The
dominant
model
of
token
distribution
in
the
crypto
space
these
days
is
the
so-called
“low-float,
high
FDV”
launch.
In
this
model,
projects
launch
with
a
low
fraction
of
the
total
supply
in
circulation,
where
most
of
the
supply
is
locked,
typically
unlocking
gradually
after
a
year.
This
low
circulation
is
often
coupled
with,
and
perhaps
even
explicitly
designed
to
encourage,
a
high
fully-diluted
valuation.
According
to
research
by
CoinGecko,
today
nearly
a
quarter
of
the
industry’s
top
tokens
are
low
float.
Notable
recent
launches
which
used
this
model
include
Starknet,
Aptos,
Arbitrum,
Optimism,
Celestia,
and
Worldcoin
(where
an
astonishing
95.7%
of
supply
remains
locked
as
of
this
writing).
This
model
is
fundamentally
broken.
Restricting
the
movement
of
tokens
distorts
the
market
signal
and
misleads
both
actual
and
potential
network
participants
who
rely
on
that
signal
to
make
decisions.
“Low-float,
high
FDV”
results
in
a
world
where
most
of
the
upside
potential
of
new
launches
is
captured
by
private
investors
and
little
is
available
to
the
public
markets
at
all.
Ultimately,
this
pattern
of
launching
tokens
inflates
short-term
metrics
at
the
cost
of
long-term
sustainability
and
the
public
trust.
The
fallacy
of
crypto
vesting
What
we
call
“vesting”
in
crypto
has
little
resemblance
to
the
actual
functionality
of
vesting
mechanisms
in
the
traditional
finance
world,
where
vesting
is
used
to
align
incentives
and
ensure
stakeholder
obligations
are
met.
In
particular,
vesting
in
traditional
corporations
(e.g.
RSUs)
comes
with
specific
performance
expectations
and
the
ability
to
revoke
further
ownership
stake
if
those
expectations
are
not
met.
Vesting
lockups
in
crypto
networks
have
no
such
mechanism
–
rather,
tokens
are
simply
locked
up
for
a
fixed
period
of
time,
and
unlocked
after.
These
kinds
of
lockups
–
which
don’t
deserve
the
name
“vesting”
at
all
–
typically
distort
the
market
signal
by
giving
the
false
impression
of
much
higher
demand
than
there
actually
is.
If
we
understand
price
signals
as
the
clearing
point
between
supply
and
demand
for
an
asset,
the
value
of
those
signals
to
the
market
depends
on
the
supply
and
demand
sides
having
freedom
to
express
their
preferences
(e.g.
sell
if
they
want
to
sell,
and
buy
if
they
want
to
buy).
Lockups
prevent
one
side
of
the
market
from
expressing
their
preferences,
and
thus
degrade
the
signal
quality.
This
may
provide
some
temporary
benefit
in
market
cap
ranking
or
other
metrics,
but
it
makes
the
overall
market
quality
worse
because
the
price
signals
carry
less
information.
Worse,
in
practice,
these
lockups
just
screw
the
public.
Token
holders
who
join
a
project
after
launch
are
disadvantaged
by
gradual
unlocks
that
present
them
with
an
inaccurate
price
signal
which
doesn’t
reflect
actual
market
sentiment.
Sophisticated
holders
of
locked
tokens
with
access
to
non-public
markets
and
information
have
an
unfair
advantage
and
often
sell
locked
tokens
off-market
anyways.
To
get
a
sense
of
the
true
market
signal,
you
have
to
analyze
exactly
who
might
want
to
sell
but
is
unable
to
and
speculate
on
what
deals
are
taking
place
in
back
rooms.
This
analysis
is
too
complex
and
time-intensive
for
most
public
market
participants
to
do.
Market
pressure
inevitability
Lockups
don’t
prevent
people
from
selling,
they
merely
delay
the
inevitable.
