From ICO to community tokens, an overview of the evolution of cryptocurrency issuance

Original title: Token Printing: What's Next? From Community Tokens to Public-Private Sales

Original author: Ignas | DeFi Research

Original translation: TechFlow

I started to get interested in Memecoins and even bought MOODENG. The fear of missing out drove me to take action. My default expectation was that the price might fall to zero, but I didn't want to miss the opportunity to become the next Doge. I hope to be part of the success story and join the optimistic community.

In fact, buying Memecoins can satisfy a sense of belonging, become part of a story, and join a community that shares the optimism of "success" more than buying other utility tokens.

You see, this kind of optimism and bullishness is hard to find in other cryptocurrency fields.

Ethereum holders are expecting only a 3-4x gain in ETH over this cycle, and a similar 3x gain for BTC. SOL could hit $1,000. For tokens with low circulation and high fully diluted valuations (FDV), sentiment is generally bearish.

This also goes against my own promise to not trade Memecoins. I won’t buy the coins that are heavily promoted in X’s feed, but I will take a chance on some that I believe have potential.

I changed my mind because my first rule in crypto is to keep an open mind and try new things. There are risks in being an maximalist yourself, but identifying and investing in maximalist communities can bring huge rewards.

As a result, this blog post explores some of these new developments, with a particular focus on new ways to bring tokens to market.

Identifying the latest token issuance trends is probably the most profitable trade we can make. Memecoins are just one trend, there are others emerging in this cycle.

A Brief History of Token Issuance

Thinking of cryptocurrencies as a hedge against fiat currency overprinting is probably the biggest self-deception we can commit. While Bitcoin may be an exception, the crypto industry as a whole is printing money in a way that would make central banks jealous. There are 14,741 cryptocurrencies listed on CoinGecko, and thousands of them that didn’t survive long enough to make the list. With each cycle, issuing tokens becomes easier.

Here are some key token issuance trends you should know about and how they are changing the game (if you’ve already read my previous blog post, you can skip this section).

1. Litecoin and the Early Altcoin Era (2011):Litecoin was one of the first altcoins to emerge, launched in 2011 as a fork of Bitcoin. Before Litecoin, we generally thought that Bitcoin was all there was to blockchain! However, Bitcoin’s forks also made us realize that we could create our own private currency. During this period, a handful of Bitcoin forks and proof-of-work altcoins emerged, including Bitcoin Cash and Bitcoin SV. These forked coins provided Bitcoin holders with "free" coins during the fork process, creating profit opportunities.

2. ICO boom (2017):The ICO boom was driven by Ethereum's ERC20 standard, which made it cheap and easy to create new tokens. No more proof-of-work (PoW) hardware required! Thousands of tokens were launched, each with ambitious promises. ICOs are often able to raise large amounts of money, but the 2018 market crash led to huge losses as many projects failed to deliver on their promises. This phase was a critical period of speculative "money printing" as teams issued tokens with minimal effort, ultimately leading to the collapse of the market.

3. DeFi and Liquidity Mining (2020):The next innovation came in the DeFi summer of 2020, when liquidity mining and yield farming became very popular. Projects like Compound (COMP) and Susiswap introduced liquidity mining rewards, where users received governance tokens for participating in the protocol. This incentivized liquidity and user participation, but as too many new tokens were issued, demand could not keep up, and the market eventually collapsed.

4. The Fair Launch Era:This period was very short. Yearn Finance’s YFI token is a classic example of the concept of “fair launch”, where tokens were not distributed directly to users through an ICO or presale. Anyone could participate, and YFI’s initial mining rewards attracted widespread attention. However, people soon realized that “fair launch” was not truly fair. Pre-mining was common before marketing, and teams benefited little from a truly fair launch, so the incentives were not aligned.

5. NFT and Ponzi Token Economics (2021):The craze for NFTs, represented by the Boring Ape Yacht Club, has brought about a new way of "printing money". The emergence of a large number of NFT collections seems to repeat the speculative token issuance that caused the previous market crash. As attention and capital gradually diluted, many new NFT projects eventually collapsed. NFTs are similar to meme coins, but because there are only a maximum of 10,000 NFTs in each series, coupled with high selling prices, many people are excluded and the size of the community is limited.

Although we issue "currency" in different ways, when the amount of "printing money" exceeds the "hard currency" flowing into the market, the market is bound to collapse. We ended up printing too many tokens to meet demand.

The Token Issuance Story for the 2023-2024 Bull Cycle

The first phase of the current bull run was marked by the rise and fall of the points-for-airdrops trend.

