Add3, Content
September 12, 2023
10 min reading
Token distribution is the lifeblood of blockchain platforms, serving as the foundation for allocating digital assets to stakeholders. This article dissects various distribution models, from venture capital involvement to airdrops, lockdrops, and public sales, shedding light on how they shape the crypto landscape.
Discover how leading blockchain projects, including Ethereum, Solana, Flow, Polkadot, and Cardano, strategically distribute tokens to investors, founders, and the wider community. We analyze distribution trends, providing valuable insights into the changing dynamics of token allocation in the competitive blockchain industry.
Stay informed about the evolving strategies and trends in token distribution that influence the growth and sustainability of crypto projects.
Crypto Token Distribution — What is it?
Token distribution lies at the heart of blockchain platforms, serving as a crucial technique for allocating digital assets to various stakeholders, including project teams, founders, and the broader community. Essentially, it is the process by which tokens are born and disseminated throughout a blockchain network, often involving early investors who provide essential funding for project development. These allocation models are not merely about dividing up tokens; they are a means to ensure fairness, transparency, and a clear sense of purpose in the cryptocurrency space. The ultimate goal is raising capital to fuel project growth. This process often includes offering tokens at discounts or bonuses to incentivize investors and early adopters. Token distribution models can fall under two categories: those that involve payment and those free of charge. However, tokens bear responsibilities and influence beyond just being units of value, granting holders the power to vote on platform changes and reap rewards.
As we delve deeper into the intricate web of tokenomics, it becomes evident that thoughtful and well-considered token distribution models are paramount, for they can significantly impact a project's trajectory and appeal to potential investors and stakeholders alike.
1. Venture Capital
The crypto world is changing fast, and start-ups in this space are quickly becoming big players. Venture capitalist firms are getting involved in crypto networks and providing funds to these start-ups. However, their approach is different from traditional investing. Instead of buying a piece of the company, they purchase tokens issued by these crypto projects. For instance, Solana Labs, the company behind the Solana blockchain, made a token sale worth $ 314.15 million. The amount earned through this round of private sales went into improving dApps and platforms run by Solana. This way, venture capitalists are becoming a part of the cryptocurrency world, helping projects grow and prosper as the industry evolves.
2. Airdrops
Airdrop entails the direct dissemination of a small amount of tokens to the digital wallets of network users. It is part of a marketing strategy that aims to draw attention to the blockchain project and create a network effect. In other words, it is a reward mechanism that grants active users a certain amount of tokens in exchange for relatively minor actions on their part. The minor action could be retweeting a post, recording a video, posting on social media, subscribing to a social media channel, translating the project's white paper into another language or identifying and reporting system bugs. Founders of a Web3 project often use this distribution model to promote their newly launched crypto project and increase overall awareness around it. Engaging network members and showing appreciation for their support also acts as a helpful method in cultivating a resilient community that contributes to the ongoing success and sustainability of the platform.
3. Lockdrops
Lockdrops represent a unique process in the blockchain world, where users from established blockchain networks, such as Ethereum or Solana, voluntarily lock a predefined bundle of their tokens for a specified duration just before launching a new cryptocurrency project. During this lock-up period, participants relinquish access to their existing token holdings and do not immediately receive the newly minted coins.
Only upon the conclusion of the lock-up period do participants regain access to their initial token bundle, augmented by tokens from the newly launched crypto network. This distribution model relies heavily on the commitment and conviction of participants in the potential success of the newly developed project within the specified timeframe.
Furthermore, the return on investment (ROI) increases in proportion to the duration of the lock-up period and the quantity of tokens committed. In essence, individuals allocate their assets to support a budding enterprise, providing essential capital for its growth and value appreciation. In return, they are rewarded with newly created coins in addition to their initial contribution.
4. Rewards
Founders of a blockchain platform store a substantial portion of native tokens for enlarging the coin ecosystem. Rewards comprise a part of this reserve of native tokens, and their purpose is usually fostering long-term commitment from network participants. Users can earn rewards by staking their tokens or providing liquidity with additional incentives, particularly in crypto gaming. Project advisors are also recognized for their contributions, receiving rewards in appreciation of their time and expertise. So, to further expand the platform and incentivize devoted users, crypto platforms give out tokens in the form of rewards.
5. Public Sales
In the landscape of blockchain platforms, token distribution has seen notable transformations, ushering in various methods to facilitate cryptocurrency project funding. Among these methods, Initial Coin Offerings (ICOs), Initial Exchange Offerings (IEOs), and Initial DEX Offerings (IDOs) have emerged as the three most prevalent avenues for introducing digital tokens to the market.
Initially a household name between 2016 and 2018, ICO was akin to a digital-age crowdfunding campaign. It served as a means for project creators to gather support and investment for their nascent cryptocurrency ideas. Participants in ICOs exchanged their conventional currency, such as dollars, for freshly minted tokens, often with the anticipation that these tokens would appreciate in value over time.
However, ICO's reign dwindled after a surge in scams and fraudulent activities within the space. In its place, IEOs (Initial Exchange Offerings) surfaced as an alternative token-sharing method, leveraging crypto exchanges as a platform for token distribution. IEOs provided a fundraising avenue for coin creators and bestowed the privilege of initial access to new projects upon investors. This method allowed coin creators to secure funding for project development, while early participants stood to benefit should the coin gain substantial value.
