How to use your TGE to supercharge your product

Transcript

hi everyone my name is sanath for i work at the spartan group as a crypto investor for those unfamiliar with us we're a venture firm based out of asia um today i'm going to be talking about token launches in general i just want to preface this by saying it's a little different than what was in the abstract because i kind of planned this stock six months ago and crypto moves really fast so some of that stuff is out of date um the general goal of this talk is just to kind of help protocol teams and founders refine how they think about token launches in general a question that's become especially relevant to founders as kind of we're going through tougher market conditions and a lot of them are trying to figure out what's the best way to launch a token right now

so i'm going to start with some key takeaways and then i'll talk about some more specific examples to sort of illustrate the trade-offs that founders are facing these days when doing token launches and so the key takeaway i think the most important takeaway that i've learned from doing research on this stuff and chatting with a lot of founders is that there does not exist a perfect token launch mechanism and you know we have conversations with founders often and they sort of are just like okay how should we launch a token should we do this should we do that and in fact different mechanisms different venues different avenues for token launches achieve very different goals and so it's super super important that founders spend a lot of time figuring out what

works for their protocol and that's kind of the key step here like you need to think about a token launch and figure out what's most important to you and i'll chat a little bit about some of the goals that founders will can hope to achieve while doing this a couple of the other takeaways the second one is just that good protocol good token launches good token mechanics they don't fix oops don't fix bad products but bad token launches and bad token mechanisms can certainly make good products uninvestable and anyone that's been investing in crypto for some time will probably be able to attest to this the third takeaway and i'll illustrate this with examples as well is that the liquid token market as obvious as it

sounds as a market and so you have a lot less control about what happens in a liquid token market and you can't really defeat it and so it's important to try and sort of use this to your advantage and not try and control what happens once your token is in the liquid market and so um i'll just walk through very briefly about some of the goals that founders may have when they're doing a token launch um the first and possibly most obvious one is raising capital and that's quite self-explanatory i don't think we need to chat a lot more about that the second is liquidity and so liquidity essentially means that your token is not tradable the market is able to find a correct price for it early investors

early team members may be able to have liquidity and that's sort of now there's sort of a market that's determining what your token is worth um i just want to emphasize that if these don't sound like things that you want then you shouldn't be in a huge hurry to launch a token the third is just a tool to incentivize usage so this has been kind of a key thing that has worked for almost worked or not worked for a lot of d5 protocols but this is something that almost all crypto protocols do um and we have other we've had other talks at ecc that go super deep into liquidity mining and what's the right way to do it um i think more than anything else all i'll say here is that um a lot of the kind of research around

liquidity mining has shown that it doesn't actually have all the effects that you expected to in most cases um just generally i find this this sense in founders that they're a little too eager to give away tokens or sort of frivolously give away tokens and so it's really worth emphasizing particularly in a bear market that tokens are a valuable financial resource and you should think very carefully before giving them away um the next one is sort of decentralizing token ownership and i put this in quotes because this is kind of a more nuanced topic um there there's kind of this idea that we decentralized token ownership just because this is crypto and we have a community ethos but underlying this is sort of there's a lot of legal ramifications around securities and a

lot of founders are actually in a hurry to kind of do this because um there's a sense that the sec will come after you if your token ownership is a isn't decentralized enough that utility revenue there's a lot of kind of different aspects to this i'm not a lawyer so i won't talk too much about this but i think one thing that founders in this space do is just sort of copy what other teams have done done very blindly um assuming that there's some sort of legal precedent been set and very often that's not the case so if you're giving away a lot of tokens in the hope of kind of avoiding securities regulation you should chat with a lawyer and make sure that's actually how it works um the last two are sort of rewarding community members and this is obviously a pretty key principle for a

lot of crypto projects um you know i think the day i got my first unit swap airdrop was a pretty special day um in kind of helping me get excited about crypto um but again and i encourage you guys to read there's a lot of interesting research that's been happening about this um a lot of air drops get sold very quickly now and we have ruthless air drop farmers and most founders that we've actually worked with that have recently done it haven't found that it's benefited them in any really meaningful in any meaningful way the last is just to enhance product functionality and this is kind of more specific but if you think of sort of tokens like curve and convex where you know owning the token actually lets you on higher liquidity rewards and plays a big role in how the protocol accumulates