The points mechanism evolved naturally to solve some of the problems of liquidity mining. By providing teams with more flexibility to execute token generation events (TGEs) and attract capital into the protocol, it drove growth in total value locked (TVL), thereby "proving" product-market fit. This also enabled teams to obtain higher valuations from venture capital firms.

Initially, this approach worked well when Jito and Jupiter generously gave back to users. However, when the rules of the points-for-airdrops meta-game became clear, the return on investment (ROI) of airdrops often turned negative.

Speculators tried to earn points by “farming” but often ended up paying more in interest than they received from the airdrops. Additionally, the points system lacked the transparency of DeFi’s summer liquidity mining campaign.

They tricked you into thinking that staking “DYM” or “TIA” would get you rich by giving you access to multiple airdrops (which never materialized).

However, the biggest issue that led to the decline of this trend was the issuance of tokens with low circulation and high fully diluted valuations (FDV). As the total locked value (TVL) grew, the market perceived these protocols as more expensive, so tokens were issued at extremely high valuations, leaving little upside for new buyers.

We recognize that high FDV is not a meme.

While the points mechanism has not completely disappeared, the decline in market sentiment and usage has been evident. For example, Eigenlayer decided not to conduct airdrops in the third quarter, but to choose "programmed incentives", which is actually another way of saying liquidity mining.

Most major protocols have now entered their second, third, or fourth season of point mining, and the enthusiasm for point mining on new protocols has faded. I used to share the "Best Farm of the Week" on this blog, but it is now difficult to find attractive point opportunities in the market.

New protocols that missed the point craze must innovate on the token issuance model to attract users and create wealth. Here are some of the token issuance models that are emerging.

Public and Private Token Sales

ICOs are no longer popular, but their spirit remains.

Cobie, perhaps the most influential cryptocurrency trader, pointed out in his May blog post that a major problem in the current crypto market is that new token issuances have "privately captured" the upside, making it almost impossible for ordinary investors to participate.

Most price discovery occurs during private funding rounds from venture capital investors who buy in at low prices before tokens are publicly available. As a result, when these tokens come to market, they are overvalued, with inflated fully diluted valuations (FDVs), leaving little room for profit for public investors. This situation favors insiders, while public buyers face a high-risk, low-reward situation.

For example, ETH’s valuation at the time of its seed round or ICO leaves buyers with a huge upside.

However, this is no longer the case for low-volume, high-FDV tokens like STRK, EIGEN, or other tokens of this cycle.

So, Cobie came up with a solution by launching the Echo platform for early-stage token investing. Here’s how it works:

1. Group Leaders: “Experienced investors” (or opinion leaders KOL) create groups and share investment opportunities with members. Group members can choose to follow these leaders and invest under the same conditions.

2. On-chain investments:All investments are made using USDC on Base L2.

3. Smart Contracts:Investments are legally managed by Echo through smart contracts, so the lead investor does not have direct access to your funds. In token investing, only you can decide when to sell your tokens.

4. For founders:Founders who want decentralized, community-driven funding can raise funds through Echo groups, avoid centralized VC holdings, and distribute equity or tokens to real on-chain native investors.

You need to pass KYC verification, connect your X or Farcaster account, complete the questionnaire, and then join the group to view investment opportunities.

Their first major deal was the Initia project, which raised $2.5 million from at least 500 participants at a valuation of $250 million, 28.57% lower than the $350 million valuation of the Series A (according to The Block). The maximum investment amount is $5,000.

The ability for Echo participants to invest at a valuation lower than the Series A valuation is very attractive. However, this model is very much a return to the early ICO model of the past, when many people were unable to participate.

Of course, I can create my own group and invite my fans to invest in early-stage protocol projects together. These protocols can benefit from a larger community than VC rounds, but this does not solve many of the problems faced by projects, such as larger capital injections, industry connections, strategic guidance, marketing and credibility, and long-term support.

Nevertheless, I believe that projects can benefit from diversified funding channels: both receiving significant support from well-known VCs and conducting community building rounds through Echo, as Initia did.

However, Echo is currently a relatively closed community, which is one of the reasons for its strong profitability: popular ICO platforms like Coinlist are also difficult to enter, and allocations are usually small. If you have the opportunity to join, you might as well give it a try.

“Sponsored Sales”

I’ve only been involved in two rounds of KOL investment: Bubblemaps and Vertex.

Recently, I was involved in a third one: Infinex. I say “sort of” because this is not a typical KOL investment. In a typical KOL investment, the project party will contact the influencer and provide an investment “opportunity” that is more favorable than venture capital. In exchange, the KOL needs to post some tweets about the project on social media. It is precisely because Bubblemaps and Vertex do not have these publicity requirements that I am interested in them. But if I don’t do publicity, what’s the point of being an investor?

