A Token Distribution is a technique that crypto projects use to assign tokens to various stakeholders, such as a project team, founders, and the community. Token holders have multiple responsibilities, such as voting about platform upgrades. They invest via native tokens and receive rewards.
Your project can lose steam if potential investors realize that your token distribution idea isn’t the best for investment or staking. So, the best strategy is to have a well-thought-out Token allocation framework. Please keep reading to discover the types of Token Distribution mechanisms for ICO and other Token Sales programs.
What is token distribution?
Token distribution is a vital aspect of a crypto project’s tokemomics. It explains the number of tokens each group of crypto investors should get. Most crypto projects have an early Token distribution event, exploring the number of tokens to share with various groups. Sharp investors will evaluate the extent of fairness of a Token allocation structure. A perfect token allotment scheme has a meager portion of tokens distributed to insiders and the rest allocated to other groups. Here is how projects share their tokens at the initial stages:
- Public: the public consists of individuals willing to invest in a crypto project. For example, in the case of Polkadot, investors (the public) got 58.4% of the early token distribution.
- Community: these are devotees of the project idea and willing to support it at every stage.
- Insiders: these comprise the team of founders, consultants, and venture capitalists (VCs). The founders of the Polkadot project got an allocation of 30% of the total tokens.
- Foundation: this is a non-profit entity that operates the project.
Token allocation models
The above-explored groups receive tokens via multiple Token Distribution approaches, including VCs, airdrops, lockups, prizes, and public sales. Here is an in-depth evaluation of each distribution mechanism:
1. Venture capital
Although the crypto field is relatively new, it’s expanding rapidly. So, early-stage projects quickly transform into solid firms. This is why many venture capitalists (CVs) are investing in the field. But the Token Distribution framework is different from the usual VC fundraising. For example, Andreessen Horowitz and Polychain Capital completed token sales for Solana Labs and raised over $314 million. The two venture capital firms bought tokens, enabling Solana Labs to implement a development workroom to speed up the creation of decentralized apps and platforms.
An airdrop is one of the best marketing strategies that entails distributing free tokens to the wallet addresses of available users. Many crypto projects use this procedure to attain a network effect.
Besides raising awareness about the project, an airdrop token distribution model help a start-up create a solid community that backs the platform. It’s a win-win framework allowing users to get a portion of your project while helping the developer market their business.
A lockdrop requires users of another blockchain to lock their tokens for a specific Token lockup period. The model diverges from an airdrop model where users receive free coins after performing particular tasks. Once the Token lockup period is over, individuals get tokens from the new blockchain. Also, at this point, users can access their locked-up coin. Usually, users who lock their crypto assets for a long time receive more rewards.
The lockdrops strategy appeals to individuals who are passionate about a project. These users are dedicated to waiting before utilizing their tokens.
4. Public token sales
ICOs, IEOs, and IDs are the three typical token sales formats. An ICO model was famous between 2016 and 2018. However, the model’s popularity declined because of the increasing fraud cases. Currently, IEO and IDOs are the most popular Token Distribution structures.
The challenges ICO faced led to the development of new Token Distribution models, including IEOs and IDOs. An initial exchange offering (IEO) is a token-sharing method that uses a crypto exchange to distribute the tokens. It’s a win-win technique that enables projects to access a token liquidity pool. At the same time, the exchange rewards its users with initial access to new projects.
On the other hand, an Initial DEX Offering is a crowdfunding method that enables crypto start-ups to introduce their tokens via a decentralized exchange (DEX). Through the model, a project attracts investment from retail investors. IDOs work with decentralized platforms, unlike IEO, which operates through centralized exchanges.
Project developers put aside a massive amount of native tokens, which include rewards, to expand the platform. Passionate users of the platform get a prize for their long-term commitment to the project. Some tips for project devotees include staking and liquidity provisions.
Aside from committed users, project advisors also get rewards for their service. Projects appreciate these groups for spending their time and effort to advise the team.
How to pick the suitable token distribution models
Once you generate tokens for your project, you must identify the best way of distributing them to your target audience. There are multiple models, such as venture capitals, rewards, airdrops, and lockdrops.
Each method has features, and project owners should choose the ones that suit their requirements. When selecting a distribution framework, you should consider various factors, such as your sector, business objectives, and target group.
However, determining the best technique to use can take time and effort. Instead of using trial and error techniques, hiring an experienced Token Sales agency is advisable to help you.
A token distribution structure allows crypto projects to apportion tokens to various stakeholders. Savvy investors evaluate the fairness in your token distribution to determine whether to invest in your project or give it a wide berth. Some groups to distribute tokens include venture capitalists, founders, the community, insiders, the public, and the foundation. Here we’ve deep-dived into various token-sharing models, such as airdrops, rewards, venture capitals, and public token sales.