I see some people talking about ‘fair launches’ and have had discussions with many projects who say they aim to make their token launches ‘fair’. But in my summation, many of the individuals bemoaning ‘fairness’ often are expressing entitlement and as for the projects I dont think any of them have actually sat down and thought what the word even means. So instead of ignoring it as dumb signalling lets get into it here today and discuss what ‘fairness’ means in the context of crypto token launches.
Over the centuries many philosophers have spoken about this topic and as such we have alot of wisdom to draw upon. But first lets perhaps start with the Merriam-Webster definition of the word fair:
1a: marked by impartiality and honesty : free from self-interest, prejudice, or favoritism
There’s quite a few definitions in the English language but common themes include: impartiality, playing by the rules of the game or treating everyone based on merit. For something to be ‘fair’ we would then conclude it would have to adhere to some of the definitions above. Let’s look at the following:
Its important to first consider the rules of the game. If Bob has 10 Apples and decides to sell the first 5 apples for $1 each and the next 5 Apples for $2 each he has set the rules of the game. If people want to play the game they must conform to Bob’s rules, by buying an Apple the implicit assumption is they have accepted and agree to Bobs terms, most legal frameworks call this Acceptance. If someone has a problem with Bob’s rules of the game they are free not to participate in the game or setup their own game with their own apples that conform to a different set of rules. This is how marketplaces work as people setup different rules which often converge upon a median. There is no burden of proof philosophically speaking, for Bob to prove anything to anyone, as the rules of the game are set by Bob the rules themselves cannot be refuted by anyone, the only cause of discussion would be if the rules of the game were not universally applied. For a rule to be a rule it must be applied universally, otherwise its just a recommendation, in this scenario though Bobs’ rules have been applied universally for all 10 apples.
Lets check back in with our above definition, in the above scenario we can see that Bob’s rules have been Impartiality- they are based on # of Apples only with the rules applying to the first 5 and last 5 apples. Honesty: We can see Bob has set the rules, they are applied universally to all Apples and are transparent to anyone who buys them. Finally we can see there is no favouritism/prejudice for buyers who accept the terms, the price of the apples are set depending on who buys the apples first, regardless of who they are.
We can then conclude that Bobs game is a fair system. In the same way we would say Chess is a fair game. The rules are the rules, anything not conforming to the rules would be a different game and accepting that Chess is a game which exists also means you accept the rules of chess as being valid.
Token Launches and the 5 Stages of Entitlement
As Andre Cronje has discussed previously the perception around token launches and community expectations on the issuers are often illogical and dumb. The common theme of complaints on token launches are usually:
- “I didn’t get into the seed round so therefore your project is bad”
- “You sold tokens privately to people, thats bad”
- “People with alot of money will buy tokens (whales) before me”
- “The bots will buy the coins before me”
- “If I buy coins later I might buy at higher price”
The common theme here involves 3 people: Me, Myself and I. The entitlement in each of these statements is not only illogical its also morally bankrupt, lets take a closer look.
“I didnt get into the seed round so therefore your project is bad”
So if you did get into a seed round it’d be good? So if the project is good or bad depends on if YOU, some random person, got into a seed round. The assumption here is the person is complaining about their placement in the seed round, if they were in the round this logic implies they would not have this complaint. Wow, what sort of magical endowment of powers does one need to possess in order to single handedly turn something from good to bad simply by their mere presence? /s. The First Stage of Entitlement: My Presence is what’s required for success.
“You sold tokens privately to people, thats bad”
As a project, you set the rules. As we discussed earlier if you dont like the rules of the game then you can just not play or make another game. It is entirely the issuers prerogative what those rules are. Building anything isnt free, you need money to pay- people, servers, legal costs etc and the logical thing is to seek out people with money who have a proven track record of adding value as investors. Often those people come at a premium, theyre highly valuable people, infact theyre likely more valuable than some random person on the street who wants to invest $20 given their prior history. If the person on the street with $20 was so valuable then maybe projects would seek them out for money instead, but they dont. The Second Stage of Entitlement: I’m the most valuable person in the room.
“People with alot of money will buy tokens (whales) before me”
Whales have alot of money because for whatever reason they’ve been able to accrue alot of resources. This is particularly true for most crypto investors who have alot of money because theyre good investors- bad investors would have no money. So it makes sense that if the project is good, it is beneficial to have people who A) are good at what theyre doing buying into your project and B) can commit alot of capital to grow the project. If a large investor buys tokens before you either publicly or in a presale that would be a feature not a bug and projects should aim to have as many of these high value people onboard as possible and if you aspire to be part of this group then you should demonstrate how you add value to a project for consideration. High value people are high value because theyre high value. Third stage of Entitlement: My money matters more than your money.
