How to Distribute Tokens

Transcript

Hello everybody. All right. So, I'm going to talk to you about how to distribute a token. This is one of the things that in the crypto industry we've learned through experience, what works and what does not work and how you distribute ownership of something new to a lot of people. So, I'm a crypto VC at a fund called Dragonfly and I've seen how all of this has played out firsthand. So, let's walk through it. All of this began with Satoshi Nakamoto and the creation of Bitcoin. And Bitcoin was distributed through proof of work. The idea of proof of work was that everybody has their own computer. And if everyone has their own computer, their computer can mine and get ownership in Bitcoin. That's the idea. Now, it turned out that he was a little bit naive about how all of this would play out over time because it

turns out dedicated compute, specialized compute, is actually better at mining Bitcoin than your computer is. Today, if you try to mine Bitcoin with your own computer, you're not going to mine a single Bitcoin in your entire life. It's just way too difficult to do with a normal CPU. And so proof of work turned out to be rewarding specialization. It rewards professionalized miners who have special equipment, special data centers, which is really not what the original spirit of Bitcoin was supposed to be. So that moved a lot of people gradually away from proof of work toward what became known as proof of stake. Proof of stake is this idea that was really championed by Vitalic, who was just on stage in Ethereum. The idea of proof of stake is okay proof of work didn't quite go where we wanted has these environmental externalities but what if

we imagined that everybody kind of had like a virtual computer but a virtual computer costs money. So what if we just say okay you have money and everyone has some amount of money and using that money you can help secure the network and if you have some money you vote you get some more money. It's kind of a a very uh garble version of how proof of stake fundamentally works. But everybody who has stake can ultimately vote to secure the network and behave accordingly. If you behave badly, we take away your money. So that's proof of stake. And that's how Ethereum basically uh Ethereum and networks after it eventually got distributed. And that requires you if you're doing proof of stake, you have to answer a fundamental question that you didn't have to answer in proof of work, which is how do you originally distribute the tokens that

end up people people use to secure the network? So the the first answer to this was ICOs. So, Ethereum was one of the very first ICOs. And of course, uh if you got bought Ethereum in the initial ICO, you were up a cajillion dollars, I don't know, whatever it is, some some massive percent. And of course, there was a big boom of ICOs that took place in 2017. But ICOs eventually fell out of favor uh because of the fact that there was a lot of regulatory surface area, a lot of scams, a lot of people got defrauded. And so people moved away from ICOs and they decided that instead of just saying who spends the most money gets the initial tokens and gets the ownership of this asset. Instead we move to what are called airdrops. And airdrops kind of imagine them like helicopter money. So you use my asset,

you're part of my network, you're part of my community. I'm going to just give you tokens for free because you used my thing early. You supported me in the early days. Um and so the the rise of these um airdrop tokens led to you know the first generation of people were like wow that's so great I got free tokens now I'm a part owner of this network well after that very first generation unis swap was the most famous that did this massive airdrop that distributed the initial supply of tokens um you you got the rise of what's called airdrop farming and airdrop farming are people who realize like hey if I use this thing early I might get their tokens when they do an airdrop so I should just use everything early I should just use a kajill million things early and in fact I should maybe make up fake people that

also use their thing so they can get tokens and so this has now become this almost like professionalized thing where you have these you know I don't want to call them scammers but people who are taking advantage of the rules and using that to get access to a bunch of different communities a bunch of different products when they launch their own tokens so you can see there's all these farming guides that people use all over the world to try to get access to all these token distributions so farming itself uh makes it makes a lot harder to do these we give some tokens to everyone in our community because there's people who can take advantage of it. So that moved us away from these vanilla airdrops to what are now called points. So points are this mechanism where okay, instead of saying I'm going to give you tokens in exchange for using

my product, I'm going to give you points and someday those points will convert to an airdrop, but I retain the right to decide how those points are allocated. And if you start doing things that look fishy to me or that I don't like or that I don't want, I'm going to change the way that future points get earned. So maybe in the beginning everyone who uses my product gets some points but later I realize hey actually it's not so good for people to get points for just using my product but people use it for 10 seconds and throw it away. So instead I'll say I'm going to reward people now with points who are using my product every day or who are using these features or who are depositing money or whatever. So points give you the flexibility to say I'm going to reward this not that and I adapt over time

seeing what people are doing and what's actually valuable to my product. And so that's most of where we ended up today in crypto. But there's a lot of talk now about the future of distributions of maybe even looking at not just how you're using my application, but how you use previous applications, right? Because at the end of the day, what I really want to know is are you a good user? And a good user was probably a good user in the past, too. You didn't just suddenly become an when you started using my product. If you're an you're probably an to many people before. Something almost like credit scores, I think you can see starting to develop within the crypto world. Um lastly I want to I want to just leave you with this quote is that uh we're seeing a lot of experimentation. Uh there was a great

quote by Lewis Brandeise the Supreme Court justice who said a single courageous state may if its citizens choose serve as a laboratory and try novel social and economic experiments without risk to the rest of the country. This is known as the laboratories of democracy. Every state in the same way in crypto every crypto project has the ability to experiment with different ways of distributing tokens and ownership and ultimately seeding what will ultimately become the state corresponding to that project. That's all for me. Thank you everybody. To you all.