Synthetix’s Kain took a different tack with the Infinex token sale.

In addition to running a gamified yield farm campaign, he also launched a Patron NFT sale. I received a private message from Kain telling me that I could invest in one of three lockup and valuation terms: no lockup, annual vesting, or 1-year cliff plus 2-year vesting with a 75% discount.

Infinex Raised $65M from 41,000 Backers!

In a podcast with Blockworks, Kain pointed out that the current popular methods of token distribution, which rely primarily on airdrops and private placements to accredited investors, are flawed.

He advocates for a fairer approach where everyone — be it VCs, influencers, or regular investors — has the same opportunity to buy tokens at the same price.

“Everyone starts at the same starting line. That’s the fairest way you can do it, isn’t it? If everyone follows the same rules and has as much information as possible, you prevent the uninformed from jumping in blindly out of fear of missing out.” - Kain

Like Echo, Infinex is taking inspiration from the ICO era and current trends and adapting them to a modern context. While many participants were influential crypto Twitter personalities, the sale may exclude some large communities, and there are different ways to qualify for the sale (such as points earning).

Unfortunately, this model may not work for lesser-known projects. However, I would definitely participate in more token sales if they offered a no-strings-attached KOL sale option on their website instead of requiring a SAFT contract with a vague TGE timeline.

There is a new trend now to allow anyone to participate in token sales.

Runes or other token models on Bitcoin

For me, BTCfi is the most exciting 0 to 1 innovation in this crypto cycle. I am having a lot of fun minting Ordinal NFTs and playing with BRC20/Rune tokens.

I admit that the current infrastructure and UX/UI are not perfect, but they are gradually improving. Even so, ORDI (the first BRC20 token) was minted for free and has a market cap of $1.8 billion, bringing huge profits to early adopters. This is a success story we should chase!

I also held it, but sold it.

BTCfi was one of the hottest topics, but soon after the launch of Runes protocol, the hype faded.

However, I still believe that BTCfi can succeed: the infrastructure is constantly improving, the community is very strong (mainly in Asia, so it is not mentioned much on crypto twitter). The price is also recovering. You can see the 7-day performance of Rune top 10.

The biggest innovation of BRC20 and Runes is their market issuance method.

Anyone can mint Rune tokens on the Bitcoin network by paying Bitcoin transaction fees. To try it, you can visit Luminex and choose a token to mint. Alternatively, you can create your own Memecoin and choose a percentage of the pre-mine, which will be transparent to everyone.

I like Runes because they address our complaints about venture capital rounds, pre-sales, low circulation tokens, and the lack of transparency in current Memecoin issuance. Runes represent the fairest token issuance model currently available.

In addition, the small Bitcoin transaction fees and slow transaction speeds create barriers to over-issuance of tokens and concentration in a small number of wallets, which is also a problem faced by Memecoins on other chains.

I think there needs to be a new catalyst to spark a new wave of FOMO. Currently, Fractals L2 is gaining attention and it may bring new enthusiasm to Runes. Runes can be minted on Bitcoin first and then bridged to Fractals (or other Bitcoin L2) where they will gain smart contract capabilities.

By the way, Fractal's token FB is mined similarly to BTC, and you can participate in cloud mining by renting a PoW machine. The price of FB has been falling due to high inflation.

Finally, new token standards on Bitcoin may become popular, perhaps bringing innovative token models through OP_CAT upgrades. My point is that tokens issued fairly on Bitcoin have huge speculative potential, so it's worth keeping a close eye on the BTCfi ecosystem.

About the mini program "Diandian Mini Game" on Ton

Although I'm not a fan of making money by clicking on the phone screen, the "Touch to Earn" mini app launched by Ton and Telegram has attracted millions of users. Most of these users are not in the United States, so most crypto Twitter users may miss this new trend.

In my previous article, we explored why South Asia is a unique crypto market.

We learned that for many people in third world countries, the “Touch to Earn” airdrops offer a new source of income in the midst of economic challenges. This is more in line with blockchain’s promise to democratize cryptocurrency and make it accessible to everyone, rather than just the wealthy benefiting from the airdrop model.

However, after the craze of DOGS, Catizen, and Hamster, it is unclear what will happen next. All tokens are currently falling, so the Ton mini app needs a new catalyst to attract a new group of speculators.

Being the first to notice a trend change will stand to reap the biggest gains.

Memecoins

Memecoins are tokenized communities. Murad does a great job articulating the value proposition of Memecoins in the video below, where he clearly illustrates how Memecoins are superior in some ways to many utility tokens in the current market environment (VC unlocking, lack of transparency, regulatory issues, etc.).