In parallel, IDOs (Initial DEX Offering) introduced a more decentralized and direct approach to token distribution. By enabling crypto start-ups to introduce their tokens through decentralized exchanges, IDOs attracted investments from retail investors who could purchase them using cryptocurrencies like Bitcoin or Ethereum. The allure here lies in the prospect of these new coins appreciating value, allowing investors to engage with and support emerging digital currency projects while leveraging their existing crypto assets.
Effective Token Distribution—Blockchains
In a significant move in September 2022, Ethereum underwent a transformative shift from the Proof of Work (PoW) network to the Proof of Stake (PoS) mechanism, reshaping the dynamics of the platform. Unlike the previous system, which involved minting coins through transaction recording, Ethereum embraced a PoS model, introducing validators who stake a specified quantity of tokens. In return, these validators are rewarded with additional ETH as they validate new transaction blocks. This transition to staking enhances security, addresses concerns related to energy consumption, and promotes decentralization, marking a pivotal evolution in Ethereum's journey.
When Ethereum (ETH) started, more than 72 million tokens were circulated. Of these, approximately 83.47% were bought by investors, while the remaining 16.53% were given to the project's founders and creators. This initial sale took place in 2014 and was a significant success, allowing the Ethereum Foundation to raise over 31,000 BTC, valued at approximately $18.3 million then.
2. Solana
In 2020, the Solana blockchain introduced its native token known as SOL. SOL serves two primary purposes within the network: staking and covering transaction fees.
The first 500 million SOL tokens were distributed through auctions and private sales during its initial launch. These distributions took place across five funding rounds, collectively raising over $25 million in total capital. Of the initial token supply, 38% was allocated for airdrops and rewards, 37% was provided to investors, and the project's founders retained the remaining 25%.
Despite its relatively recent introduction, SOL rapidly gained popularity and secured a place among the top 10 cryptocurrencies. As of October 12, 2022, the circulating supply of SOL exceeds 357 million tokens, reflecting its strong presence and ongoing significance within the crypto space.
3. Flow
Flow's journey began in June 2020, marked by the creation of its genesis block, which introduced an initial supply of 1.25 billion FLOW tokens.
FLOW tokens play a dual role within the network, serving as a cryptocurrency and a means for staking on the platform and covering transaction fees.
At the outset, the distribution of these tokens followed a specific allocation strategy. Approximately 29% of the tokens were set aside for rewards and airdrops, while 33% were earmarked for investors. A significant portion, 38%, was retained by the founders and the team behind the Flow blockchain. Within this allocation, 20% found its home with Dapper Labs, the company responsible for Flow, and the remaining 18% was designated for the developers.
This initial token distribution laid the foundation for Flow's ecosystem, enabling various participants to engage with and contribute to the network's growth.
4. Polkadot
In 2020, just like Solana and Flow, Polkadot emerged onto the blockchain scene, swiftly etching their names into the annals of blockchain history.
Polkadot operates with its native DOT token, a versatile digital asset utilized for various purposes. Individuals can use their DOT tokens for making payments, participating in network governance, and contributing to the seamless creation of parachains.
The initial supply of DOT tokens was set at 1 billion, with the distribution following four distinct funding rounds — one private round and three public ones. The journey began with the initial coin offering (ICO) in 2017, which garnered a remarkable $80 million in funding. The final round unfolded in 2020, successfully generating $42.76 million.
These distribution rounds culminated in investors holding 58.4% of the initial token supply, while the founders retained 30%. The remaining 11.6% of tokens entered the ecosystem through rewards and airdrops.
This strategic token allocation set the stage for Polkadot's vibrant and evolving blockchain ecosystem, creating opportunities for investors, founders, and enthusiasts to engage with this innovative network.
5. Cardano
Cardano embarked on its token distribution journey through five funding rounds from 2015 to 2017. These public sales collectively amassed an impressive sum of nearly $80 million in funding.
At the outset, Cardano introduced an initial supply of 31.1 billion ADA tokens, with a distribution strategy that saw 83.33% of these tokens acquired by investors who believed in the project's potential. Meanwhile, the remaining 16.67% of ADA tokens found their home within the project and its dedicated founders.
As we fast forward to today, ADA has established itself as a prominent presence in the cryptocurrency realm, consistently ranking among the top 10 cryptocurrencies. With a circulating supply of approximately 34.28 billion ADA tokens, Cardano continues to make its mark as a formidable player in the blockchain space.
Distribution Trends:
Examining these five prominent blockchain projects that have continued to evolve, we observe distinct token distribution patterns:
As the blockchain industry becomes increasingly competitive, token distribution trends are evolving. New blockchain projects face the challenge of capturing public attention, leading to a shift in their distribution strategies. Today, emerging crypto projects are allocating anywhere from 12% to 40% of their initial token supplies through airdrops and rewards, reflecting the dynamic nature of this ever-growing ecosystem.
Although the token distribution process seems complex and exhausting, Web3 runs to the rescue. Our vesting schedule & distribution contract services allow you to easily customize your vesting distribution methods for different team members, control the timeline of each token release process and monitor any changes via our user-friendly dApp dashboard. All in one place, all safe and transparent.
