others [projects], the way funding usually works is that one or more of the project founders or “visionaries” goes out into the world and tries to fish a whale or two (or more) to put up a part of the capital that will go toward keeping the lights on.
In some cases, there is an initial offering and allocation of the network token at a bargain price for the project team and for some deep-pocketed entities or individuals to get as much of the circulating supply as possible before this is made available to the public and eventually added to a liquidity pool where a mix of luck, FOMO, and timing will determine the outcome.
In these cases, there is a fixed supply which is determined through many factors, which vary drastically according to the tokens.
You could even compare this to a publicly traded company, of which the tokens are the shares. Just like the majority shareholders of a company usually make up the board of directors, these massive token holders in some way get to call the shots about the direction the project takes, but…
Who Are the Real Shareholders?
You would think that following the somewhat utopic notions of tokenization that the advent of blockchain technology and smart contracts have brought upon finance, that all token holders get to have a say in how the project is run and what direction the project takes, after all, there must be some utility to the project and some necessity being solved thanks to its existence… right?
Well, you would not be completely wrong, but then again, just like in the corporate world that blockchain tokenization is trying to revolutionize, whoever has the majority of the shares decides what direction to steer the ship in, and in some unfortunate cases, even sinks it. But don’t worry, there is a light at the end of the tunnel, and it is called “fair launch”.
Although the most widespread notion of a fair launch implies that neither the team nor developers get a token allocation before the general public does, depending on the project, there is also an allocation to VC or other investors that differs in some way or another from that available to the public during the token’s genesis.
Back to the topic of funding the development work, the early allocations in many cases are determined for the purpose of keeping the lights on, the web hosting services running, and indeed, funding the roadmap milestones that the project has (or should) by this point of the game.
Social media feeds are ripe with announcements of investors (some even serial) collaborating with projects to give them a runway that will allow them to comfortably work for months or even years, but what you never hear is what the projects do to get these funds. A secondary effect of these announcements is that the “investors,” either loyal or speculative, buy up more of the project’s tokens and pump up the price, a nice consequence for sure.
But what about the other side of the token? How does the fair launch project address development costs, especially if they don’t want to succumb to the whims of the whales? Well, that’s a totally different story…
Devs Must Get Paid
Circling back to the beginning of this article, developers invoicing the community for the work done is hardly something that you read of, as traditionally, founders ensure that VC investment covers development work beforehand, but in a case where VC funds are not present and unicorns are mythological creatures, there is no other alternative.
It is important to distinguish between a crypto-shareholder or “hodler” and an employee as well as how one works for the benefit of the other. The expression “[project] is not a charity” holds true, as devs have their own bills to pay and although there is passion for the project, there also has to be a remuneration for their work.
At this point, you might be asking yourself “why doesn’t the project simply find an investor?”
Well, my dear token holder, you are said investor. There are millions of words written across several publications that talk about the value of community in web3 and decentralized projects, where the illusion of a community-based, grassroots, libertarian movement will come and save the world from the corporate greed that is currently oppressing and draining it, but few have come to realize that there is also rampant community greed.
The community is just as responsible for projects tanking by dumping their tokens in ways that would make Cathy Wood blush. Indeed if Elon Musk's tweets can pump a token, doesn’t this make the crypto world no better than the stock market that cryptonians so passionately complain about?
Take the SORA example, after the community was served with an invoice for developer time, which was broken down with a degree of transparency and openness that is hardly seen in the crypto sphere, the token value tanked.
Plain and simple, people are not willing to pay for the services they receive and benefit from, but if this is the case, why should they profit from what they refuse to pay for?
That seems like a very grim outcome, but what are the solutions? Are there any solutions? or better yet…
Wen Marketing?
The more people know and use the product/project, the better it will be for valuation, market cap, etc. Indeed when more volume is needed, it directly translates to more user adoption, and why wouldn’t users be drawn to a network that boasts one of the best, fastest, and nicest looking dexes in the Dotsama (Kusama/Polkadot) ecosystem, nay the entire blockchain space?
You can come at this humble author with any and all the excuses and defensive stances you want. But ultimately, the user experience is what counts. I invite you, or actually, dare you to use Polkaswap and then go back to using any other dex.
