VC calls Ethereum killers “toothless” based on token assignment to insiders


Mythos Capital founder Ryan Sean Adams called Ethereum killers “toothless” based on initial token allocation schemes that often prioritize insiders:

Source: Twitter.

Adams was referring to a recent Messari report, which summarized the distribution of tokens for some of the more popular Ethereum (ETH) alternatives launched in the past two years. There are four main distribution categories: public presale, community assignments, insiders, and the respective bases of each project.

Source: Messari.

The report’s authors suggest that the proportion of tokens assigned to insiders (which includes teams, companies and VCs) is crucial when evaluating projects, “projects that distribute tokens to insiders (teams, founders and VCs) a to the detriment of the disadvantaged community. “These distributions also contrast unfavorably with Ethereum:

“Ethereum was successful because it made the first investors rich. But it thrived because the early contributor pool was considerably large. “

Furthermore, the authors state that all of these blockchains (with the exception of Kadena and Nervos Network) employ proof-of-stake consensus, which they believe only exacerbates the problem:

“Rebalancing the relationship between insiders and community network ownership after launch is an uphill battle, which can be more difficult for Proof-of-Stake (PoS) networks as early stakeholders have a perpetual right to seigniorage”

The report states that, for example, Placeholder Capital prefers projects where 20 to 30% of the token supply goes to insiders. The average for the twelve platforms mentioned above is however 43%, with only Kadena and Edgeware meeting the specified criteria.

Ways to ensure new crypto projects have a fair launch have been controversially discussed for a long time. Although Messari and Adams appear to be praising the launch of Ethereum, a Bitcoin maximalist will soon point out that a significant portion of Ether has been rewarded. Others might argue that Satoshi Nakamoto managed to mine a Bitcoin fortune in an environment with virtually no competition.

The problem in this case is more about determining the type of deployment that provides the best possible results for a project. A substantial allocation to insiders has an opportunity cost. Instead, these coins could be used to incentivize the community. Additionally, insiders typically get their tokens for free or at substantial discounts, which allows them to sell early, while lowering prices. The whole topic of tokenomics is quite new and provides little empirical data or academic research. This makes it difficult to draw meaningful conclusions that are open to subjective interpretation.

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