liquidity or games like axi where axi and slp are kind of key to how the game functions and so maybe you're a team that needs your token for your protocol to work um and i won't get into too much detail of this but this is of course another goal for a token launch and so very broadly i think the key principle here is that project teams need to figure out like what are they hoping to achieve when they launch a token and pick mechanisms that work accordingly um i won't spend too much time talking about sort of specific auction mechanisms but um since i'm going to go through some examples just want to walk through some of the more common ones um one of the most common ones that i think we're all familiar with is just a fixed price sale um super simple idea you sell tokens at

a certain price um coin list is probably the venue that people are most familiar with to do this but lots of lots of decentralized venues have been able to do this as well a second mechanic is an uncapped batch auction where you sell sort of a fixed number of tokens and let people put in as much money as they want um this is usually a good strategy if you have some degree of hype around your token and you're looking to maximize your capital raise a third mechanism are sort of dutch auctions and balancer lbps and while these are actually a little different practice the idea is very broadly that you are trying to run a healthy price discovery process during your token launch process during your sort of token auction

the other two you know air drops i think we're all familiar with i also want to talk very briefly about lock drops um they're a mechanism that was pioneered by sort of delphi and a few other researchers it's just an interesting idea that kind of flips the airdrop idea um in the way it it runs um sort of chronologically where with an airdrop you've usually used a protocol and they'll reward you for using it once they launch a token and with a lock drop you sort of agree to either provide liquidity or use the protocol in some manner let's say during its first year and you've already agreed to do that and in exchange you will receive tokens and i also just want to mention that there's multiple venues to do token launches um sushi miso was a very popular one last

year um protocols run their own auctions very often coin lists centralized exchanges as well um yeah so now i'm going to talk about the kind of first case study that i spent a lot of time looking at um and this is ygg and merit circle and so for those of you unfamiliar both ygg and merit circle are some of the kind of strongest teams in the space building out gaming guilds and they both launched tokens um in sort of the second half or middle of last year and this was sort of during a period of very high retail appetite for token launches particularly those related to gaming we were basically in the middle of gaming mania and i think the difference in outcomes between these two token launches sort of illustrates the importance of

thinking through parameters and mechanisms for token launches very carefully and so i'll chat first about the ygg one and so ygg did a dutch auction um it's a very simple idea you set an initial price anyone can buy at that price and during the period of the auction the sort of price is gradually declining and so the sort of price discovery and if you think the price is right you can buy at any point however ygg sort of set the initial price the highest possible price you could buy at quite low it sort of corresponded to a 250 million valuation which was low given market conditions at that time and it was kind of a crazy dutch auction where it was completed in two ethereum blocks and the entire supply was

purchased by 32 accounts um the winning transactions paid one one plus ethan gas fees so you know this is not this is not a great auction this is just kind of people deciding the price is super low and sophisticated market actors who are able to kind of run bots um buying up the entire supply i think about 40 of the supply was bought by one particular account and within a week from this token launch the price of the token had forexed within a month i think it had actually 20xed from the sale price um so again i mean i think the clear takeaway was that the price was set too low um this just kind of shows you know if you see this chart there's kind of the line the price was supposed to gradually fall from

half a dollar to 20 cents um it was all bought up in the first block we didn't even get a chance to move along this graph at all and yeah 32 participants and so if we kind of think of the end result of this dutch auction community and retail participants were certainly excluded from this private token sale which was one of the stated goals of ygg and then the other really big thing here is that ygg left a lot of money on the table so you know the token price increases very significantly from the token sale this massive return is sort of earned by 32 very sophisticated market participants that sort of buy the entire supply using bots and high gas prices and if you dig into the data most of it sold most of them sold it within the

next month um and you know i don't want to i think people often refer to some some token sales as cash grabs but if the money is going to be made by someone it's much better that that money is used to further the interest of the protocol so ygg raised 12.5 million in this token sale bots that bought very quickly on this token sale probably themselves made many multiples of what ygg made from this token sale and that money again i want to emphasize this does not further the interest of the ygg protocol in any way and so this is not a win for ygg token holders at all and you know so gabby and i think gabby is one of the strongest founders in this place had actually tweeted after this saying