“The bots will buy the coins before me”
This is one of my favourites, people often name “the bots” as some sort of nefarious entities who may descend upon a project and out-compete everyone else there. This is akin to complaining about a McDonald’s self ordering machine in place of a human who asks if want fries with that. Firstly, buying something before you isnt something ‘bad’. If you want to buy or sell something before someone else then focus on doing that and if you dont have the means and are out-competed by people who do then maybe its time to upskill and become competitive. Secondly, bots are owned by people. People make decisions on what to buy and sell and what strategies to encode into their contracts which can only execute with an input that has taken human thought and planning. Maybe ‘the bots’ dont want to buy your token in which case referencing them as a concern would be irresponsible. Finally, these ‘bots’ dont exist everywhere and on many new chains there aren’t a plethora of automated smart contracts- if theyre such a problem cool can anyone link me to the smart contracts and explain what kind of nefarious things these contracts are doing and why that’s bad. The Fourth stage of Entitlement: I should get preference over someone else, even if theyre more competitive than me.
“If I buy coins later I might buy at higher price”
Thats generally a function of supply and demand. Sometimes coins go up, sometimes they go down, its not possible to know for sure what will happen in the future we can only guess. Maybe in the future said coins will be cheaper? Who knows. If the coins are more expensive in the future that means more people want them and therefore stands to reason the price would be higher. You can choose to not buy them too in the future, if you think its too expensive, thats fine. I dont walk into a clothing shop and shout at the employees for the price of cotton. The Fifth Stage of Entitlement: I should pay below the market price because I’m me.
Solution? Keep others down so I go up
Often many projects try to make it a selling point that they somehow solve the above problems. They attempt to resolve it in the following ways:
- Whitelists based on arbitrary criteria (random numbers, likes on socials, joining a discord server etc)
- Limits on what you can buy, per address
- Restrictions on when you can withdraw a token
These are the common responses to some of the concerns above that projects do when they launch a token often calling it ‘fair’. Limiting and restricting others from freely participating in an open market isnt ‘fairness’ its price fixing and fundamentally unfair. There is the argument that ‘these are the rules of the game’ however if that is true how can it be these rules promote fairness when other rules (like above) do not? This is contradictory logic, either limits and restrictions rules are fair or no limits and no restrictions rules are fair, you can’t have both.
Whitelists based on arbitrary criteria (random numbers, likes on socials, joining a discord server etc)
If we refer back to our earlier definition, being free from self interest, favouritism and prejudice is key to being ‘fair’. Random whitelists based on a lottery numbers, social media likes or the existence of someone clicking a button to join a discord server or not would be classed under the ‘prejudice and favouritism’ definition. What if I, as some person who wants to purchase or be involved in your project, has to join a list where unfortunately my random number wasnt chosen. Through no fault of my own I am now only able to buy 0 coins. This is worse than paying a worse price.
Additionally what is the problem attempting to be solved here? Does picking people from discord at random add alot of value to your token launch? If this is what you think value is then its probably something I’ll be staying away from.
Limits on what you can buy, per address
Again we see here a solution in search of a problem. It is trivial to make multiple addresses and without resorting to horribly unfair and insecure practices like KYC its impossible to know which addresses are owned by who. Maybe the scary bots and whales are making multiple addresses that will buy tokens at your launch for less than the max limit? If thats the case and there is a massive known loophole like this, why are you bothering to do this in the first place? The ability to make multiple addresses is far more widespread than the ability to make a smart contract which executes orders quicker than humans, so this again would be counter intuitive.
Restrictions on when you can withdraw a token
Often the concern here is something along the lines of “stops people dumping”, lets consider that scenario. If your project is concerned about people (who you went to alot of effort to ‘get in’ on the token launch) dumping then maybe either A) your token is not very valuable in the first place and you need to focus on that B) these arent the right people to be letting in to invest in your project.
Wrapping it Up
When you talk about ‘fairness’ the logical conclusion has to be that the most fair system is no system. There are plenty of successful projects which have launched with no limitation or restrictions on users interacting with their coin at the early stages: YFI, CRV, SUSHI, AAVE the list goes on. These projects have gone on to build billions of dollars of value not because of how they launched, or convoluted attempts at controlling price discovery but by the value they provide to their users. Ultimately I view attempts at limiting user participation or discriminating against certain addresses as fundamentally unfair and projects which cave to the vocal minority of users who complain about how some users have unrestricted token launches dont really understand what problem theyre trying to solve and should go back to the drawing board.