Apologies for the digression, we were on the topic of marketing. The space that is building on the notion that data harvesting and marketing based on this data is an outdated model that should be rendered obsolete and totally rebranded to the third iteration has a problem with marketing all on its own.
Currently, to get the momentum needed to benefit from the funds that allow people to buy pixelated images that are expensive enough to spawn clones from Tiffany’s can only be achieved through word of mouth from insiders or influencers calling their communities to invest based on the trust they have.
This, of course, comes at a steep price, and there are individuals who have been labeled as fraudulent (with some of them even going as far as to fight back), but these strategies all feed into the desire to profit. But what is actually worse?
Tapping into a user’s habits to do the best they can to sell them things they want, even though this information was harvested in an illegal way, or convincing them that they will make bank from something that may or may not be successful and may or may not have the means to back the claims that are made? What is the proverbial hand that pulls the rug, and who is…
Behind the Rug
Well, that depends on your definition of a rug pull. The Key Opinion Leader (which is a fancy way to say influencer, and the only way you can do marketing in China) will certainly make a win, with payments in either fiat or tokens (or both), and can turn around and dump at the drop of a hat.
When the KOL’s loyal audience sees this and calls rug (as is done by default in crypto), then all this effort and money invested by the project goes down the drain, along with all credibility and reputation… talk about a return on marketing investment.
But rug accusations are also called when, for example, the circulating supply of a project goes much higher than what keyboard traders consider profitable, so if the whole point of your project is to mint tokens to be invested in funding projects or goods and services for the benefit of society, well this entire premise will be considered a rug pull by the degenerates that simply buy a token because someone on the internet told them they would be able to make some money on.
And what about airdrops… who doesn’t love free things, right?
Usually, there would be an allocation destined specifically for free samples, but nothing with any value is ever free. Someone has to pay for these samples to have any value backing them, which is another issue because an effective part of marketing or at least one that has the effect of garnering user attention is, in fact, airdrops.
Use the A word in a public forum and watch how your DM blow up with messages asking wen and where, but just like the KOL’s before them, the airdrop ends up being dumped, with the recipient making 100% profit.
Can you ever win? Can you ever win if you are spending your own money instead of someone else’s to build? Is the whole utopic premise of blockchain-based currencies to revolutionize the Internet even worth the time of day if you’re not a degenerate?
This is quite the pickle for a project based on economic principles and moral standards backing healthy inflation, simply because the market has no morals (not at least when their hard-earned money is involved), or the third iteration of the internet does not really have the solution to the problem it is attempting to solve.
In Conclusion/Show Me the Money
I would like to think that there is a solution. With projects focused on raising funds for productive purposes to try and fix what Federal Reserves and Central Banks have broken, people have the opportunity to make a difference and fight the oppressive systems that they have come to get used to.
It is important for everyone to get better acquainted with what money is and how it’s made, what banks actually do, and why decentralized finance is so important. Some could argue that the rampant pursuit for profit in the crypto sphere is a result of the desperation that tradfi has provoked in people, but this also perpetuates the same cycles.
If you take Terra/Luna as an example, it is clear that the same debt-based interest systems cannot exist in the space, and value cannot be extracted out of thin air, everyone can play their part in making the existing system collapse from its own weight (or lack thereof) and back systems that focus on generating collective value instead of individual wealth, which is bad for economies since it is concentrated and doesn’t work.
I mean, if billionaires didn’t have all those zeroes sitting idly, then there would be less inflation, at least in theory, so why, given the freedom, are we all so eager to repeat the cycle? Why is a fair launch not really fair?
Paranoia strikes deep Into your life it will creep It starts when you're always afraid You step out of line, the rug come and take you away
We better stop, hey, what's that sound Everybody look what's going down
Buffalo Springfield, 1967
Disclosure of Interest- The author is a degenerate gambler. This piece is merely an opinion, any and all relations to reality are merely coincidental and should not be used as investment advice, but rather food for thought and debate. The author suggests reading about money production, credit creation, and debt-based economies. Further, the author is not open to value judgments about the veracity of this piece.