that we could have either done a batch auction with no cap and everyone could have probably bought but the ending price might have been above a billion dollars and gabby you know on on an interview had said i think one billion was just like not the right valuation um it felt too high or we do a dutch auction where we capped the valuation but participation could be limited and i think this is one of the kind of misunderstandings of founders where valuation is too high valuation is too low it's just not in your control once you've launched a token and it's live the market will decide a price for your token and so you know gabby here saying that the ending price would have been above 1 billion and we think that's too high the token price was above 1 billion in like 48 hours after the token launch

and that's bound to happen because it is a liquid token market and you don't control what happens to prices in a liquid token market and so i think founders really need to remember this that you can't defeat the market it's much better to just embrace it and try and make sure you reap as much of those gains in a way that furthers the interest of token holders and your own protocol and so to contrast this a little bit i'll talk about merit circle which was another gaming guild um that did a liquidity bootstrapping pool for their token um balancer lbps i don't want to spend too much time on the mechanics you kind of set up a liquidity pool with a starting ratio of some number of tokens and stability i don't if you guys are

familiar with balancer but it's kind of it's a uniswap model except you can kind of set the ratios not 50 50. and the way the kind of the ratios change over time and basically what's happening is that anyone is able to buy at the original price and if nobody buys the price gradually declines but market participants are able to buy and the price will either increase or decrease depending on kind of how many people are interested you know i think the key takeaway is that balance at lbp sort of determine a healthy price discovery process during the auction period um similar to dutch auctions when the price is set right and not too low when you get started and so you know the price of the merit circle lbp also started at one dollar

but ended at 3.2 dollars and i think you know retail appetite to buy this token was very similar to what it was for the ygg token sale and so there were four thousand individual accounts that actually purchased merit circle during the process a lot of these accounts were buying amounts of a few hundred a few thousand dollars which is very different from sort of 32 accounts buying 12 million in the ygg case and i think the last point that i really want to emphasize is that this allowed the merit circle team to raise a large amount of capital um it was 108 million that they managed to raise um and 108 million is a really value valuable war chest if you're thinking in a five six ten year horizon and want to build through a bear market and again the thing i want to emphasize

is that this money was probably on the table for ygg and instead the same money went to sophisticated market participants that ran bots it's not even like you know it's it's not that retail participants were able to earn a very high return um it's very specifically that a set of sophisticated market participants took a lot of the money that ygg left on the table and yeah so again the healthy price discovery process here um the merit circle you know the price would have fallen as in a dutch auction but the retail appetite was high and so the price actually rose um throughout the entire period of the auction um one thing i want to note here as we think about merit circle and ygg and the kind of contrasting token sales they did

is that if your goal is very specifically to sort of reward to reward retail participants allow them to get in at a quote unquote fair price and allow them to share in the upside of the protocol um then you can't sort of run an open-ended dutch auction where anybody including bots can participate and so there's a team called halo dao that i think did a pretty interesting token sale as well um for those unfamiliar there's sort of a stable coin protocol that's more focused on stable coins for um east asian currencies and so halo doubt did a token sale at a fixed price via meso as well where essentially there was a limit that you could only buy six hundred and fifty dollars per address and you know if you if you just ran this on ethereum there's no actual civil

resistance because i can just make 100 addresses and so they sort of actually solved this by announcing the tokens in advance and then if you wanted to participate you had to go through a kyc process that was run through the discord where you sort of shared your identity linked it to your address and that kind of allowed them to make sure that a number a large number of individual users were able to purchase at max 600 of the token and then share in the upside of the token when the price increased um and most teams do this via coin list coin list is kind of centralized infra that just lets you kyc people and ensure that they can buy a limited number of tokens but yeah if your goal is to kind of decentralize token ownership and allow retail participants to benefit and

be a part of your ecosystem then you have to find a way of making sure that the tokens can actually fall in their hands at fair prices that you intend to sell it to them as opposed to kind of a ygg like touch auction where 32 people buy all of it so that's kind of the first example i wanted to walk through um a second interesting example is that you know founders are often um i think particularly in crypto a lot of founders are thinking through um are familiar with auction mechanics thinking a lot about ways to optimize sort of the economic launches they do but very broadly i think we figure out a lot of things about auction mechanics and it's not worth ignoring them and so i tried a little bit about uncapped batch auctions mango markets and how they kind of tried to change