However, he only tells one side of the Memecoin story.

The screenshots he shows of Memecoins outperforming ignore the fact that 99.5% of Memecoins will drop to zero in a day or two.

Contrary to his optimistic view, Memecoins are often launched by insider groups that have a large pre-mined supply and promote them through key opinion leaders (KOLs) who are paid or heavily allocated, ready to sell off once new buyers come in.

No real community actually exists, only the illusion of one is sold. This is why I stay away from Memecoins: it is confusing and time-consuming to find the real gems in a pile of inferior projects. By constantly jumping from one Memecoin to another, your funds can be lost quickly. In contrast, holding Bitcoin (BTC) may be a safer choice.

Nevertheless, Memecoins are home to the most optimistic communities in the cryptocurrency space. This greed provides fertile soil for the emergence of real gems, competitors like Doge. This is why I haven't given up on Memecoins completely.

Also, during this cycle, platforms like Pumpdotfun have prevented insider trading by introducing fairer launch mechanisms, solved initial liquidity issues with dynamic bonding curves, and mitigated many security risks.

A good option might be to look at Memecoin launchpad tokens like Ethervista or the upcoming Rush platform. I know the Rush development team, so it's unlikely to be a scam. Be careful though: the price of the Ethervista token has been falling since its launch.

Repack + New Tokens

Old coins have become boring, and speculators are hungry for something new. If you can change the brand name, create a new token code, and start over with a new chart, this is exactly what is happening. I first mentioned this trend in June (see: Seven Emerging Trends in Crypto)

We’ve seen multiple rebrands, such as MATIC rebranding to Polygon and launching a new POL token, Orion rebranding to Lumia (from ORN to LUMIA token), Covalent (DA protocol for the AI era) migrating from CQT to CXT tokens, Connext rebranding to Everclear (and introducing new token economics), etc.

The most interesting examples of this are Fantom migrating from $FTM to $S, and Arweave launching the AO protocol.

Arweave decided to launch a new token AO for the AO protocol instead of using the original AR. This makes sense since AO is a different protocol, but what’s interesting is that you can mine AO tokens just by holding AR in your wallet. It’s like printing money!

Unfortunately, these rebranded tokens haven’t performed very well and haven’t provided much hope for this trend. Perhaps only Fantom’s rebrand is starting to gain traction, and even Polygon is having a hard time this cycle.

Nevertheless, it’s worth keeping an eye on rebrands that are gaining community interest. This shows that the team is still active, hasn’t abandoned the protocol, and is still developing it.

Community/Social Tokens

Fucked by FriendTech and 0xRacer.

This is one of the biggest mistakes I made in this cycle.

They had the opportunity to build a consumer app that would appeal to a wider user base, but chose the easy way out.

Anyway, FT changed the industry by popularizing the use of Privy to improve the user experience and popularizing social tokens.

In FT v1, social tokens were based on the personalities of key opinion leaders (KOLs), while in V2, the goal is to tokenize entire communities.

Like Memecoins, community tokens are centered around communities and provide an opportunity to join an exclusive club.

The most successful example is the DEGEN token, which was recently listed on Coinbase and is up 127%! Initially, it was airdropped as a community token to active Farcaster members. I personally made about $40,000 from posting on Warpcaster.

DEGEN's success lies in its community-driven launch and successful integration into Farcaster, thanks to the openness of the platform. Tokens like DEGEN help solve the classic problem of social platforms by rewarding user participation: users don't post because there are not enough users. Other social applications can adopt similar strategies by generously rewarding early users. Lens also airdropped.

My advice is to try some new decentralized social applications, such as Phaver (I also received a $250 airdrop for posting a few posts on it).

However, the utility of these tokens in specific applications limits their widespread adoption. DEGEN decided to launch its own L3 to expand, so keep an eye on the movements of other community tokens.

Even more excitingly, we may see the emergence of Farcaster, Lens, OpenSocial, and other SocialFi tokens.

What to watch for in this bull run?

The best returns often come in the early stages of emerging trends. Liquidity mining, points farming, fair launches, and NFT minting have generated millions for early participants. My mission is to identify these new token minting trends and find ways to exploit them.

A good sign that a project has high potential is that the early stages often cause confusion in the community, accompanied by love or hate. As long as people care, it's worth paying attention to.

Examine how this token minting creates a flywheel effect: early users are rewarded and thus incentivized to stay in the ecosystem. While this may look like a Ponzi scheme, the most successful "money printing" mechanisms often have similar characteristics.

Remember to always keep an open mind. Try new things and let me know if you find something interesting!

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