Vesting
terms
eventually
expire,
and
those
who
want
to
sell
eventually
do
so,
putting
continual
downward
pressure
on
the
market
and
often
leading
to
an
artificial
‘slow
bleed’
in
market
capitalization.
Personally,
I
would
be
hesitant
to
hold
an
asset
or
participate
in
a
network
where
many
holders
of
that
asset
might
want
to
exit,
but
are
unable
to.
It’s
also
a
problem
for
participants
like
validators,
who
require
accurate
price
signals
to
sustainably
predict
income
and
operational
costs.
If
one
goal
of
the
crypto
space
is
to
produce
meaningful
products
that
provide
real,
long-term
value,
practices
designed
to
artificially
inflate
short-term
metrics
will
not
help
get
us
there.
To
accurately
evaluate
the
potential
of
any
particular
project,
you
need
the
ability
to
evaluate
whether
people
are
actually
committed
to
that
project.
You
can’t
do
that
if
you
don’t
know
whether
people
hold
tokens
because
they
truly
believe
in
the
project
or
because
they’re
prohibited
from
selling.
Criticism
of
the
low-float,
FDV
orthodoxy
has
been
accompanied
by
calls
for
new,
‘fair
launch’
approaches
to
token
distribution.
However,
many
of
these
proposals
merely
call
for
a
higher
percentage
of
circulating
supply
at
launch
and
do
not
call
into
question
the
legitimacy
of
“vesting”
lockups
per
se.
This
doesn’t
go
far
enough.
Any
form
of
artificial
manipulation
of
market
signals
is
still
artificial
manipulation
of
market
signals.
We
need
to
break
crypto’s
vesting
Overton
window
with
a
variety
of
new
experiments.
The
free-market
launch
This
approach,
which
we’ve
been
calling
the
“free-market
launch,”
has
the
great
advantage
that
it
allows
everyone
to
freely
express
their
preferences.
If
you
want
to
sell,
you
can
sell.
If
you
want
to
buy,
you
can
buy.
Best
of
all,
you’ll
be
able
to
do
so
with
the
confidence
that
the
price
signal
is
meaningful,
because
everyone
is
able
to
express
their
preferences
here
and
now,
transparently
and
in
real-time.
The
long-term
benefits
of
creating
a
sustainable
community
of
stakeholders
who
truly
believe
in
the
project
outweigh
the
short-term
risks
of
providing
an
early
exit
opportunity
for
those
who
don’t.
We
need
projects
that
provide
real
utility
to
the
world
and
have
real
staying
power,
and
it’s
become
clear
that
the
current
vesting
orthodoxy
is
not
delivering
enough
(or
really
any)
of
them.
The
free-market
approach
has
typically
been
limited
to
meme
coins,
contributing
to
the
perception
that
it’s
unsuitable
for
“serious”
projects.
However,
it’s
reasonable
to
argue
that
part
of
meme
coins’
overwhelming
success,
aside
from
their
memetic
appeal,
is
due
to
the
market
recognizing
that,
over
the
long
run,
this
model
is
more
beneficial
for
token
holders
and
often
creates
more
vibrant,
organic
communities.
We
should
be
trying
new
things,
even
if
they
are
risky,
and
I
hope
that
the
free-market
launch
will
open
discussion
on
new
ways
forward.
Groupthink
–
doing
the
same
things
everyone
else
does
not
because
we
have
some
specific
idea
of
why
we’re
doing
them,
but
because
everyone
else
did
them
and
they
seemed
to
kind
of
work
according
to
short-sighted
metrics
–
is
pernicious
in
crypto
today.
Following
the
herd
may
be
a
reasonable
approach
if
you
plan
to
launch
a
project
and
go
away
in
a
year
or
two,
but
it’s
not
a
good
strategy
if
you
want
to
bring
real
value
to
the
world.
It’s
time
for
new
experiments.
Note:
The
views
expressed
in
this
column
are
those
of
the
author
and
do
not
necessarily
reflect
those
of
CoinDesk,
Inc.
or
its
owners
and
affiliates.