the traditional way uncapped patch auctions runs and how it sort of went wrong and so in an uncapped batch auction let's say you have a period of 48 hours where the auction is running anyone can contribute money and at the end of the period you just see how much money everyone's contributed you figure out how many tokens which is a fixed amount preset that you're giving out for that amount of money and therefore the price just becomes the dollar you've raised and the fixed number of tokens one issue with this mechanism is that if i'm the first person to like put money into this auction i have absolutely no idea what valuation i'm paying or what the price is going to be if a lot of people put in money after me the valuation could get super high

and i basically have no mechanism to exit and so the end result is that there's really no incentive to be the first person into an uncut batch auction unless you're just insanely bullish it's much better to kind of wait till the end and see what the price actually what it looks like the price is going to be and then put in sums and this is kind of an inefficient mechanism you know there's no reward to committing early because the price increased substantially and so mango actually had what i thought was initially a pretty interesting idea to sort of solve this with a complex auction design and so the way they did it was they had a sale period and a grace period and so you know for the first 24 hours you can put in money and even during that time

actually you can withdraw money as well so you put in money other individuals are putting in money as well based on how much money is raised the price is sort of fluctuating you can calculate what the valuation is going to be and if the valuation rises to a point where it's too high for you you can withdraw your money and then there's a grace period where you can only withdraw money and so during the grace period you're all trying to figure out like okay this is what the price will be and then you kind of take a decision this price is too high for me and you can pull your money out and while it sounds nice unfortunately a lot of sophisticated market participants figured out a good way to benefit from this and so this chart um which was made by someone on twitter that i don't know but i

thought was really well done kind of showed how much usdc mango markets gathered during their sale and so there's a sale period and a grace period and at the beginning by the end of the sale period it starts with 200 million and then by the end of the sale period they've actually got 500 million dollars in this uncapped batch auction and you know 500 million is a crazy sum of money at this at the time i believe it was one third of the usdc on solana had been put into this mango markets token sale and if you're a sort of retail investor that puts money in and you see okay there's 500 million and that corresponded to some absolutely insane 60 100 billion evaluation you're probably pretty incentivized to pull your money out and so through the grace period we saw that a lot of the smaller

accounts that had put money in withdrew it and then a set of very sophisticated whales very very close to the end of the grace period pulled out 90 of what they had put in so you know it looked like mango markets was maybe going to raise 500 million maybe people would pull out but sophisticated market participants actually pulled out 90 of what they had put in just at the end to reduce the price very substantially after kicking out sort of smaller participants and they ended up raising like 50 to 70 million um but the sophisticated market participants did a pretty good job of making people think that the price was super high during this sale period and grace period and kind of kicked a lot of others out

and again this is only a thing you can achieve if you have 400 million dollars of cash to kind of play with and so there's only that many entities that can kind of play these games and so it's kind of unfair if again your goal is decentralizing token ownership yeah so this is kind of interesting right so if we looked at the top accounts that had deposited um this one account deposited 71 million during the sale period and five minutes before the sale ended they withdrew like 65 million and so they ended up only putting 4 million in the price they got was a lot lower but they ensured that anybody else in there was very worried that they were going to end up paying a super super high price for this and so again i think it's really important to

there's layers of thinking to auctions and economists and other people have thought very deeply about this and so you should probably be careful when kind of trying to design something new and making sure that it's not sort of subject to attacks like this um the last thing i want to touch on today is more generally thinking about whether you should launch a token in a bull or bear market this is the we've been having conversations with founders in the last two three weeks um opinions very differ very widely on this there's a lot of people who say you should launch a token as soon as you can bear markets are great times to launch tokens um i think it's much more nuanced than that um and there's obviously the opposite end of people who say like you should

never launch a token during a bear market because you won't be able to build a community i think again as i said in the start of this talk there's a very large trade-off space with token launches and it's very very important that you figure out what you need and so advantages of launching in a bull market um capital is plentiful um i think i walked through a few examples where you've already seen teams have raised you know depending on the qual like people have raised 50 million dollars people have raised 100 million dollars coinless sales goes super well during bull markets appetite for public token launches is extremely high during bull markets and extremely low during bear markets and i'll illustrate this a little bit towards the end as well but i think this is a point that's really important to emphasize i think

i think actually private investors and i'm a private investor but private investors of course are also swayed by markets and prices and private markets move very fast as well but it's it's hard to overstate how high variance the appetite for sort of token launches among retail and community investors is based on whether it's a bear market in a bull market like teams building subpar quality products are often able to raise crazy sums of money with some degree of marketing there's kind of hype there's an l1 ecosystem that everyone's excited about they'll fund anything happening on that l1 ecosystem and it's entirely the opposite during bear markets and funds are actually a little better like private capital is usually a little better place to

maybe overpay a little less during a bull market but they're also willing to make more bets during a bear market that retail isn't and when you're launching in a bull market it's easier to build interest and a strong community the disadvantages of launching in a bull market and again this is one of those things that it's sad because it hurts many founders but it's out of their control tokens can reach extreme valuations and you should definitely spend time thinking about how liquid your token is um so that you get a chance to figure out you know there's lots of people that are talking about low low float supply making sure that there aren't dynamics that lead to very sort of unhealthy price pumps but one way or another if the token is very

high priced in a pub in the public market um and you as a founder know it's overvalued it can actually create very challenging dynamics and i think the place where it's hurt a lot of founders in particular and we're hearing this from many teams that we've invested in and found us in the space more generally is that hiring and retaining team members is very challenging because um you know we're all in crypto for the upside and so when you hire team members and your token valuations are very elevated and if token prices decline to what may be more reasonable valuations in bear markets um it can kind of suck morale and break the sort of financial incentive structure that you've put in place for your employees

and so these are all kind of things you have to be super aware of when you're launching your token publicly and make sure that you've kind of thought through these as well um yeah the last thing i just want to chat about is and if you're thinking about you know i know we're at ecc people are really excited about d5 applications i'm in this space because i love d5 um but as pragmatic founders i think it's worth thinking about um when you're thinking about centralized venues versus decentralized venues for token launches and again this is more and more relevant in a in a tougher mark in tougher market conditions um ftx binance by bit coin list and actually many many others

um it just remains true that in crypto the number of users and reits that these platforms have is still far far superior to what d5 platforms have so you know i'm in this space because i want d5 to break all of these platforms but if you're a founder today it's really important to realize that coinless sales and other coinless and ftx still have way more users than d5 does like i think there's under stats vary between two and four million addresses that have ever meaningfully interacted with d5 protocols and that's a very small subset of the kind of user base that took that platforms like binance and fdx have and so you know if to illustrate this

like token sales and d5 usually have significantly fewer participants even the really exciting ones there's usually maybe four thousand five thousand addresses that are participating again this this can be mitigated if you have the right kind of large capital if you have capital allocators with large amounts of money that are willing to participate in your token sales um perpetual protocol which is another really strong team building great products i think there were less than 1500 participants in their token sale um air drops usually go a little better i think the best air drops have had um yeah sorry here the optimism airdrop had 150 addresses claimed again that's very likely not 150k people as much as they tried to sort of

solve for civil resistance and then um hop which is another really cool bridging protocol had about 22 000 people claim their airdrop but again these are these are rookie numbers compared to centralized platforms um so just to kind of illustrate like coin list regularly attracts like anywhere from a quarter to half a million users on token sales and so these are just two you know axle armenia both kind of very interesting technological platforms being built um mina had ha a quarter million users i think xlr had yeah axillar also had i believe more than 300 000 users at peak participating in these token sales so um it's just something worth keeping in mind as much as we all love d5

there are trade-offs in this space um the last thing i want to illustrate is just a point i had made earlier which is that retail appetite for token launches in and it's it's fund appetite as well of course like within d5 we have funds playing as well but raising funding in bull markets from public markets is a lot easier um these are kind of three of the better solana projects um you know mango raised 70 million solent had managed to raise 26 million um uxd are really interesting um stablecoin protocol raised about 57 million and these are sort of balancer lbps that have happened recently i i obviously don't have the team names here but

they're all three teams that um you know some of them we've chatted to they're all building products that they're all building real products um and trying very hard to sort of make something that's useful and unfortunately um they've had terrible market reception and so if raising capital is one of your goals um unfortunately or fortunately it's a pretty tough time to be trying to raise capital in a decentralized way yeah that's it for me thanks [Applause] thank you